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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-22963
BIG DOG HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
DELAWARE 52-1868665
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
121 GRAY AVENUE, SANTA BARBARA, CALIFORNIA 93101
- ------------------------------------------ -------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(805) 963-8727
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(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.01
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. []
The aggregate market value of Common Stock held by non-affiliates of
the registrant on March 8, 1999, was approximately $20.7 million. All
outstanding shares of Common Stock, other than those held by executive officers,
directors and 10% shareholders, are deemed to be held by non-affiliates.
On March 8, 1999, the registrant had 12,100,350 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive
Proxy Statement for the 1999 Annual Meeting of Shareholders, to be filed with
the Commission no later than 120 days after the end of the registrant's fiscal
year covered by this Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL
Big Dog Holdings, Inc. and its subsidiaries ("Big Dogs" or the
"Company") develops, markets and retails a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. BIG DOGS-Registered Trademark- is an
All-American, family-oriented brand that the Company believes has established a
unique niche in its dedication to providing quality, value and fun. Big Dogs
products were first sold in 1983, and operations remained limited through 1992
when the current controlling stockholders acquired the BIG DOGS-Registered
Trademark- brand and related assets. Following the acquisition, Big Dogs
initiated a strategy of leveraging the brand through dramatic expansion of its
product line and rapid growth in its retail stores. The number of the Company's
stores has grown from 5 in 1993 to 177 as of December 31, 1998.
The Company's collection is centered around its signature BIG
DOGS-Registered Trademark- name, logo and "Big Dog" characters and is designed
to appeal to a broad range of customers when they are in the "Big Dog state of
mind." The BIG DOGS-Registered Trademark- brand conveys a sense of fun, humor
and a "Big Dog attitude," whereby each customer can feel that he or she is a
"Big Dog." The Big Dog attitude and sense of fun are brought to life through the
Company's graphic capabilities that portray the Big Dog characters in a number
of engaging, positive and inspiring situations and activities. The Big Dog
attitude is further defined by a number of slogans such as "If You Can't Run
with the Big Dogs Stay on the Porch"-Registered Trademark-, "Unless You're the
Lead Dog, the Scenery Never Changes," and "Lead, Follow or Get Out of the Way."
These graphics and slogans combine a bold, spirited attitude with wry,
lighthearted humor. The appeal of the brand is further strengthened through a
customer's personal identification with particular sports and other activities
depicted in these graphics. In addition to its focus on fun, Big Dogs develops
customer loyalty and enhances its brand image by providing a consistently high
level of quality at moderate price points. Big Dogs accomplishes this primarily
through (i) selling its own brand directly to the consumer, (ii) low-cost
product development, and (iii) sourcing high-volume/low-cost basic apparel with
limited fashion risk.
The BIG DOGS-Registered Trademark- brand is designed to appeal to men,
women and children of all ages, particularly baby boomers and their kids, when
they are engaged in leisure or recreational activities. Furthermore, the Company
believes that the millions of dog and other pet owners in the United States, as
well as children, have a strong natural affinity toward the dog-related images
and themes in Big Dogs graphics. In addition, the Company believes that the
positive image the brand brings to being a "Big Dog" has a special appeal to
large-size customers. The Company's apparel products, which include a wide
variety of basic apparel and related products, are developed with an emphasis on
being functional rather than fashion-forward or trendy. These apparel products
include graphic T-shirts, shorts, knit and woven shirts, fleece items,
loungewear and boxer shorts. In addition to its BIG DOGS-Registered
Trademark-line of activewear and casual sportswear for men and women, the
Company has expanded its LITTLE BIG DOGS-TM- line of infants' and children's
apparel and its BIG BIG DOGS-TM- line of big-size apparel. The Company has also
expanded its non-apparel products, including plush animals, stationery and pet
products, which feature Big Dog graphics and are developed to complement its
apparel.
The Company reinforces its brand image by distributing BIG
DOGS-Registered Trademark- products primarily through its own retail stores.
This distribution strategy enables the Company to present a complete selection
of its merchandise in a creative and fun environment. In addition, this strategy
enables it to more effectively reach its targeted customers by locating stores
in tourist-oriented and other casual environments where it believes consumers
are more likely to be in the "Big Dog state of mind." The Company operates its
retail stores in both outlet and full-price formats, depending on the location.
In addition to its retail stores, Big Dogs markets its products through other
channels, including its catalog, better wholesale accounts and the internet.
BUSINESS STRATEGY
Big Dogs' mission is to build a brand that is recognized throughout the
world for providing high quality, good value and fun and functional products. To
achieve this goal, the Company has adopted the following operating strategies:
PROMOTE THE BIG DOG SPIRIT OF FUN. A key and unique element in the
Company's brand image is its focus on fun. This spirit of fun revolves around
the Company's Big Dog character that has broad appeal to men, women and children
of all ages. The Company fosters this spirit by creating positive, humorous,
topical and inspiring graphics and slogans which it applies to its merchandise.
More than just a logo, the Big Dog represents the leader, athlete, child,
comedian, musician, boss, traveler, parent and dog lover in everyone. Big Dog
products are fun, not only because of their graphics and slogans, but also
because they are designed for recreational, sports and leisure activities and
make ideal gifts. Big Dogs' focus on fun is further enhanced by the lively,
enjoyable atmosphere in its retail stores and is also reflected in its catalog
and marketing promotions and activities.
DELIVER HIGH QUALITY AT A GOOD VALUE. Big Dogs' products are
constructed using high-quality fabrics and other materials. Many of its products
feature unique graphics characterized by advanced print techniques, as well as
unique appliques and embroideries on many of its apparel products. The Company
believes that this combination of quality fabrics and graphics in its apparel
products provides the customer with a product that has an exceptional look and
feel. Big Dogs is able to deliver this level of quality at reasonable prices
primarily as a result of (i) selling its own brand direct to the consumer, (ii)
low-cost product development, (iii) sourcing of basic apparel, and (iv) low
marketing costs. The Company believes that delivering quality and value is
instrumental in generating customer appeal and brand loyalty for its products,
particularly those that do not prominently feature Big Dog graphics.
ENHANCE FUNCTIONAL PRODUCTS WITH GRAPHICS. Big Dogs develops functional
rather than fashion-forward products. The Company believes it has a special
competency in creating distinctive, popular graphics which it uses to
differentiate its products from those of its competitors. Big Dogs has developed
a broad assortment of classic, functional clothing ("basics") in traditional,
less fashion-forward colors. The Company's focus on basics and its ability to
leverage its graphics across multiple product categories have allowed the
Company to eliminate the need for a traditional buyer or design staff, and
thereby lower its product development costs compared to most fashion apparel
companies. Furthermore, since its graphics are added in the last stage of
production, the Company is able to be more responsive to customer preferences
while also lowering its inventory risk.
TARGET A BROAD, DIVERSE CUSTOMER BASE. Big Dogs believes it has
established an All-American, family-oriented brand featuring products, graphic
themes, slogans and promotions that appeal to a broad range of consumers.
Although its marketing focus is on baby boomers and their kids, Big Dogs'
customers include men, women and children of all ages, and span a wide range of
geographic areas and income levels. Furthermore, the Company believes that the
millions of dog and other pet owners in the United States, as well as children,
have a strong natural affinity for the dog-related images and themes in Big Dogs
graphics. In addition, the Company believes that the positive image the brand
brings to being a "Big Dog" has a special appeal to big-size customers.
MAINTAIN CONTROLLED DISTRIBUTION. Big Dogs sells its products primarily
through its own stores and, to a lesser extent, through its catalog and internet
sales. By selling direct to its customers, Big Dogs is able to present its
complete line of merchandise in a creative and fun environment. This also allows
it to target its customers more precisely by locating its stores in
tourist-oriented and other high-traffic areas, where the Company believes
consumers are more likely to be in the "Big Dog state of mind." Selling direct
to the consumer also allows the Company (i) to enhance its margins while still
providing customer value, (ii) to be more responsive to customer feedback,
especially with regard to new product development, (iii) to reduce its need to
build brand awareness through large-scale media advertising, and (iv) to collect
customer names for its catalog through in-store sign-ups.
CREATE AN ENTERTAINING SHOPPING EXPERIENCE. Big Dogs seeks to create a
distinctive and fun shopping environment in its stores through an innovative
display of its graphic art and humor, including in-store "T-shirt walls" and
other displays that are designed to immediately put the customer in the "Big Dog
state of mind." By showcasing the Company's complete product line, Big Dogs
stores offer something for everyone in the family. Effective cross-merchandising
in the stores is designed to add excitement and prompt add-on purchases. The
Company believes the customer's shopping experience is further enhanced by the
Company's knowledgeable and enthusiastic sales staff.
EMPHASIZE GRASSROOTS MARKETING. The Company believes its most effective
marketing is its products themselves and their presentation in the Company's
retail stores and catalog. As a result, the Company has spent relatively little
on advertising. Also important to Big Dogs' marketing strategy is its targeted
"grassroots" marketing activities. These activities include local and charity
sponsorships (such as high school sports teams), community-oriented promotional
events (such as the Company's annual dog parade in Santa Barbara), and corporate
cross-promotions with leading consumer product companies (such as Nabisco and
IAMS).
The Company's continued growth will depend to a significant degree on
its ability to open and operate new stores, to increase net sales and
profitability from the Company's existing stores, and to expand its other
sources of revenue. Big Dogs' primary growth strategy is the continued expansion
of its retail stores. The Company opened 27 net new stores in 1998. The Company
opens stores in locations and venues that management believes best target its
customers and can be obtained on terms that meet its unit profitability
requirements. Depending on the location, the Company will open new stores in
either an outlet or full-price format. Although Big Dogs' traditional emphasis
has been on outlet malls, the Company has more recently increased its focus on
opening full-price, stand-alone stores in tourist and leisure locations.
Accordingly, the Company anticipates that the stores it opens in the near future
will be located in a variety of venues, including outlet malls, stand-alone
stores in tourist areas, tourist-oriented malls, regional malls and metropolitan
locations. These new markets and venues have in the past presented, and will
continue to present, competitive and merchandising challenges that are different
from those faced by the Company in its existing markets and venues.
MERCHANDISING
Big Dogs' product line features a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. Big Dogs' apparel lines include full
collections of classic unisex casual sportswear and activewear for adults, as
well as collections for infants and children and the big-size market. Big Dogs
has also in recent years further expanded its product lines to include not only
a wide variety of apparel accessories, but also a collection of gift and
consumer products. The Company continuously explores opportunities to further
leverage its brand and graphics into new product lines.
The Company's apparel products are manufactured from premium cotton,
or, in some instances, cotton/ synthetic blends. Big Dogs' apparel is
characterized by quality fabrics, construction and embellishments, and is
distinguished from other apparel lines by the BIG DOGS-Registered
Trademark-name, dog logo, graphics and slogans. In addition to its distinctive
graphics, the Company believes it has achieved recognition for the quality and
performance of its products. For example, the Company's solid nylon volley
shorts and madras plaid shorts were selected by the Atlanta Committee for the
Olympic Games to be officially licensed shorts for the 1996 Atlanta Olympics.
The majority of the Company's products range from between $4 and $45.
The following table sets forth the approximate contribution that each of the
Company's product categories made to total net sales in the Company's retail
stores for the year ended December 31, 1998:
% OF TOTAL
RETAIL STORE*
NET SALES
-------------
Adult Apparel and Accessories .................................... 56.9%
Infants' and Children's Apparel and Accessories .................. 20.7
Big-size Apparel ................................................. 14.8
Non-Apparel Products ............................................. 7.6
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Total ............................................................ 100.0%
=======
*Does not include mail order, wholesale and internet sales.
ADULT APPAREL AND ACCESSORIES. Big Dogs sells a complete line of adult
unisex activewear and casual sportswear. The Company offers screen-printed and
embroidered T-shirts and sweatshirts, in a variety of styles and colors, that
generally prominently display the Big Dogs graphics and slogans. In addition,
the Company offers shorts, knit and woven casual shirts, fleece tops and
bottoms, loungewear, boxer shorts, swimwear and sleepwear, all of which feature
print designs or simply the BIG DOGS-Registered Trademark- name and/or dog logo.
The Company's adult apparel line primarily focuses on basic items that recur
with relatively minor variation from season-to-season and year-to-year. While
certain of Company's classic, popular items and graphics have been in the Big
Dogs line with very little change for over 10 years, the Company introduces new
apparel and other products throughout the year to ensure that the merchandise
assortments are consistent with the top sellers within its competitive market.
Big Dogs leverages its trademarks, characters and more popular graphics
by carefully translating them to a wide variety of apparel accessories,
including caps, ties, socks, sunglasses, bags, watches and wallets. These
products are developed and introduced based on their consistency with Big Dog's
brand image and whether they complement the Company's other products. The
Company's introduction of accessories not only provides an opportunity to create
add-on purchases, but also minimizes product development costs and inventory
risk by utilizing graphics and slogans that have first proven popular on the
Company's graphic T-shirts.
INFANTS' AND CHILDREN'S APPAREL AND ACCESSORIES. The LITTLE BIG
DOGS-Registered Trademark- line includes infants, toddlers, kids and youth
sizes. Products in this line include graphic T-shirts, shirts, fleece items,
infant and toddler one-pieces, boxer shorts, dresses and shorts, virtually all
of which feature distinctive graphics. The graphics and fabrics of this line are
designed to mirror many of the more popular graphics and fabrics in the BIG DOGS
adult line in order to encourage family purchases and leverage overall product
development costs. The Company sells its LITTLE BIG DOGS-Registered
Trademark-line primarily through its retail stores and catalog, and wholesales
it to certain specialty and better department stores.
BIG-SIZE APPAREL. The Company believes that the BIG DOGS-Registered
Trademark-image and the positive emphasis the brand gives to being a "Big Dog"
have a unique appeal to consumers who wear big sizes. In the spring of 1996, the
Company significantly expanded its BIG BIG DOGS-Registered Trademark-category
targeting big-size customers. The Company's BIG BIG DOGS-TM-category offers a
line of unisex activewear and casual sportswear. As with the regular adult
sizes, this category features screen-printed and embroidered T-shirts and
sweatshirts, in a variety of styles and colors, that generally prominently
display the Big Dogs graphic themes and slogans. In addition, the Company offers
shorts, knit and woven casual and sports shirts, fleece tops and bottoms,
loungewear, boxer shorts, swimwear and sleepwear, which may feature print
designs or simply the BIG DOGS-Registered Trademark-name and/or dog logo. The
Company sells its BIG BIG DOGS-TM-line primarily through its retail stores and
catalog and also through selected wholesale accounts and the internet.
NON-APPAREL PRODUCTS. Big Dogs further leverages its trademarks,
characters and more popular graphics by applying them to a wide variety of
adult's and children's non-apparel items, including pet products, plush animals
and other toys, sporting goods, stationery, calendars, mousepads and screen
savers. As with apparel accessories, new non-apparel products are developed and
introduced based on whether they are consistent with Big Dogs' brand image and
complement the Company's other products. As with apparel accessories, the
graphics applied to these products have first proven popular on the Company's
T-shirts, resulting in lower product development costs and inventory risk. In
general, non-apparel items have higher gross margins than many of the Company's
other products.
MARKETING
The Company strives to maintain a consistent brand image through the
coordination of its merchandising, marketing and sales efforts. The goal of the
Company's marketing efforts is to present a distinctive image of quality, value
and fun that consumers will associate with the Company's products and thereby
enhance the BIG DOGS-Registered Trademark- brand image. The BIG DOGS brand image
has been developed with relatively little advertising, as the Company believes
its most effective marketing is its products themselves and their presentation
in the Company's retail stores and catalog. The Company's catalog serves not
only as a means of product distribution, but also as the key marketing piece for
the Company's retail stores.
Also important to the Company's marketing strategy is its targeted
"grassroots" marketing activities. These activities include local and charity
sponsorships (such as high school sports teams), community-oriented promotional
events (such as the Company's annual dog parade in Santa Barbara), and corporate
cross-promotions with leading consumer product companies (such as Nabisco and
IAMS). The Company trains and incentivizes its store managers to actively
involve their stores in local, grassroots activities. In addition, the Company
utilizes billboard advertising designed to direct customers to local Big Dogs
retail stores.
RETAIL STORES
Big Dogs seeks to create a distinctive and fun shopping environment in
its stores through the innovative display of its graphic art and humor,
including in-store "T-shirt walls" and other displays designed to immediately
put the customer in the "Big Dog state of mind." In addition, the Company's
cross-merchandising and colorful signage are designed to add excitement in the
stores and prompt add-on purchases. While maintaining a consistent Big Dog
"look" throughout the chain, many stores incorporate graphics and props which
are consistent with the store's local environment (for example, a car racing
theme in Indianapolis and an Old Spanish Days theme in Santa Barbara). By
showcasing the Company's complete product line and broad assortment, Big Dogs
stores offer something for everyone in the family and are particularly appealing
to the dedicated Big Dogs customer.
In 1998, the Company's retail stores contributed approximately 91% of
total net sales. As of December 31, 1998, the Company operated 177 stores in 44
states and three stores in England and Canada. Big Dogs stores are typically
located in tourist and recreation-oriented shopping locations and other casual
environments where the Company believes consumers are more likely to be in the
"Big Dog state of mind." In making site selections, the Company also considers a
variety of other factors, including proximity to large population centers, area
income, the prestige and potential customer-draw of the other tenants in the
center or area, projected profitability, store location and visibility within
the center, and the accessibility and visibility of the center from nearby
thoroughfares.
The table below sets forth the number of stores located in each state or country
as of the end of 1998.
State No. of Stores State No. of Stores
----- ------------- ----- -------------
Alabama 2 Missouri 3
Alaska 1 Nebraska 1
Arizona 7 Nevada 3
California 35 New Hampshire 2
Colorado 3 New Jersey 1
Connecticut 2 New Mexico 1
Delaware 2 New York 8
Florida 10 North Carolina 5
Georgia 4 Ohio 3
Hawaii 2 Oklahoma 1
Idaho 2 Oregon 5
Illinois 3 Pennsylvania 7
Indiana 4 South Carolina 4
Iowa 1 Tennessee 6
Kansas 3 Texas 6
Louisiana 1 Utah 2
Maine 2 Vermont 1
Maryland 4 Virginia 4
Massachusetts 4 Washington 5
Michigan 5 West Virginia 1
Minnesota 3 Wisconsin 2
Mississippi 2 Wyoming 1
Country No. of Stores Country No. of Stores
- ------- ------------- ------- -------------
United Kingdom 1 Canada 2
The Company operates its retail stores in both outlet and full-price
formats, depending on the location. Big Dogs' traditional emphasis has been on
outlet malls because those malls are often located in tourist areas and attract
significant numbers of Big Dogs' targeted customers. More recently, the Company
has increased its focus on opening full-price, stand-alone stores in tourist and
leisure locations. The Company anticipates that the stores it opens in the near
future will be in a variety of venues, including outlet malls, stand-alone
stores in tourist areas, tourist-oriented malls, regional malls and metropolitan
locations.
The Company's outlet mall stores average approximately 2,700 square
feet. The Company's outlet stores offer a complete and current line of the
Company's products priced approximately 25% less than the same items are sold
for in the Company's catalog and the Company's full-price stores and by other
retailers. In addition, the Company has tested a smaller format store which it
intends to open in certain circumstances. This smaller format will carry
substantially all of the Company's product categories, but will be more densely
merchandised to accommodate the smaller square footage. The Company opened 27
net new stores during 1998. The Company's cost to open a typical factory outlet
store in 1998, including leasehold improvements and furniture and fixtures, was
approximately $67,000 (net of tenant improvement allowances), a reduction of
approximately $2,000 per store compared to the prior year. Of the 27 net new
stores in 1998, 16 were in regional malls and other non-outlet locations. The
Company's cost to open these stores was approximately $134,000 (net of tenant
improvement allowance). The average per store initial inventory (partially
financed by trade payables) for the new 1998 stores was approximately $67,000
and pre-opening expenses averaged approximately $16,000 per store. The average
total cost to build new stores will vary in the future, depending on various
factors, including local construction costs, changes in store format and design
and tenant improvement allowances.
Big Dogs store operations are managed by an Executive Vice
President--Retail, three regional managers and approximately 25 district and
area managers. Each of the stores is managed and operated by a store manager, an
assistant manager and full-time and part-time sales associates. The Company
seeks to further enhance its customers' shopping experience by developing a
knowledgeable and enthusiastic sales staff to distinguish Big Dogs from its
competition. In this regard, the Company has implemented employee training and
incentive programs and encourages its sales associates to be friendly and
courteous and to guide customers to graphics and products that tie into their
individual interests. The Company believes its commitment to customer service
enhances its ability to generate repeat business and to attract new customers.
The Company also believes that the fun nature of its products and the growth of
the Company create employee enthusiasm and positive morale that in turn enhance
customer service and contribute to the fun shopping experience.
NON-RETAIL DISTRIBUTION
Non-retail channels of distribution, including catalog and wholesale,
and, to a lesser extent, corporate sales and premium programs, international and
internet sales, contributed approximately 9% of the Company's total net sales in
1998.
CATALOG. Introduced in late 1992, the Company's catalog is a key
marketing piece for its products and stores, and enables it to reach customers
who are not located near a Big Dogs store. The Company's proprietary mailing
list has been developed largely through sign-ups by customers in its retail
stores rather than through active prospecting. Big Dogs' proprietary mailing
list has over 700,000 active customer names. The Company's catalog sales in 1998
were approximately $4.9 million, or approximately 5% of total net sales.
WHOLESALE. During 1998, the Company sold to over 600 wholesale accounts
throughout the United States. The Company's wholesale sales in 1998 were
approximately $2.7 million, or approximately 3% of total net sales.
INTERNET. In November 1998, the Company enhanced its corporate website
to offer a few products for sale through Yahoo Shopping. Although 1998 sales
were limited, the Company believes it has significant opportunities for internet
sales because of the Company focus on graphics and apparel that is not only
character-driven but basic in design and therefore easy to describe. The Company
also believes the internet will enhance its product distribution by increasing
access to customers who do not generally visit outlet centers where the
Company's stores are primarily located. The Company is also positive about the
profitability potential on the internet, especially since Big Dogs owns its own
brand and controls its pricing and distribution.
INTERNATIONAL. Big Dogs' sales outside of the United States are
currently limited to three retail stores in England and Canada and incidental
other sales. The Company plans to expand the sale of its products
internationally through efficient, profitable and brand-enhancing means, which
may vary by country and may include retail stores, exporting to resellers,
licensing, catalog and internet sales.
OTHER BRAND LEVERAGING. Big Dogs intends to carefully evaluate and
pursue opportunities to leverage the power of the BIG DOGS-Registered
Trademark-brand through various activities that are consistent with the brand
image, which may include selective product licensing, co-branding (such as a
current co-branding program for ski jackets with Columbia Sportswear) and
entertainment and media activities.
SOURCING
DOMESTIC AND INTERNATIONAL SOURCING. The Company does not own or
operate any manufacturing facilities and sources its products through
third-party contractors with manufacturing facilities that are primarily
overseas. The Company believes that outsourcing allows it to enhance production
flexibility and capacity, while substantially reducing capital expenditures and
avoiding the costs of managing a large production workforce. In addition,
outsourcing allows the Company to leverage working capital, transfer risk and
focus its energy and resources on merchandising, marketing and sales.
Big Dogs' domestic sourcing is primarily limited to graphic T-shirts.
During the first quarter of 1998, the Company moved in-house the bulk of its
graphic T-shirt business, that had previously been provided by Fortune Fashions,
a commonly controlled company. This includes management of screen printing and
blanks, but not screen- printing operations.
The majority of Big Dogs' other products are manufactured overseas,
primarily in Asia. In order to reduce the Company's exposure to production risks
and delays arising from trade disputes, political disruption or other factors
relating to any one vendor or country, the Company utilizes a diverse group of
vendors. Big Dogs sources product from approximately 100 unaffiliated vendors,
including over 35 foreign vendors in a number of countries, with a significant
portion being produced by contractors with manufacturing facilities in China. In
order to enhance its sourcing flexibility, the Company uses purchasing agents
rather than operate its own foreign sourcing office. These agents assist the
Company in selecting and overseeing third-party vendors, sourcing fabric and
monitoring quotas and other trade regulations. The Company does not have supply
contracts with any of its suppliers. Although the loss of major suppliers could
have a significant effect on the Company's immediate operating results, the
Company believes alternate sources of merchandise for most product categories
are available at comparable prices and that it could replace these suppliers
without any long-term adverse effect on the Company.
The Company forecasts production requirements to secure necessary
manufacturing capacity and quota. Since the Company's foreign manufacturers are
located at greater geographic distances from the Company than its domestic
manufacturers, the Company generally allows greater lead-times for foreign
orders. However, due to the Company's focus on widely available basics rather
than fashion items, the Company believes these lead times do not present
significant risks.
QUALITY CONTROL. The Company's quality control program is designed to
ensure that all goods bearing BIG DOGS-Registered Trademark-trademarks meet the
Company's standards. With respect to its products, the Company, through its
employees and sourcing agents, develops and inspects prototypes of each product
prior to manufacture. For apparel products, the Company, through its employees
and sourcing agents, inspects the prototypes and fabrics prior to cutting by the
contractors, establishes fittings based on the prototype and inspects samples.
The Company or its sourcing agents inspect the final product prior to shipment
to the Company's warehouse or at the warehouse prior to payment.
MANAGEMENT INFORMATION SYSTEMS
The Company is committed to utilizing technology to enhance its
competitive position. The Company has put in place computer hardware, systems
applications and networks that are the same as those used by a number of large
retailers. These systems support the sales and distribution of products to its
stores and customers and improve the integration and efficiency of its domestic
and foreign sourcing operations. Big Dogs' MIS system provides integration of
store, merchandising, distribution and financial systems. These systems include
stock keeping unit ("SKU") and classification inventory tracking, purchase order
management, open-to-buy, merchandise distribution, automated ticket making,
general ledger, sales audit, accounts payable, fixed asset management, payroll
and integrated financials. These systems operate on an IBM AS 400 platform and a
Novell server network and utilize Island Pacific software. The Company's
point-of-sale ("POS") system consists of registers providing price look-up,
e-mail and credit card and check authorization. Through automated two-way
communication with each store, sales information and e-mail are uploaded to the
host system, and receiving, price changes and systems maintenance are
down-loaded through the POS devices. Sales are updated daily in the
merchandising report systems by polling sales from each store's POS terminals.
The Company evaluates information obtained through daily polling, including a
daily tracking of gross margin, to implement merchandising decisions regarding
reorders, markdowns and allocation of merchandise. Wholesale and catalog
operations are also supported by MIS applications from established vendors,
designed specifically to meet the unique requirements of these segments of the
business. These applications include customer service phone center, order
processing and mailing list maintenance.
ALLOCATION AND DISTRIBUTION OF MERCHANDISE
Allocation and distribution of the Company's inventory is performed
centrally at the store, merchandise classification and SKU levels using
integrated third-party software. Utilizing its MIS capabilities, the Company's
planning and allocation group works closely with the merchandising and retail
departments to monitor and respond to customer purchasing trends and meet the
seasonal and locale-specific merchandising requirements of the Company's retail
stores. The Company is currently implementing fuller utilization of its
merchandising information systems to capitalize on regional and seasonal trends
and on individual store characteristics.
In early 1998, Big Dogs maintained two distribution facilities: a main
facility of approximately 67,000 square feet located in Commerce, California and
a mail order warehouse and fulfillment facility of approximately 21,000 square
feet in Ventura, California. In January 1998, the Company consolidated these
operations into a new 136,000 square-foot distribution facility in Santa Fe
Springs, California. All merchandise is delivered by vendors to this new
facility, where it is inspected, entered into the Company's allocation software
system, picked and boxed for shipment to the stores or customers. The Company
ships merchandise to its stores at least weekly, to provide a steady flow of
merchandise.
TRADEMARKS
The Company utilizes a variety of trademarks which it owns, including
the U.S. registered trademarks BIG DOGS-Registered Trademark-, BIG DOG
SPORTSWEAR-Registered Trademark-and dog logo and the trademarks BIG DOG-TM-,
LITTLE BIG DOGS-TM- and BIG BIG DOGS-TM-. In addition, the Company has
registered certain of its trademarks or has registration applications pending in
over 14 other countries. The Company regards its trademarks and other
proprietary rights as valuable assets and believes that they have significant
value in the marketing of its products. From time to time the Company discovers
products in the marketplace that the Company believes infringe upon its
trademark rights. The Company vigorously protects its trademarks against
infringement, including through the use of cease and desist letters,
administrative proceedings and lawsuits.
COMPETITION
Although the level and nature of competition differ among the Company's
product categories, the Company competes primarily on the basis of its brand
image, offering a unique combination of quality, value and fun, and on other
factors including product assortment, price, store location and layout, and
customer service. The markets for each of the Company's products are highly
competitive. The Company believes that its long-term competitive position will
depend upon its ability to anticipate and respond effectively to changing
consumer demands and to offer customers a wide variety of high-quality, fun
products at competitive prices. Although the Company believes it does not
compete directly with any single company with respect to its entire range of
merchandise, within each merchandise category the Company competes with
well-known apparel and specialty retail companies such as The GAP, Eddie Bauer,
Warner Brothers Stores and The Disney Stores, as well as a large number of
national and regional department stores, specialty retailers and apparel
designers and manufacturers. In addition, in recent years, the amount of casual
sportswear and activewear manufactured specifically for department stores and
sold under their own labels has significantly increased. Many of Big Dogs'
competitors are significantly larger and more diversified and have substantially
greater financial, distribution, marketing and other resources and have achieved
greater recognition for their brand names than the Company.
EMPLOYEES
At March 8, 1999, the Company had approximately 550 full-time and 650
part-time employees. The number of part-time employees fluctuates significantly
based on seasonal needs. None of the Company's employees are covered by
collective bargaining agreements and the Company considers its relations with
its employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles and present and past
positions of persons serving as executive officers of the Company as of March 8,
1999:
NAME AGE POSITION
- ------------------ --- ----------------------------------
Andrew D. Feshbach 38 President, Chief Executive Officer
and Director
Douglas N. Nilsen 50 Executive Vice President-
Merchandising
Anthony J. Wall 43 Executive Vice President-
Business Affairs, General Counsel
and Secretary
Andrew W. Wadhams 38 Executive Vice President - Retail
Roberta J. Morris 39 Chief Financial Officer, Treasurer
and Assistant Secretary
ANDREW D. FESHBACH co-founded the Company in May 1992 and has served as
President, Chief Executive Officer and as a director since that time. From June
1992 until May 1997, Mr. Feshbach also served as Chief Financial Officer of the
Company. Mr. Feshbach co-founded Fortune Fashions Inc. ("Fortune Fashions"), a
custom manufacturer of embellished apparel (See Item 1. "Business - Sourcing")
in 1991 and has served as a director since that time. From 1990 until the
present, he has served as a Vice President of Fortune Financial, a private
merchant banking firm owned by the Company's Chairman and majority stockholder,
Fred Kayne. Mr. Feshbach serves as a director of The Right Start, Inc., an
infant products retailer and catalog company. Mr. Feshbach has an M.B.A. from
Harvard University.
DOUGLAS N. NILSEN joined the Company in October 1995 and has served as
Executive Vice President--Merchandising since December 1995. From October 1995
until December 1995, he served as Senior Vice President of the Company. From
1990 to September 1995, he served as Director of Merchandise at Walt Disney
Attractions, Inc. for its U.S. theme parks and resorts, and in such capacity was
responsible for merchandising all apparel and accessories. From 1976 to 1990,
Mr. Nilsen was employed by Macy's California in various capacities, most
recently as Vice President of Merchandising in both the Accessories and Men's
Divisions. Mr. Nilsen has an M.B.A. from New York University.
ANTHONY J. WALL joined the Company in September 1994 and has served as
Executive Vice President since March 1996. He has also served as General Counsel
and Secretary of the Company since September 1994. He served as a director of
the Company from November 1995 until September 1997 and also as Senior Vice
President from September 1994 until March 1996. From 1981 until 1994, Mr. Wall
practiced as an attorney with Gibson, Dunn & Crutcher and, from 1990 until 1994,
was a partner in the corporate department of that firm. Mr. Wall also serves as
General Counsel of Fortune Fashions and Vice President of Fortune Financial. Mr.
Wall has a J.D. from the University of Southern California.
ANDREW W. WADHAMS joined the Company in August 1996 as Senior Vice
President--Retail and has served as Executive Vice President--Retail since
January, 1999. From January 1994 to June 1996, Mr. Wadhams served as Vice
President of Retail Operations of Imaginarium, Inc., a retailer of children's
games and educational items. From 1986 to November 1993, Mr. Wadhams was
employed in various capacities by The Gap Inc. in its Gap, GapKids, Gap
International and Banana Republic divisions, most recently as Regional
Manager--Retail Operations of Banana Republic from 1991 to 1994.
ROBERTA J. MORRIS joined the Company in August 1993 and has served as
Chief Financial Officer since March 1, 1998, having previously served as Senior
Vice President--Finance since January 1995 and as Vice President--Finance of the
Company from August 1993 to January 1995. From 1988 to August 1993, Ms. Morris
was employed by Deloitte & Touche LLP, a national accounting firm, serving as a
Senior Manager from August 1992 until August 1993. Ms. Morris is a certified
public accountant.
ITEM 2. PROPERTIES
The Company's corporate headquarters are in leased offices comprising
approximately 13,897 square feet in Santa Barbara, California, which lease
expires July 2004, with an option to extend for another 5 years. The Company
also occupies additional office and storage space of approximately 9,000 square
feet under a lease that expires July 31, 1999, and is negotiating a lease for
approximately 10,000 square feet in Santa Barbara into which it will relocate
such operations. The Company's distribution facility is located in Santa Fe
Springs, California in a building comprising approximately 136,000 square feet
under a lease that expires in January 2008. The Company has an option to extend
this lease for five years.
The Company currently leases all of its store locations. Store leases
are typically for a term of 5 years with a 5-year option and provide for base
rent plus contingent rent based upon a percentage of sales in excess of
agreed-upon sales levels.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of the current litigation
will not have a material adverse effect upon the financial statements of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The common stock of the Company is traded on the NASDAQ National Market
under the symbol BDOG. The following table sets forth, for the period from the
Company's initial public offering through December 31, 1998, the high and low
"sales" price of the shares of Common Stock of the Company, as reported on the
NASDAQ National Market.
1998 1997
---------------- ----------------
High Low High Low
------- ------- -------- -----
First Quarter $ 7 1/2 $ 4 1/2 n/a n/a
Second Quarter 7 1/2 4 1/2 n/a n/a
Third Quarter
(commencing September 24, 1997) 5 5/8 2 7/8 $ 15 3/4 $ 14
Fourth Quarter 6 1/8 2 1/8 14 3/8 5
On March 8, 1999, the last sales price of the Common Stock as reported
on the NASDAQ National Market was $4 13/16 per share. As of March 8, 1999, there
were approximately 149 shareholders of record of the Company's Common Stock.
The Company paid no dividends in 1997 and 1998. In February 1999, the
Board of Directors approved an annual discretionary cash dividend to be
determined by the Board each year based on the Company's year-end sales results.
The first such annual dividend was declared in the amount of $0.10 per share and
paid in March 1999. The future amount and payment of such annual dividend will
be at the discretion of the Board and will depend upon the Company's earnings,
capital requirements, financial condition and other factors considered relevant
by the Board.
1998 Sales of Unregistered Securities
- -------------------------------------
On April 1 and May 21, 1998, the Company sold an aggregate of 24,000
shares of common stock to two individual accredited investors upon their
exercise of warrants that had been issued to them prior to the Company's 1997
initial public offering. The purchase price was $3.00 per share, for total
consideration of $72,000 in cash. The sales of the securities in such
transactions were exempt from registration under the Securities Act of 1933 by
virtue of Section 4(2).
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read
in conjunction with the Consolidated Financial Statements and the Notes thereto
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Form 10-K.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands, except per share and operating data)
Net sales $ 100,677 $ 86,181 $ 68,683 $ 51,541 $ 28,404
Cost of goods sold 41,236 36,328 29,720 21,571 12,857
--------- --------- --------- --------- ---------
Gross profit 59,441 49,853 38,963 29,970 15,547
--------- --------- --------- --------- ---------
Selling, marketing and
distribution 47,809 39,549 32,309 24,814 12,993
General and administrative 5,276 4,738 3,937 3,167 1,746
--------- --------- -------- --------- --------
Total operating expenses 53,085 44,287 36,246 27,981 14,739
--------- --------- -------- --------- --------
Operating income 6,356 5,566 2,717 1,989 808
Interest (income) expense (350) 1,268 1,647 1,189 397
--------- --------- -------- --------- --------
Income before provision for
income taxes 6,706 4,298 1,070 800 411
Provision for income taxes 2,674 1,633 435 162 19
--------- --------- -------- --------- --------
Net income $ 4,032 $ 2,665 $ 635 $ 638 $ 392
========= ========= ======== ========= ========
Net income per share
Basic and diluted $ 0.32 $ 0.24 $ 0.06 $ 0.07 $ 0.04
========= ========= ======== ========= ========
Weighted average common shares
Basic 12,472 10,965 9,978 9,503 9,000
Diluted 12,509 11,187 10,049 9,503 9,000
OPERATING DATA:
Number of stores: (1)
Stores open at beginning of
period 150 121 91 51 16
Stores added (net of closures 27 29 30 40 35
-------- --------- ------- -------- --------
Stores open at end of period 177 150 121 91 51
Comparable stores sales increase
(decrease)(2) 0.6% 6.6% 3.5% 8.2% (0.9%)
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(amounts in thousands)
BALANCE SHEET DATA:
Working capital $30,348 $35,468 $13,742 $8,030 $ 3,072
Total assets 52,994 52,584 25,773 19,011 13,647
Total indebtedness (3) 0 0 15,697 10,732 6,141
Stockholders' equity 43,187 45,541 6,142 4,737 3,094
(1) Excludes two temporary stores open for a portion of 1995, four temporary
stores open for a portion of 1996, and one temporary store open for a portion
of 1998.
(2) Comparable store sales represent net sales of stores open at least one
full year. Effective December 31, 1997, the Company changed the way
comparable store sales were calculated, and for comparison purposes all prior
years have been restated. Stores are considered comparable beginning on the
first day of the third month following the one-year anniversary of their
opening. Stores that are relocated but remain in the same shopping area
remain in the comparable store base. The change to this method did not
significantly affect previously reported comparable store sales percentages.
The Company believes this method better reflects the effect of one-time
promotional events and is more consistent with industry methods.
(3) Includes subordinated debt, obligations under the bank line of credit and
obligations under capital leases. All indebtedness was paid off with a
portion of the proceeds from the Company's initial public offering in
September 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto of the Company
contained elsewhere in this Form 10-K.
GENERAL
Big Dogs develops, markets and retails a branded, lifestyle collection
of unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. The number of Company stores has grown
from 5 in 1993 to 177 as of December 31, 1998.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
selected statement of operations data expressed as a percentage of net sales:
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------ ------ ------
Net sales.......................... 100.0% 100.0% 100.0%
Cost of goods sold................. 41.0 42.2 43.3
----- ----- -----
Gross profit....................... 59.0 57.8 56.7
Selling, marketing and distribution
expenses......................... 47.5 45.9 47.0
General and administrative expenses 5.2 5.5 5.7
----- ----- -----
Total operating expenses........... 52.7 51.4 52.8
----- ----- ------
Income from operations............. 6.3% 6.5% 4.0%
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET SALES. Net sales consist of sales from the Company's stores,
catalog, and wholesale accounts, all net of returns and allowances. Net sales
increased to $100.7 million in 1998 from $86.2 million for 1997, an increase of
$14.5 million, or 16.8%. Of the $14.5 million increase, $13.3 million was
attributable to stores not yet qualifying as comparable stores and $0.5 million
came from the 0.6% comparable store sales increase for the period. Additionally,
non-retail sales increased by $0.7 million for the year. The increase in net
sales in 1998 was attributable to continued growth in the number of stores and
in the children's and big-size apparel categories. The Company's categories of
children's and big-size apparel products continued to increase to 43.1% of total
retail net sales from 41% of total retail net sales in 1997.
GROSS PROFIT. Gross profit increased to $59.4 million in 1998 from
$49.9 million for 1997, an increase of $9.5 million, or 19.0%. As a percentage
of net sales, gross profit increased to 59.0% in 1998 from 57.8% in 1997. This
increase as a percentage of net sales was primarily attributable to better
sourcing of certain key products. Also contributing to the percentage increase
were continued improvements in merchandising, planning and allocation, which led
to better product sell-throughs and less markdowns.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses consist of expenses associated with creating,
distributing, and selling products through all channels of distribution,
including occupancy, payroll and catalog costs. Selling, marketing and
distribution expenses increased to $47.8 million in 1998 from $39.5 million in
1997, an increase of $8.3 million, or 21.0%. As a percentage of net sales, these
expenses increased to 47.5% in 1998 from 45.9% in 1997. In early 1998, the
Company moved its distribution center to a larger facility in order to build the
infrastructure necessary to accommodate growth. During the first and second
quarters of 1998, the Company did not realize this growth and, therefore, the
Company incurred a decrease in operating leverage. Subsequently, controls were
put in place and improvements were made in the third quarter. In the fourth
quarter of 1998, the Company's selling, marketing and distribution expense was
38.3% of net sales as compared to 38.5% for the same period in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of administrative salaries, corporate occupancy costs and other
corporate expenses. General and administrative expenses increased to $5.3
million in 1998 from $4.7 million in 1997. As a percentage of net sales, these
expenses decreased to 5.2% in 1998 from 5.5% in 1997, reflecting the leverage of
spreading them over a larger revenue base.
INTEREST INCOME AND EXPENSE. Interest income increased to $0.4 million
in 1998 from $1.3 million in interest expense in 1997. In October 1997, the
Company's initial public offering closed and all debt was paid off with a
portion of the net proceeds. Cash was held in a money market fund.
YEARS ENDED DECEMBER 31, 1997 AND 1996
NET SALES. Net sales increased to $86.2 million in 1997 from $68.7
million for 1996, an increase of $17.5 million, or 25.5%. Of the $17.5 million
increase, $13.4 million was attributable to stores not yet qualifying as
comparable stores and $3.8 million came from the 6.5% comparable store sales
increase for the period. Additionally, non-retail sales increased by $0.3
million for the year. The increase in net sales in 1997 was primarily
attributable to continued improvements in store operations and the Company's
merchandise assortments and in-stock positions as a result of better utilization
of the merchandise planning and allocation systems. In particular, continued
strong growth in the Company's recently introduced categories of children's,
big-size apparel and non-apparel products increased to 41% of total retail net
sales from 34% of total retail net sales in 1996.
GROSS PROFIT. Gross profit increased to $49.9 million in 1997 from
$39.0 million for 1996, an increase of $10.9 million, or 27.9%. As a percentage
of net sales, gross profit increased to 57.8% in 1997 from 56.7% in 1996. This
increase as a percentage of net sales was primarily attributable to better
sourcing of certain key products. Also contributing to the percentage increase
were continued improvements in merchandising, planning and allocation which led
to better product sell-throughs and less markdowns in the fourth quarter 1997 as
compared to the same period in 1996.
SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses increased to $39.5 million in 1997 from $32.3 million in
1996, an increase of $7.2 million, or 22.3%. As a percentage of net sales, these
expenses decreased to 45.9% in 1997 from 47.0% in 1996, primarily as a result of
operational efficiencies gained from previous infrastructure investments and
spreading them over a larger revenue base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $4.7 million in 1997 from $3.9 million in 1996. As a
percentage of net sales, these expenses decreased to 5.5% in 1997 from 5.7% in
1996, reflecting the leverage of spreading them over a larger revenue base.
INTEREST EXPENSE, NET. Interest expense, net of $0.2 million of
interest income in 1997, decreased to $1.3 million in 1997 from $1.6 million in
1996, a decrease of $0.3 million. The decrease is due to the payoff of
indebtedness from a portion of the proceeds from the Company's initial public
offering in September 1997.
SEASONALITY AND QUARTERLY RESULTS
The Company believes its seasonality is somewhat different than many
apparel retailers since a significant number of the Company's stores are located
in tourist areas and outdoor malls that have different visitation patterns than
urban and suburban retail centers. The third and fourth quarters (consisting of
the summer vacation, back-to-school and Christmas seasons) have historically
accounted for the largest percentage of the Company's annual net sales and
profits. In 1998, excluding sales generated by stores not open for all of 1998,
substantially all the Company's operating income and approximately 28% and 35%
of the Company's net sales were generated during the third and fourth quarters,
respectively. In addition, the Company has historically incurred operating
losses in its first quarter and anticipates that it will continue to do so
during the first quarter of each year for the foreseeable future.
The Company's quarterly results of operations may also fluctuate as a
result of a variety of factors, including the timing of store openings, the
amount of revenue contributed by new stores, changes in comparable store sales,
changes in the mix of products sold, customer acceptance of new products, the
timing and level of markdowns, competitive factors and general economic
conditions.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company's primary uses of cash were for the build-out
of its new distribution facility, new stores, purchase of merchandise
inventories, payment of income taxes, and stock repurchases. The Company
satisfied its cash requirements primarily from cash flow from operations and
excess cash in 1998. In 1997, the Company satisfied its cash requirements
primarily from the proceeds from the sale of debt and equity securities,
including its initial public offering that netted proceeds of approximately
$35.6 million. Approximately $21.5 million of the net proceeds were used to
repay subordinated debt, short-term borrowings and capital lease obligations.
Remaining proceeds were used for general corporate purposes and working capital.
In March 1998, the Company's Board of Directors authorized the Company to
repurchase up to $10 million of its common stock. As of December 31, 1998, the
Company had repurchased 1,083,200 shares for $6,494,000.
Cash provided by operating activities was $3.1 million and $7.3 million
in 1998 and 1997, respectively. The $4.2 million decrease in cash provided from
operations is primarily attributable to the increase in inventories. At December
31, 1998 and 1997 inventories were $23.3 million and $16.7 million,
respectively. The 1998 increase is attributable to opening 27 net new stores,
forward inventory purchases as well as increased inventory levels purchased for
use in the management of the graphic T-shirt, mail order and wholesale
businesses.
Cash used in investment activities in 1998 and 1997 was $6.8 million
and $5.3 million, respectively. Cash flows used in investment activities during
1998 related primarily to the build-out of 27 net new store openings and the
Company's new distribution facility of approximately $3.2 million and $1.6
million, respectively. Cash used in financing activities during 1998 was $6.4
million compared to cash provided by financing activities of $20.8 million
during 1997. In 1998 the Company repurchased 1,083,200 shares of its common
stock. In 1997, the Company received approximately $35.6 million from its
initial public offering, repaid subordinated debt, its revolving credit
facility, and capital lease obligations and received $0.7 million from the
exercise of stock options and warrants.
The Company has a borrowing arrangement with a bank whereby the Company
may, from time to time and upon approval from the bank, borrow up to $8 million.
Such borrowings may be used for cash advances and letters of credit. The
borrowing arrangement provides for interest at the bank's prime rate less 3/8%
or 250 basis points over the LIBOR rate and is collateralized by substantially
all the assets of the Company. As of December 31, 1998, the Company had no
advances and $1.1 million of letters of credit outstanding.
In 1998, the Company's average cost to build a new store, including
leasehold improvements, furniture and fixtures and landlord allowances, was
approximately $103,000. The average total cost to build new stores will vary in
the future, depending on various factors, including square footage, changes in
store design, local construction costs and landlord allowances. The Company's
average initial inventory for new stores opened in 1998 was approximately
$67,000. The Company's initial inventory for new stores will vary in the future
depending on various factors, including store concept and square footage. The
Company believes that its existing cash balances and cash generated from
operations will be sufficient to fund its operations and planned expansion
through 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company will adopt
SFAS No. 133 in the year ending December 31, 2000. The Company anticipates that
the adoption of SFAS No. 133 will not have a material impact on the Company's
financial statements.
YEAR 2000
The Year 2000 issue is the result of computer programs being written to
use two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failure or miscalculations causing
disruptions of operations.
In March 1999, the Company completed the upgrading of its major
software systems to a new release which has been certified as Year 2000
compliant. The Company has substantially completed the internal testing of its
information technology systems and will continue to monitor such systems through
the summer of 1999. The Company has also addressed internally its
non-information technology related systems and believes that there is expected
to be no significant operational problems relating to the Year 2000 issues. The
costs of the Company's year 2000 compliance project are not expected to be
material to the Company's financial position.
The Company has requested all third-party vendors to certify year 2000
compliance. The Company does not expect any material adverse impact on its
business operations by the failure of any of its vendors to complete any
required changes related to the year 2000 date conversion.
INFLATION
The Company does not believe that inflation has had a material effect
on operations in the past year. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. The statements contained in this Form 10-K
that are not purely historical are forward-looking statements, including without
limitation statements regarding the Company's expectations, beliefs, intentions
or strategies regarding the future. Such forward-looking statements include the
discussions in this Management's Discussion and Analysis of Financial Condition
and Results of Operations regarding the seasonality of business, expected new
store openings and costs, the impact of year 2000 compliance and inflation
risks. Uncertainties to which the foregoing and other aspects of the Company's
business may be subject include those discussed below in regard to factors that
may effect quarterly results discussed below, the factors affecting the costs of
building new stores, and other risks and uncertainties discussed below. All
forward-looking statements in this document are based upon information available
to the Company on the date hereof, and the Company assumes no obligation to
update any such forward-looking statements. Notwithstanding the Company's growth
in sales and profitability during recent periods, the Company faces significant
risks and, as a result, there can be no assurance that the Company's historical
growth will be indicative of future performance.
Other factors that could cause actual results to differ materially from
the forward-looking statements contained in this report, as well as affect the
registrant's ability to achieve its financial and other goals, include, but are
not limited to, the following:
CHANGES IN CONSUMER PREFERENCES. The consumer products industry in
general, and the apparel industry in particular, are subject to changing
consumer demands and preferences. Although the Company believes its products
historically have not been significantly affected by fashion trends, the
Company's products are subject to changing consumer preferences. The Company's
success will depend significantly on its ability to continue to produce popular
graphics and products that anticipate, gauge and respond in a timely manner to
changing consumer demands and preferences. In addition, consumer preferences
could shift away from the Company's traditional graphic and logo-oriented
merchandise.
ABILITY TO ACHIEVE FUTURE GROWTH. The Company's continued growth will
depend to a significant degree on its ability to open and operate profitable new
stores, to increase net sales and profitability of the Company's existing
stores, and to expand its other sources of revenue. There can be no assurance
that new stores will achieve sales and profitability levels consistent with
existing stores. The Company's retail expansion is dependent on a number of
factors, including the Company's ability to locate and obtain favorable store
sites, and to negotiate acceptable lease terms. In addition, there can be no
assurance that the Company's strategies to increase other sources of revenue,
which may include expansion of its catalog business, wholesale business,
internet business, corporate sales, international sales, licensing, co-branding
and media and entertainment activities, will be successful or that the Company's
overall sales or profitability will increase or not be adversely affected as a
result of any such expansion.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is
significantly dependent on the performance of its key management, particularly
Chief Executive Officer Andrew Feshbach and Executive Vice
President--Merchandising, Doug Nilsen.
DEPENDENCE ON THIRD-PARTY AND FOREIGN MANUFACTURERS. The Company does
not own or operate any manufacturing facilities and is therefore dependent on
third parties for the manufacture of its products. The loss of major suppliers,
or the failure of such suppliers to timely delivery the Company's products or to
meet the Company's quality standards, could adversely affect the Company's
ability to deliver products to its customers in a timely manner.
The majority of the Company's products are purchased from vendors with
manufacturing facilities located outside the United States, primarily in Asia
and particularly in China. The Company's operations could be adversely affected
by events that result in disruption of trade from foreign countries in which the
Company's suppliers are located.
The Company's staff or agents periodically visit and observe the
operations of its foreign and domestic manufacturers, but the Company does not
control such manufacturers or their labor practices. Therefore the Company
cannot necessarily prevent legal or ethical violations by its independent
manufacturers, and it is uncertain what impact such violations would have on the
Company.
SUBSTANTIAL COMPETITION. The markets for each of the Company's products
are highly competitive. The Company believes that its long-term competitive
position will depend upon its ability to anticipate and respond effectively to
changing consumer demands and to offer customers a wide variety of high-quality,
fun products at competitive prices.
FACTORS AFFECTING STORE TRAFFIC. The large majority of the Company's
stores are located in tourist areas, tourist-serving areas and outlet malls, and
the Company's sales depend on a high level of traffic in these locations. The
Company, therefore, depends on the ability of these tourist destinations and
malls to continue to generate a high volume of consumer traffic in the vicinity
of the Company's stores. Tourism and outlet mall traffic may be adversely
affected by domestic and international economic downturns, adverse weather,
natural disasters, changing consumer preferences, highway or surface street
traffic, the closing of high-profile stores near the Company's stores and
declines in the desirability of the shopping environment in a particular tourist
destination or mall.
RELIANCE ON INFORMATION SYSTEMS. The Company relies on various
information systems to manage its operations and regularly makes investments to
upgrade, enhance or replace such systems. Substantial disruptions affecting the
Company's information systems could have an adverse affect on its business.
CONTROL BY EXISTING STOCKHOLDERS AND ANTI-TAKEOVER PROVISIONS. As of
March 8, 1999, the Chairman of the Board, Fred Kayne, beneficially owned
approximately 49.6% of the Company's outstanding Common Stock and the Company's
current directors and executive officers, including Mr. Kayne, collectively
beneficially own over 50%. As a result, Mr. Kayne, acting either individually or
with the Company's current directors and executive officers, will be able to
control the election of directors, and to determine the outcome of any other
matter submitted to a vote of the Company's stockholders. This concentration of
ownership, together with the anti-takeover effects of certain provisions of the
Delaware General Corporation Law and the Company's Certificate of Incorporation
and Bylaws, may have the effect of delaying or preventing a change in control of
the Company, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the
prevailing market price of the Common Stock.
VOLATILITY OF STOCK PRICE. The price of the Company's shares has and
may continue to fluctuate based upon a number of factors, including,
quarter-to-quarter variations in the Company's results of operations,
fluctuations in the Company's comparable store sales, the performance of other
manufacturers and retailers, and the condition of the overall economy.
DEPENDENCE ON TRADEMARKS. The Company uses a number of trademarks, the
primary ones of which are registered with the United States Patent and Trademark
Office and in a number of foreign countries. There can be no assurance, however,
that the Company will not be restricted in the future expansion of its use of
its trademarks to certain new, non-apparel product categories.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe it has material exposure to losses from
market-rate sensitive instruments. The Company has not invested in derivative
financial instruments. The Company has a borrowing arrangement with a bank
whereby the Company may borrow at a floating rate. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company had no borrowings
under this arrangement as of December 31, 1998 and 1997, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements" at Item 14(a) for a
listing of the consolidated financial statements filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers" in Part I, Item 1 hereof for information
regarding the executive officers. Other information with respect to this item is
incorporated by reference from the registrant's definitive proxy statement to be
filed with the Commission not later than 120 days after the end of the
registrant's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(a)
1. The financial statements listed in the "Index to Consolidated Financial
Statements" at page F-1 are filed as a part of this report.
2. Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
3. Exhibits included or incorporated herein: See "Index to Exhibits."
(b)
Reports on Form 8-K.
There were no reports on Form 8-K filed during the last quarter of the
fiscal year covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
March 29, 1999 on its behalf by the undersigned, thereunto duly authorized.
BIG DOG HOLDINGS, INC.
By /s/ANDREW D. FESHBACH
---------------------
Andrew D. Feshbach
Chief Executive Officer and President
Each person whose signature appears below hereby authorizes Andrew D.
Feshbach and Anthony J. Wall or either of them, as attorneys-in-fact to sign on
his behalf, individually, and in each capacity stated below and to file all
amendments and/or supplements to the Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------- ------------------------- --------------
/s/ANDREW D. FESHBACH Chief Executive Officer, March 29, 1999
- --------------------- President and Director
Andrew D. Feshbach (Principal Executive
Officer)
/s/ROBERTA J. MORRIS Chief Financial Officer, March 29, 1999
- --------------------- Treasurer and Assistant
Roberta J. Morris Secretary (Principal
Financial and Accounting
Officer)
/s/FRED KAYNE Chairman of the Board March 29, 1999
- ---------------------
Fred Kayne
/s/STEVEN C. GOOD Director March 29, 1999
- ---------------------
Steven C. Good
/s/ROBERT H. SCHNELL Director March 29, 1999
- ---------------------
Robert H. Schnell
/s/KENNETH A. SOLOMON Director March 29, 1999
- ---------------------
Kenneth A. Solomon
/s/DAVID J. WALSH Director March 29, 1999
- ---------------------
David J. Walsh
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
PAGE
----
Independent Auditors' Report........................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997........... F-3
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996.................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996....................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.................................................... F-6
Notes to the Consolidated Financial Statements......................... F-7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Big Dog Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Big Dog
Holdings, Inc. and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Big Dog Holdings, Inc. and
subsidiary as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 3, 1999
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
----------------------------
1998 1997
------------ ------------
ASSETS (Note 3)
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 13,458,000 $ 23,508,000
Receivables
Trade, net ................................................. 592,000 457,000
Other ...................................................... 314,000 294,000
Inventories (Note 7) ........................................ 23,345,000 16,714,000
Prepaid expenses and other current assets ................... 811,000 744,000
Deferred income taxes (Note 4) .............................. 872,000 144,000
------------ ------------
Total current assets ......................................... 39,392,000 41,861,000
PROPERTY AND EQUIPMENT, Net (Note 2) ......................... 12,983,000 10,232,000
INTANGIBLE ASSETS, Net........................................ 30,000 131,000
OTHER ASSETS ................................................. 589,000 360,000
------------ ------------
TOTAL ........................................................ $ 52,994,000 $ 52,584,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (Note 7) ................................... $ 3,494,000 $ 2,767,000
Income taxes payable (Note 4) ............................... 2,621,000 1,395,000
Accrued expenses and other current liabilities .............. 2,928,000 2,231,000
------------ ------------
Total current liabilities .................................... 9,043,000 6,393,000
DEFERRED RENT (Note 5) ....................................... 764,000 650,000
------------ ------------
Total liabilities .......................................... 9,807,000 7,043,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (Notes 6 and 8):
Preferred stock, $.01 par value, 3,000,000 shares authorized,
none issued and outstanding ................................ $ -- $ --
Common stock $.01 par value, 30,000,000 shares authorized,
13,183,550 and 13,159,550 shares issued at
December 31, 1998 and 1997, respectively ................... 132,000 132,000
Additional paid-in capital .................................. 42,296,000 42,224,000
Retained earnings ........................................... 7,764,000 3,732,000
Treasury stock, 1,083,200 shares at
December 31, 1998 ......................................... (6,494,000) --
Notes receivable from common stockholders ................... (511,000) (547,000)
------------ ------------
Total stockholders' equity ................................ 43,187,000 45,541,000
------------ ------------
TOTAL ........................................................ $ 52,994,000 $ 52,584,000
============ ============
See notes to consolidated financial statements
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------- ------------ ------------
NET SALES ....................... $ 100,677,000 $ 86,181,000 $ 68,683,000
COST OF GOODS SOLD (Note 7)...... 41,236,000 36,328,000 29,720,000
- ------------- ------------ -----------
GROSS PROFIT .................... 59,441,000 49,853,000 38,963,000
------------- ------------ -----------
OPERATING EXPENSES:
Selling, marketing and
distribution.................. 47,809,000 39,549,000 32,309,000
General and administrative
(Note 7)...................... 5,276,000 4,738,000 3,937,000
------------ ------------ -----------
Total operating expenses....... 53,085,000 44,287,000 36,246,000
------------ ------------ -----------
INCOME FROM OPERATIONS .......... 6,356,000 5,566,000 2,717,000
INTEREST (INCOME) EXPENSE, NET
(Note 3)...................... (350,000) 1,268,000 1,647,000
------------- ------------ -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES .................. 6,706,000 4,298,000 1,070,000
PROVISION FOR INCOME TAXES
(Note 4) 2,674,000 1,633,000 435,000
------------ ----------- -----------
NET INCOME ...................... $ 4,032,000 $ 2,665,000 $ 635,000
============ =========== ===========
NET INCOME PER SHARE
BASIC AND DILUTED .............. $ 0.32 $ 0.24 $ 0.06
============ =========== ===========
See notes to consolidated financial statements
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NOTES
RECEIVABLE
FROM
COMMON STOCK ADDITIONAL TREASURY STOCK COMMON
--------------------- PAID-IN RETAINED ----------------- STOCK-
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT HOLDERS TOTAL
--------- -------- ---------- --------- ------ ------- ----------- ------------
BALANCE,
JANUARY 1, 1996........ 9,670,000 $ 97,000 $ 4,208,000 $ 432,000 -- $ 4,737,000
Common stock issued
(Note 6) ............. 540,550 5,000 1,395,000 $ (855,000) 545,000
Warrants issued ....... -- -- 240,000 -- -- 240,000
Repurchased common
stock (Note 6) ....... (50,000) -- (138,000) -- 123,000 (15,000)
Net income ............ -- -- -- 635,000 -- 635,000
---------- -------- --------- --------- ---------- ------------
BALANCE,
DECEMBER 31, 1996 .... 10,160,550 102,000 5,705,000 1,067,000 (732,000) 6,142,000
Common stock issued .. 2,800,000 28,000 35,548,000 -- 35,576,000
Options exercised .... 55,000 1,000 170,000 -- -- 171,000
Warrants exercised ... 144,000 1,000 551,000 -- -- 552,000
Collections of notes
receivable ......... -- -- -- -- 185,000 185,000
Tax benefits related
to exercise of stock
options (Note 6) .... -- -- 250,000 -- -- 250,000
Net income ........... -- -- -- 2,665,000 -- 2,665,000
---------- ------- --------- --------- --------- ------------
BALANCE,
DECEMBER 31, 1997... 13,159,550 132,000 42,224,000 3,732,000 (547,000) 45,541,000
Warrants exercised 24,000 -- 72,000 -- -- 72,000
Repurchased common
stock (Note 6) .... -- -- -- -- 1,083,200 $(6,494,000) -- (6,494,000)
Collections of notes
receivable......... -- -- -- -- 36,000 36,000
Net income ......... -- -- -- 4,032,000 -- -- -- 4,032,000
---------- --------- ---------- ---------- --------- ----------- -------- ------------
BALANCE,
DECEMBER 31, 1998 .. 13,183,550 $ 132,000 $42,296,000 $7,764,000 1,083,200 $(6,494,000) $(511,000) $ 43,187,000
========== ========= =========== ========== ========= =========== ========= ============
See notes to consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ----------- ------------ -------------
Net income............................................................... $ 4,032,000 $ 2,665,000 $ 635,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization.......................................... 3,752,000 2,620,000 1,931,000
Provision for losses on receivables.................................... 26,000 25,000 174,000
Loss on disposition of property and equipment.......................... 123,000 37,000 35,000
Deferred income taxes.................................................. (728,000) --- 80,000
Changes in operating assets and liabilities:
Receivables.......................................................... (181,000) 194,000 (387,000)
Inventories.......................................................... (6,631,000) (1,311,000) (4,577,000)
Prepaid expenses and other assets.................................... (67,000) (266,000) (45,000)
Accounts payable..................................................... 727,000 1,532,000 (641,000)
Income taxes payable................................................. 1,226,000 1,245,000 35,000
Accrued expenses and other current liabilities....................... 697,000 420,000 740,000
Deferred rent........................................................ 114,000 162,000 258,000
----------- ---------- -----------
Net cash provided by (used in) operating activities................ 3,090,000 7,323,000 (1,762,000)
----------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................... (6,508,000) (5,285,000) (3,377,000)
Proceeds from sale of property and equipment............................. 13,000 --- ---
Other.................................................................... (259,000) (23,000) (108,000)
------------ ----------- ------------
Net cash used in investing activities.............................. (6,754,000) (5,308,000) (3,485,000)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................................... --- 35,576,000 545,000
Repurchase of common stock............................................... (6,494,000) --- (15,000)
Proceeds from issuance of warrants....................................... --- --- 114,000
Proceeds from exercise of options........................................ --- 171,000 ---
Proceeds from exercise of warrants....................................... 72,000 552,000 ---
Collection of notes receivable........................................... 36,000 185,000 ---
Proceeds from subordinated debt.......................................... --- --- 7,900,000
Principal repayments of subordinated debt................................ --- 14,400,000) (1,774,000)
Principal repayments under capital lease obligations..................... --- (1,314,000) (344,000)
Short-term borrowings, net............................................... --- --- (1,225,000)
----------- ---------- -----------
Net cash (used in) provided by financing activities................ (6,386,000) 20,770,000 5,201,000
----------- ---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,050,000) 22,785,000 (46,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............................... 23,508,000 723,000 769,000
---------- ---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR..................................... $13,458,000 $23,508,000 $ 723,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest............................................................... $ 42,000 $ 1,659,000 $ 1,521,000
Income taxes........................................................... $ 2,176,000 $ 388,000 $ 367,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company entered into capital lease obligations of $18,000 and
$533,000 for equipment for the years ended 1997 and 1996, respectively.
In 1997 the Company recorded an increase to additional paid-in-capital
of $250,000 related to tax benefits associated with the exercise of
non-qualified stock options (see Note 6).
In 1996, the Company refinanced $138,000 of capital lease obligations.
In 1996, a stockholder converted $2,226,000 of short-term subordinated
debt to $2,100,000 of long-term subordinated debt and warrants valued at
$126,000.
In July 1996, certain key employees and other individuals issued
$855,000 of long-term notes receivable to the Company as payment for common
stock (see Note 6).
In December 1996, the Company repurchased 50,000 shares of common stock
for $138,000, $123,000 of which was by the retirement of a related long-term
note receivable (see Note 6).
See notes to consolidated financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The consolidated financial statements include the accounts of Big Dog
Holdings, Inc. and its wholly owned subsidiary, Big Dog USA, Inc. (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
The Company principally develops and markets apparel and other consumer
products through Company-operated retail stores, wholesale accounts and a
catalog.
On September 25, 1997, the Company's $56,000,000 initial public offering of
4,000,000 shares of common stock at $14.00 per share was declared effective. Of
the 4,000,000 shares, the Company sold 2,800,000 shares and certain stockholders
sold 1,200,000 shares. The Company's net proceeds, after underwriting discounts
and expenses associated with the offering were approximately $35,600,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company has $9,672,000 of cash on deposit with a high credit quality
financial institution which is in excess of the Federal Deposit Insurance
Corporation limit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of receivables and accounts payable approximate
their carrying values because of the short-term maturity of these instruments.
CASH & CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of less
than three months when purchased to be cash equivalents.
INVENTORIES
Inventories, consisting substantially of finished goods, are stated at the
lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, ranging from two to ten
years. Amortization of leasehold improvements is computed using the
straight-line method based upon the life of the improvement or the term of the
lease, whichever is shorter.
INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized using the straight-line
method over five years. Accumulated amortization was $665,000, and $534,000 at
December 31, 1998 and 1997, respectively.
OTHER ASSETS
Other assets include long-term deposits of $233,000 and $353,000 at
December 31, 1998 and 1997, respectively, which relate primarily to leased
facilities, including retail stores.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the estimated future
cash flows (undiscounted and without interest charges) from the use of an asset
are less than the carrying value, a write-down would be recorded to reduce the
related asset to its estimated fair value.
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SELLING, MARKETING AND DISTRIBUTION EXPENSES
Included in this classification are approximately $474,000, $547,000, and
$439,000 in 1998, 1997 and 1996, respectively, of store preopening expenses,
which are expensed as incurred.
INCOME TAXES
Deferred income taxes reflect the income tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, (b) net
operating loss and tax credit carryforwards, and (c) valuation allowances, when
necessary, to reduce deferred income tax assets to the amount expected to be
realized (see Note 4).
EARNINGS PER SHARE
Basic earnings per share is calculated based on the weighted average number
of shares outstanding. Diluted earnings per share is calculated based on the
same number of shares plus additional shares representing stock distributable
under stock-based plans computed using the treasury stock method.
The following reconciles the numerator and denominator of the basic and
diluted per-share computations for net income:
YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ------------ -----------
Net income ............................................... $ 4,032,000 $ 2,665,000 $ 635,000
============ ============ ===========
Basic Weighted Average Shares:
Weighted average number of shares outstanding............ 12,472,000 10,965,000 9,978,000
Effect of Dilutive Securities:
Options and warrants..................................... 37,000 222,000 71,000
------------ ------------ -----------
Diluted Weighted Average Shares:
Weighted average number of shares outstanding and
common share equivalents................................. 12,509,000 11,187,000 10,049,000
============ ============ ===========
Antidilutive options...................................... 1,615,000 --- ---
Antidilutive options consist of the weighted average of stock options for
the respective years that had an exercise price greater than the average market
price during the year. Such options are therefore excluded from the computation
of diluted shares.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company will adopt
SFAS No. 133 in the year ending December 31, 2000. The Company anticipates that
the adoption of SFAS No. 133 will not have a material impact on the Company's
financial statements.
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
------------------------------
1998 1997
------------ -------------
Leasehold improvements........................... $ 8,400,000 $ 5,866,000
Equipment and fixtures........................... 13,413,000 9,792,000
------------ ------------
21,813,000 15,658,000
Less accumulated depreciation and amortization... 8,830,000 5,426,000
------------ ------------
Property and equipment, net...................... $ 12,983,000 $ 10,232,000
============ ============
Depreciation and amortization expense on property and equipment totaled
$3,621,000, $2,479,000, and $1,794,000, in 1998, 1997 and 1996, respectively.
3. SHORT-TERM BORROWINGS
The Company has a borrowing arrangement with a bank whereby the Company
may, from time to time and upon approval from the bank, borrow up to $8,000,000.
Such borrowings may be used for cash advances and letters of credit. The
borrowing arrangement provides for interest at the bank's prime lending rate
less 3/8% or 250 basis points over the LIBOR rate, and is collateralized by
substantially all assets of the Company.
The Company has outstanding commitments under letters of credit totaling
$1,071,000, at December 31, 1998. The letters of credit expire through May 1,
1999.
4. INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- -------------
Current:
Federal $ 2,978,000 $ 1,438,000 $ 321,000
State 424,000 195,000 34,000
----------- ----------- ----------
Total 3,402,000 1,633,000 355,000
----------- ----------- ----------
Deferred:
Federal (664,000) 5,000 102,000
State (64,000) (5,000) (22,000)
----------- ----------- ----------
Total (728,000) --- 80,000
----------- ----------- ----------
Total income tax provision $ 2,674,000 $ 1,633,000 $ 435,000
=========== =========== ==========
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INCOME TAXES (continued)
The Company's effective income tax rate differs from the federal statutory
rate due to the following:
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
------ ------ ------
Federal statutory income tax rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 3.4% 3.2% 2.4%
Other, net 2.5% 0.8% 4.3%
--- --- ---
Total 39.9% 38.0% 40.7%
==== ==== ====
Significant components of the Company's net deferred income tax assets are
as follows:
DECEMBER 31,
--------------------------
1998 1997
---------- ----------
Deferred income tax assets:
Allowance for doubtful receivables and sales returns $ 27,000 $ 40,000
Accrued vacation 40,000 30,000
Inventory uniform capitalization 714,000 324,000
Intangible assets 168,000 148,000
State income taxes 114,000 39,000
Alternative minimum tax credits --- 26,000
Deferred rent 298,000 ---
Reserve liabilities 82,000 58,000
Other 10,000 12,000
---------- ---------
Total deferred income tax assets 1,453,000 677,000
---------- ---------
Deferred income tax liabilities:
Prepaid expenses (108,000) (92,000)
Depreciation (473,000) (441,000)
--------- ---------
Total deferred income tax liabilities (581,000) (533,000)
--------- ---------
Deferred income tax asset $ 872,000 $ 144,000
========== =========
5. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases retail stores, office buildings and warehouse space
under lease agreements that expire through 2009. Future minimum lease payments
under noncancelable operating leases are as follows:
YEARS ENDING DECEMBER 31,
- -------------------------
1999...................................................... $ 13,860,000
2000 ..................................................... 12,080,000
2001...................................................... 9,342,000
2002...................................................... 6,572,000
2003...................................................... 4,729,000
Thereafter................................................ 13,189,000
------------
Total..................................................... $ 59,772,000
============
The above amounts do not include contingent rentals based on sales in
excess of the stipulated minimum that may be paid under certain leases on retail
stores and common area charges. Additionally, certain leases contain future
adjustments in rental payments based on changes in a specified inflation index.
The effective annual rent expense for the Company is the total rent paid over
the term of the lease, amortized on a straight-line basis. The difference
between the actual rent paid and the effective rent recognized for financial
statement purposes is reported as deferred rent.
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. COMMITMENTS AND CONTINGENCIES (continued)
Rent expense for the years ended December 31, 1998, 1997, and 1996 totaled
$13,962,000, $11,333,000, and $8,431,000, respectively, and includes contingent
rentals of $336,000, $149,000, and $79,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
LITIGATION
The Company is not involved in any legal proceedings other than certain
actions arising in the ordinary course of its business. While the outcome of
such proceedings and threatened proceedings cannot be predicted with certainty,
in the opinion of management, the ultimate resolution of these matters
individually or in the aggregate will not have a material adverse effect on the
Company's business, financial condition or results of operations.
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In March 1998, the Board of Directors authorized the repurchase of up to
$10,000,000 of its common stock. The Company repurchased 1,083,200 shares
totaling $6,494,000 as of December 31, 1998.
As of December 31, 1998, 1997 and 1996, there were unexercised warrants
outstanding of 72,000, 96,000 and 240,000, respectively.
1996 STOCK INCENTIVE PLAN
In July 1996, the Company issued 347,500 shares of common stock under the
1996 Stock Incentive Plan (the "1996 Plan"). The 1996 Plan authorized the
issuance of up to 500,000 shares of the Company's common stock to key employees
and other persons. The shares were sold at $2.59 per share, which the Board of
Directors determined to be at or above the fair market value, with proceeds to
the Company consisting of $45,000 in cash and the balance of $855,000 in
recourse notes receivable. The notes receivable are due ten years from their
date of issuance or upon termination of employment, bear interest at the rate of
7% per annum, are secured by the common stock acquired and are included as a
component of stockholders' equity in the consolidated financial statements. The
1996 Plan was terminated on December 31, 1996. The stock vested over a two-year
period, with one-third of the shares vesting at the purchase date. On December
31, 1996, the Company reacquired 50,000 shares at an average of $2.76 per share.
STOCK OPTIONS
In March 1996, the Company issued a five-year option to its chairman to
acquire 35,000 shares of the Company's common stock at an exercise price of
$2.59 per share. In August 1996, the Company issued an additional five-year
option to the chairman to acquire an additional 20,000 shares at an exercise
price of $4.00. The exercise prices were determined by the board of directors to
be equal to or greater than the fair value of the Company's common stock at the
date of grant. During 1997, these options were exercised, and the Company
recognized tax benefits of $250,000 resulting from the exercise of these
nonqualified stock options which were recorded as additional paid-in capital in
the consolidated financial statements.
In January 1997, the Company adopted the 1997 Stock Option Plan authorizing
the issuance of nonqualified stock options to directors, officers, employees,
consultants and others to purchase common stock at prices equal to the fair
value of the Company's shares at the grant dates. Such options vest one-third
each year, beginning the year after the grant date and expire ten years from the
date of grant. The 1997 Stock Option Plan was eliminated on August 1, 1997.
In August 1997, the Company adopted the 1997 Performance Award Plan to
attract, reward and retain officers and employees. The maximum number of shares
reserved for issuance under this plan was 1,000,000. In February 1998, the
Company amended the 1997 Performance Award Plan (the "Plan") to increase the
maximum number of shares reserved for issuance under the Plan to 2,000,000.
Awards under this plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights, restricted stock,
performance shares, stock bonuses, or cash bonuses based upon performance.
Options granted in 1997 vested at 20% each year, beginning one year after the
grant date and expire seven to ten years from the date of grant.
In April 1998, the Company re-priced (by canceling and reissuing) 444,750
options granted under the Plan. The re-priced options have a ten-year life and
either (i) have an exercise price of $6.50 per share (fair market value at grant
date) and vest in equal installments on each anniversary of the April 7 grant
date over the next five years or (ii) as to officers, have exercise prices
ranging from $6.50 to $10.00 and vest at varying rates of 10% to 20% per year on
each anniversary of the April 7 grant date over the next seven years.
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. STOCKHOLDERS EQUITY (continued)
The following summarizes stock option activity for the periods presented:
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
---------- --------------
Balance at January 1, 1996........................... --- ---
Options granted..................................... 55,000 $ 3.10
---------- --------
Balance at December 31, 1996......................... 55,000 3.10
Options granted .................................... 482,000 11.14
Options exercised................................... (55,000) (3.10)
Options cancelled................................... (13,250) (12.04)
----------- --------
Balance at December 31, 1997......................... 468,750 11.11
Options granted..................................... 1,970,150 6.92
Options cancelled................................... (1,197,450) (9.19)
----------- --------
Balance at December 31, 1998......................... 1,241,450 $ 6.32
=========== ========
The following table summarizes information about stock options outstanding
at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF EXERCISE OPTIONS REMAINING WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------------- ----------- ---------------- ---------------- ----------- ----------------
$3.50 292,500 10.0 years $ 3.50 --- $ ---
5.00 - 6.50 662,950 9.2 years 6.39 16,667 5.00
8.00 137,500 9.3 years 8.00 --- ---
10.00 - 14.00 148,500 9.0 years 10.04 2,200 10.59
--------- ------
3.50 - 14.00 1,241,450 9.4 years 6.32 18,867 5.65
========= ======
The Company accounts for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income and net income per share had the Company
adopted the fair value method as of the beginning of 1995. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
1998, 1997 and 1996, respectively: no dividends during the expected term for all
years; expected volatility of 259%, 7% and 0%, risk-free interest rates of 5.4%,
6.4% and 6.0%; and expected lives of 9.9, 7.7 and 5.0 years. Forfeitures are
recognized as they occur. If the computed fair values of the 1998, 1997 and 1996
awards had been amortized to expense over the vesting period of the awards, pro
forma net income would have been reduced to the pro forma amounts indicated
below. There were no stock options granted prior to 1996.
BIG DOG HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. STOCKHOLDERS EQUITY (continued)
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ------------ -------------
Net income:
As reported.............................................. $ 4,032,000 $ 2,665,000 $ 635,000
Pro forma................................................ 3,586,000 2,567,000 584,000
Net income per share:
As reported:
Basic and diluted........................................ $ 0.32 $ 0.24 $ 0.06
Pro forma:
Basic and diluted........................................ $ 0.29 $ 0.23 $ 0.06
Weighted-average fair value of options granted during the year $ 5.04 $ 4.37 $ 1.55
7. RELATED PARTY TRANSACTIONS
Two of the Company's stockholders and directors had ownership interests
in two former merchandise vendors to the Company. Merchandise inventory
purchased from these related vendors totaled $2,182,000, $8,636,000, and
$8,030,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Included in accounts payable are $5,000 and $412,000 due to these vendors at
December 31, 1998 and 1997, respectively.
The Company also received consulting services from related parties in
1997 and 1996. Such expenses incurred for the years ended December 31, 1997 and
1996 were $90,000 and $208,000 respectively, and are included in general and
administrative expenses in the consolidated statements of operations.
The Company engaged a related party to perform retail construction
services. Construction services provided to the Company totaled $871,000 and
$371,000 for the years ended December 31, 1998 and 1997, respectively.
8. SUBSEQUENT EVENT
In February 1999, the Company declared an annual dividend of $0.10 per
share payable on March 4, 1999, to stockholders of record at the close of
business on February 22, 1999.
9. QUARTERLY FINANCIAL DATA (unaudited)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(in thousands, except per share)
Year ended December 31, 1998:
Net sales.................................. $ 14,212 $ 22,389 $ 28,354 $ 35,722
Gross profit............................... 7,650 13,573 17,088 21,130
Selling, marketing and distribution expenses 10,450 11,766 11,895 13,698
General and administrative expenses......... 1,150 1,332 1,330 1,464
Total operating expenses.................... 11,600 13,098 13,225 15,162
(Loss) income from operations............... (3,950) 475 3,863 5,968
Net (loss) income........................... (2,279) 327 2,400 3,584
Net (loss) income per share
Basic and diluted......................... $ (0.17) $ 0.03 $ 0.20 $ 0.30
Weighted average shares outstanding
Basic..................................... 13,150 12,476 12,183 12,100
Diluted................................... 13,150 12,532 12,204 12,110
Year ended December 31, 1997:
Net sales................................... $ 12,265 $ 18,878 $ 24,129 $ 30,909
Gross profit................................ 6,670 11,265 14,107 17,811
Selling, marketing and distribution expenses 8,454 9,310 9,879 11,906
General and administrative expenses......... 1,035 1,076 1,118 1,509
Total operating expenses.................... 9,489 10,386 10,997 13,415
(Loss) income from operations................ (2,819) 879 3,110 4,396
Net (loss) income........................... (2,031) 228 1,607 2,861
Net (loss) income per share
Basic..................................... $ (0.20) $ 0.02 $ 0.16 $ 0.22
Diluted................................... (0.20) 0.02 0.15 0.22
Weighted average shares outstanding
Basic..................................... 10,161 10,161 10,355 13,157
Diluted................................... 10,161 10,421 10,652 13,271
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation1
3.1A Certificate of Correction1
3.2 Amended and Restated Bylaws (2)
4.1 Reference is hereby made to Exhibits 3.1, 3.1A and 3.2
4.2 Specimen Stock Certificate (1)
10.1 Grid Promissory Note of Company to Israel Discount
Bank dated 2/19/98
10.3 Form of Warrants issued November 4, 19961
10.10 Amended and Restated 1997 Performance Award Plan
10.10A Form of Employee Nonqualified 1997 Performance Award
Plan (1)
10.10B Terms and Conditions for Non-Qualified Options
Granted under the Amended and Restated 1997
Performance Award Plan
10.10C Form of Eligible Director Non-Qualified Stock Option
Agreement
10.11 Lease between Big Dog USA, Inc. and The Prudential
Insurance Company of America dated November 4,
1997 (2)
10.12 Lease Agreement between Big Dog Holdings, Inc. and
S.V.B. Properties dated as of June 1, 1994, as
amended by Lease Agreement dated as of
December 1, 1994, Second Lease Amendment dated as
of March 1, 1996, Third Lease Amendment between
Big Dog Holdings and Freeland Realty LLC dated as
of July 22, 1996, (1) and Fourth Lease Amendment
dated December 18, 1998
10.14 Form of Indemnification Agreement (1)
21.1 List of Subsidiaries of Big Dog Holdings, Inc. (1)
24.1 Power of Attorney (included in signature page)
27.1 Financial data schedule
(1) Incorporated by reference from the Company's S-1 Registration Statement (No.
333-33027), as amended, which became effective September 25, 1997
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
Exhibit 10.1
GRID PROMISSORY NOTE
$ 8,000,000.00 February 19, 1998
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
ISRAEL DISCOUNT BANK LIMITED, LOS ANGELES AGENCY (hereinafter the "Bank") at its
principal office, located at 206 North Beverly Drive, Beverly Hills, CA 90210,
the principal amount of EIGHT MILLION DOLLARS ($8,000.000.00) or, if less, the
aggregate unpaid principal amount of each advance (the "Advance") made by the
Bank, in its sole discretion, to the undersigned from time to time, endorsed on
the schedule attached hereto and made a part of this Note, including additional
pages, if any, attached hereto (the "Schedule") on the maturity date of each
such Advance as shown in the Schedule. The undersigned shall also pay to the
Bank interest monthly in arrears commencing on the first day of each month
beginning with the month immediately following the date of the Advance, as set
forth in the Schedule, and continuing on the same day of each month thereafter
until maturity (whether as stated or by acceleration) computed on each unpaid
Advance at the rate endorsed on the Schedule. Interest shall be paid at the
option of the undersigned at a rate of either (a) the prime loan rate of the
Bank, as determined by the Bank from time to time, minus three eighths of one
percent (3/8%) on the Interest Adjustment Date (as hereinafter defined) for an
Interest Period (as hereinafter defined), or (b) 250 basis points over LIBOR as
determined by the Bank from time to time in its sole discretion for amounts and
time comparable to the amount of any Advance hereunder on the Interest
Adjustment Date for an Interest Period of 30, 60 or 90 days as selected by the
undersigned on the Interest Adjustment Date (the "Interest Rate").
Interest shall be calculated on the basis of a 360-day year and actual
number of days elapsed (but in no event in excess of the maximum rate permitted
by applicable law). Any change in Interest Rate shall be effective on the
Interest Adjustment Date.
Payment of interest or principal more than ten days after such payment
is due shall be subject to an additional late payment fee of five (5%) percent
of such payment. Interest from and after maturity (whether as stated or by
acceleration) shall be at the rate per annum equal to five (5%) percent above
the rate charged hereunder on the date of such maturity or if such rate shall
not be lawful with respect to the undersigned, at the highest lawful rate then
in effect.
Subject to the provisions set forth below in this paragraph, all unpaid
Advances and interest accruing at the Prime Loan Rate under this Note may be
prepaid in whole or in part, without premium or penalty. Upon any prepayment of
all or a part of an Advance wherein interest is accruing based upon LIBOR
(hereinafter the "Prepaid Amount"), at any time other than on an Interest
Adjustment Date, for any reason, whether voluntary or involuntary, or after
acceleration of the maturity hereof, the undersigned shall pay to the Bank a
prepayment premium equal to the amount of interest which the Bank would have
earned on the Prepaid Amount at the then current Interest Rate from the date of
such prepayment to the next Interest Adjustment Date occurring hereunder. The
Bank shall not be obligated to accept any Prepaid Amount unless it is
accompanied by the prepayment premium, if any, due in connection therewith, as
calculated pursuant to this paragraph.
The undersigned shall request each Advance, and choose an Interest
Period for each Advance based on LIBOR, on each Interest Adjustment Date, by
giving the Bank telephonic notice not later than twelve-thirty p.m., California
time, (which telephonic notice shall be followed by prompt written confirmation
thereof delivered to the Bank). The Bank shall be entitled to rely upon such
telephonic notice and the undersigned hereby agrees to indemnify the Bank
against any claims, liabilities, losses and expenses ensuing from such reliance.
In the event the undersigned fails to notify the Bank as provided above, then in
that event, the Bank has the option in its sole discretion to choose on behalf
of the undersigned an Interest Rate based upon a 30 day Interest Period.
The undersigned hereby expressly authorizes the Bank to record on the
attached Schedule the applicable Rate of interest, the applicable Interest
Period, the amount and date of each Advance made hereunder, the maturity date
thereof and the date and amount of each payment of an Advance. Bank shall render
to the undersigned a monthly statement (the Loan Billing Statement) setting
forth the transactions arising hereunder. Each statement hall be considered
correct and binding upon the undersigned as an account stated, except to the
extent that Bank receives, within 60 days after the mailing of such statement,
written notice from the undersigned of any specific exceptions by the
undersigned to that statement. All payments hereunder shall be made in lawful
money of the United States and in immediately available funds. Any extension of
time for the payment of any Advances made pursuant to this Note resulting from
the due date falling on a Saturday, Sunday or legal holiday shall be included in
the computation of interest.
"Interest Period" shall mean a period of time selected by the
undersigned for which a particular rate of interest shall apply under this Note.
"Interest Adjustment Date" shall mean the last date of the Interest
Period, provided that if such date falls on a day which is not a business day,
the Interest Adjustment Date shall be next succeeding business day. The term
"business day" shall mean any day other than a Saturday, Sunday or business
holiday in the State of California.
If any amount payable on any Liabilities (as defined below) of the
undersigned to the Bank shall not be paid within 5 days of written notice that
the same is due, then this Note and the principal of and accrued interest on
each Advance evidenced hereby shall, unless the Bank shall otherwise elect,
become forthwith due and payable in full, without protest, presentment, notice
or demand, all of which are expressly waived by the undersigned.
The term "Liabilities" shall include this Note and all other
indebtedness, obligations and liabilities of any kind of the undersigned to the
Bank or another or others of whatsoever nature and howsoever evidenced, whether
now existing or hereafter incurred, originally contracted with the Bank and/or
another or others and now or hereafter owing to or acquired in any manner, in
whole or in part, by the Bank, or in which the Bank may acquire a participation,
whether contracted by the undersigned alone or jointly and/or severally with
another or others, whether direct or indirect, absolute or contingent, secured
or not secured, matured or not matured, contractual or tortious, liquidated or
unliquidated, or arising by operation of law or otherwise, including other
indebtedness, obligations and liabilities to the Bank of the undersigned as a
member of any partnership, syndicate, association or other group, and whether
incurred by the undersigned as principal, surety, indorser, guarantor,
accommodation party or otherwise.
The term "Security" shall include the following property: all personal
property and fixtures of the undersigned wherever located and whether now owned
or in existence or hereafter acquired or created, including goods, documents,
instruments, general intangibles, chattel paper, accounts and contract rights,
such terms having the meaning ascribed by the Uniform Commercial Code; products
and proceeds; and the balance of every deposit account of the undersigned with
the Bank and any other claim of the undersigned against the Bank, now or
hereafter existing, and all money, instruments, securities, documents, chattel
paper, credits, claims, demands and any other property, rights and interest of
the undersigned which at any time shall come into the possession or custody or
under the control of the Bank or any of its agents, associates or
correspondents, for any purpose, and shall include the proceeds of any thereof,
and the Bank shall be deemed to have possession of any of the Security in
transit to or set apart for it or any of its agents, associates or
correspondents.
As security for the payment of this Note and all other Liabilities, the
undersigned hereby grant to the Bank a security interest in, and a general lien
upon and/or right of set-off, the Security.
The right is expressly granted to the Bank, at its discretion and
without notice to or containing the signature of the undersigned, to file one or
more financing statements under the Uniform Commercial Code naming the
undersigned as debtor and the Bank as secured party and indicating therein the
type or describing the items of Security herein specified. Without the prior
written consent of the Bank the undersigned will not file or authorize to permit
to be filed in any jurisdiction any such financing or like statement in which
the Bank is not named as the sole secured party.
The Bank, at its discretion may, whether any of the Liabilities be due,
in its name or in the name of the undersigned or otherwise, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of or in exchange for, or make any compromise or settlement deemed
desirable with respect to, any of the Security, but shall be under no obligation
so to do, or the Bank may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the Security,
without thereby incurring responsibility to, or discharging or otherwise
affecting any liability of, the undersigned. The Bank shall not be required to
take any steps necessary to preserve any rights against prior parties to any of
the Security. Upon default hereunder or in connection with any of the
Liabilities (whether such default be that of the undersigned or of any party
obligated thereon), the Bank shall have the rights and remedies provided by law;
and the Bank may sell or cause to be sold in the county of Los Angeles,
California, or elsewhere, in one or more sales or parcels, at such price as the
Bank may deem best, and for cash or on credit or for future delivery, without
assumption of any credit risk, all or any of the Security at any public or
private sale, without demand of performance or notice of intention to sell or of
time or place of sale (except such notice as is required by applicable statute
and cannot be waived), and the Bank or anyone else may be the purchaser of any
or all of the Security so sold and thereafter hold the same absolutely, free
from any claim or right of whatsoever kind, including any equity of redemption,
of the undersigned, any such demand, notice or right and equity being hereby
waived and released. The undersigned will pay to the Bank all expenses
(including expense for legal services of every kind) of, or incidental to the
enforcement of any of the provisions hereof or of any of the Liabilities, or any
actual or attempted sale or any exchange enforcement, collection, compromise or
settlement of any of the Security or receipt of the proceeds thereof, and for
the care of the Security and defending or asserting the rights and claims of the
Bank in respect thereof, by litigation or otherwise, including expense or
insurance, and all such expenses, shall be indebtedness within the terms of this
Note.
The undersigned represents and warrants that: (1) it is a corporation
duly organized and existing under the laws of the State of its incorporation and
is duly qualified to do business and is in good standing in every State where
the failure to qualify would materially and adversely affect the financial
condition of the undersigned; (2) the execution, issuance and delivery of this
Note by the undersigned are within its corporate powers and have been duly
authorized, and the Note is valid, binding and enforceable in accordance with
its terms, and is not in violation of law or of the terms of the undersigned's
Certificate of Incorporation or By-Laws and does not result in the breach of or
constitute a default under any indenture, agreement or undertaking to which the
undersigned is a party or by which it or its property may be bound or affected;
(3) the financial statements of the undersigned dated as of December 31, 1997
heretofore furnished to the Bank are complete and correct and fairly represent
the financial condition of the undersigned as of December 31, 1997, and the
result of its operations for the period ending on December 31, 1997 and since
December 31, 1997 no material adverse change in the financial condition of the
undersigned has occurred; (4) no Event of Default (as hereinafter defined) has
occurred and no event has occurred which with the giving of notice or the lapse
of time or both would constitute an Event of Default; (5) the undersigned shall
not use any part of the proceeds of any Advance hereunder to purchase or carry
any margin stock within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System or to extend credit to others for the purpose of
purchasing or carrying any margin stock; (6) on the occasion of each Advance
hereunder all representations and warranties contained herein or otherwise made
in writing in connection herewith shall be true and correct and with the same
force and effect as though such representations and warranties had been made on
and as of the date of the making of each such Advance.
Upon the occurrence of any of the following specified events of default
(each an "Event of Default"): (1) default by the undersigned in making any
payment of principal, interest, or any other amount payable under this Note
within 5 days of written notice that the same is due; or (2) the undersigned, or
any maker, drawer, acceptor, indorser, guarantor, surety, accommodation party or
other person liable upon or for any of the Liabilities or Security (each
hereinafter called an "other liable party"), shall die, become insolvent
(however such insolvency may be evidenced), fail to pay any debt in excess of
$200,000 as such debt becomes due including any grace period, or make a general
assignment for the benefit of creditors,; or (3) the undersigned shall suspend
the transaction of his, its or their usual business, or be expelled from or
suspended by any stock or securities exchange or other exchange, or any
proceeding, procedure or remedy supplementary to or in enforcement of a judgment
in excess of $200,000 shall be resorted to or commenced against, or with respect
to any property of, the undersigned or other liable party; or (4) a petition in
bankruptcy or for any relief under any law relating to the relief of debtors,
readjustment of indebtedness, reorganization, composition or extension shall be
filed, or any proceeding shall be instituted under any such law, by or against
the undersigned or other liable party; or (5) any governmental authority or any
court at the instance thereof shall take possession of any substantial part of
the property of, or assume control over the affairs or operations of, or a
trustee or receiver shall be appointed for, or if a substantial part of the
property of, or a writ or order of attachment or garnishment or similar process
shall be issued or made against any substantial part of the property of, the
undersigned; or (6) default by the undersigned or other liable party in the due
payment of any indebtedness for borrowed money in excess of $200,000 or in the
observance or performance of any covenant or condition contained in any
agreement or instrument evidencing, securing, or relating to any such
indebtedness, and continuance of any such default for a period sufficient to
cause or permit the acceleration of the maturity thereof: or (7) the undersigned
or any other liable party conceals, removes or permits to be concealed or
removed any part of the undersigned's property with intent to hinder, delay or
defraud any of its creditors; or (8) the making or suffering by the undersigned
or any other liable party of a transfer of any property, which is fraudulent
under the law of any applicable jurisdiction; or (9) any material representation
or warranty made by the undersigned or any other liable party to the Bank under
this Note or in any other instrument or document delivered by the undersigned or
any other liable party to the Bank should prove to be false or misleading in any
material way; or (10) the Security shall, in the sole reasonable discretion of
the Bank, have become unsatisfactory and the undersigned fails upon demand of
the Bank to furnish such further security or to make payment on account of any
of the Liabilities as would be satisfactory to the Bank; or (11) if any sum
payable under any of the Liabilities be not paid within 5 days of written notice
that the same is due; or (12) default in the observance or performance of any
other agreement of the undersigned set forth herein that is not covered within
30 days of written notice; THEN, and at any time thereafter, unless and to the
extent that the Bank shall otherwise elect, all of the Liabilities shall become
and be due and payable forthwith; without presentment, demand, protest or other
notice of any kind, all of which are expressly waived by the undersigned.
No delay on the part of the Bank in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof or the exercise of any other power or right. The rights, remedies, and
benefits herein expressly specified are cumulative and not exclusive of any
rights, remedies or benefits which the Bank may otherwise have. The undersigned
hereby waives demand, presentment, notice of dishonor and protest of all
instruments included in or evidencing the Liabilities and any and all other
notices and demands whatsoever, whether or not relating to any such instrument.
THE UNDERSIGNED IN ANY LITIGATION (WHETHER OR NOT ARISING OUT OF OR
RELATING TO THIS NOTE OR ANY OTHER LIABILITIES) IN WHICH THE UNDERSIGNED AND THE
BANK SHALL BE ADVERSE PARTIES, HEREBY WAIVES THE RIGHT TO TRIAL BY JURY AND THE
RIGHT TO INTERPOSE ANY DEFENSE, SET-OFF OR COUNTERCLAIM OF ANY NATURE OR
DESCRIPTION, EXCEPT THE DEFENSE OF PAYMENT.
The undersigned agrees to pay on demand all of the Bank's reasonable
out of pocket costs and expenses, including reasonable counsel fees, in
connection with collection of any amounts due to the Bank and enforcement of its
rights under this Note.
No provision hereof shall be modified or limited except by a written
instrument signed by the Bank expressly referring hereto and to the provision so
modified or limited. The undersigned, if more than one, shall be jointly and
severally liable hereunder and all provisions hereof regarding the Liabilities
of the undersigned shall apply to any liability of any or all of them. This Note
and the provisions hereof are to be binding upon the heirs, executors,
administrators, assigns or successors of the undersigned.
The undersigned hereby consents to the in personam jurisdiction of the
courts of California and the United States District Court for the Southern
District of California in connection with any claim arising with respect to this
Note or any of the Liabilities. In the event any such action is commenced in any
such court, service of process may be made on the undersigned by mailing a copy
thereof to it at the address then reflected in the Bank's records by certified
mail, return receipt requested. Such mailing shall be deemed personal service
and shall be legal and binding upon the undersigned in any such action or claim.
This Note and the provisions hereof are to be construed according to
and governed by the laws of the State of California.
This Note replaces the note issued by the undersigned to the Bank dated
June 30, 1995 (the "Prior Note"); and all advances outstanding under the Prior
Note, as of the date of this Note, shall be deemed outstanding under this Note
as of the date of this Note.
BIG DOG HOLDINGS, INC.
[SEAL] By:/s/ANTHONY J. WALL
Name:Anthony J. Wall
Title:Executive Vice
President
BIG DOG USA, INC.
[SEAL] By:/s/ANTHONY J. WALL
Name:Anthony J. Wall
Title:Executive Vice
President
EXHIBIT 10.10
BIG DOG HOLDINGS, INC.
AMENDED AND RESTATED
1997 PERFORMANCE AWARD PLAN
(AS OF FEBRUARY 5, 1998)
1 . The Plan..................................................................10
1.1 Purpose...............................................................10
1.2 Administration and Authorization; Power and Procedure.................10
1.2.1 Committee.......................................................10
1.2.2 Plan Awards; Interpretation; Powers of Committee................10
1.2.3 Binding Determinations.......................... ...............10
1.2.4 Reliance on Experts.............................................11
1.2.5 Bifurcation of Plan Administration; Delegation..................11
1.3 Participation.........................................................11
1.4 Shares Available for Awards; Share Limits.............................11
1.4.1 Shares Available................................................11
1.4.2 Share Limits....................................................11
1.4.3 Share Reservation; Replenishment and Reissue of Unvested Awards.11
1.5 Grant of Awards.......................................................11
1.6 Award Period..........................................................11
1.7 Limitations on Exercise and Vesting of Awards.........................12
1.7.1 Provisions for Exercise.........................................12
1.7.2 Procedure.......................................................12
1.7.3 Fractional Shares/Minimum Issue.................................12
1.8 Acceptance of Notes to Finance Exercise...............................12
1.8.1 Principal.......................................................12
1.8.2 Term............................................................12
1.8.3 Recourse; Security..............................................12
1.8.4 Termination of Employment.......................................12
1.9 No Transferability; Limited Exception to Transfer Restrictions........12
1.9.1 Limit On Exercise and Transfer..................................13
1.9.3 Further Exceptions to Limits On Transfer........................13
2. Options....................................................................13
2.1 Grants.................................................................13
2.2 Option Price...........................................................13
2.2.1 Pricing Limits...................................................13
2.2.2 Payment Provisions...............................................13
2.3 Limitations on Grant and Terms of Incentive Stock Options..............14
2.3.1 $100,000 Limit...................................................14
2.3.2 Option Period....................................................14
2.3.3 Other Code Limits................................................14
2.4 Limits on 10% Holders..................................................14
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions.......14
2.6 Effects of Termination of Employment; Termination of Subsidiary Status;
Discretionary Provisions.............................................14
2.6.1 Options - Resignation or Dismissal...............................14
2.6.2 Options - Death or Disability....................................15
2.6.3 Options - Retirement.............................................15
2.6.4 Certain SARs.....................................................15
2.6.5 Other Awards.....................................................15
2.6.6 Committee Discretion.............................................15
2.7 Options and Rights in Substitution for Stock Options Granted by Other
Corporations.........................................................15
3. Stock Appreciation Rights..................................................15
3.1 Grants.................................................................15
3.2 Exercise of Stock Appreciation Rights..................................15
3.2.1 Exercisability...................................................15
3.2.2 Effect on Available Shares.......................................15
3.2.3 Stand-Alone SARs.................................................16
3.2.4 Proportionate Reduction..........................................16
3.3 Payment................................................................16
3.3.1 Amount...........................................................16
3.3.2 Form of Payment..................................................16
3.4 Limited Stock Appreciation Rights......................................16
4. Restricted Stock Awards....................................................16
4.1 Grants.................................................................16
4.2 Restrictions...........................................................17
4.2.1 Pre-Vesting Restraints...........................................17
4.2.2 Dividend and Voting Rights.......................................17
4.2.3 Cash Payments....................................................17
4.3 Return to the Corporation..............................................17
5. Performance Share Awards and Stock Bonuses.................................17
5.1 Grants of Performance Share Awards.....................................17
5.2 Special Performance-Based Share Awards.................................17
5.2.1 Eligible Class...................................................18
5.2.2 Maximum Award....................................................18
5.2.3 Committee Certification..........................................18
5.2.4 Terms and Conditions of Awards...................................18
5.2.5 Stock Payout Features............................................18
5.2.6 Adjustments for Material Changes.................................18
5.3 Grants of Stock Bonuses................................................18
5.4 Deferred Payments......................................................18
5.5 Cash Bonus Awards......................................................19
5.5.1 Performance Goals................................................19
5.5.2 Payment in Restricted Stock......................................19
6. Other Provisions...........................................................19
6.1 Rights of Eligible Persons, Participants and Beneficiaries.............19
6.1.1 Employment Status................................................19
6.1.2 No Employment Contract...........................................19
6.1.3 Plan Not Funded..................................................19
6.2 Adjustments; Acceleration..............................................19
6.2.1 Adjustments......................................................19
6.2.2 Acceleration of Awards Upon Change in Control....................20
6.2.3 Possible Early Termination of Accelerated Awards.................20
6.2.4 Golden Parachute Limitations.....................................21
6.3 Effect of Termination of Employment....................................21
6.4 Compliance with Laws...................................................21
6.5 Tax Withholding........................................................21
6.5.1 Provision for Tax Withholding Offset.............................21
6.5.2 Tax Loans........................................................21
6.6 Plan Amendment, Termination and Suspension.............................21
6.6.1 Board Authorization..............................................21
6.6.2 Stockholder Approval.............................................22
6.6.3 Amendments to Awards.............................................22
6.6.4 Limitations on Amendments to Plan and Awards.....................22
6.6.5 Amendments to Formula Awards.....................................22
6.7 Privileges of Stock Ownership..........................................22
6.8 Effective Date of the Plan.............................................22
6.9 Term of the Plan.......................................................22
6.10 Governing Law/Construction/Severability...............................22
6.10.1 Choice of Law..................................................22
6.10.2 Severability...................................................23
6.10.3 Plan Construction..............................................23
6.11 Captions..............................................................23
6.12 Effect of Change of Subsidiary Status.................................23
6.13 Non-Exclusivity of Plan...............................................23
7. Definitions................................................................23
1. The Plan
1.1 Purpose. The purpose of this Plan is to promote the success of the
Company and the interests of its stockholders by attracting, motivating,
retaining and rewarding directors, officers, employees and other eligible
persons with awards and incentives for high levels of individual performance and
improved financial performance of the Company. "Corporation" means Big Dog
Holdings, Inc. and "Company" means the Corporation and its Subsidiaries,
collectively. These terms and other capitalized terms are defined in Section 7.
1.2 Administration and Authorization; Power and Procedure1.
1.2.1 Committee1.This Plan will be administered by and all Awards will be
authorized by the Committee. Action of the Committee with respect to the
administration of this Plan will be taken pursuant to a majority vote or by
written consent of its members.
1.2.2 Plan Awards; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan and any express limitations on the delegated
authority of a Committee, the Committee will have the authority to:
(a) determine eligibility and the particular Eligible Persons who will
receive Awards;
(b) grant Awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the amount of securities to be offered
or awarded to any of such persons, and determine the other specific terms and
conditions of such Awards consistent with the express limits of this Plan, and
establish the installments (if any) in which such Awards will become exercisable
or will vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion of such Awards;
(c) approve the forms of Award Agreements (which need not be identical
either as to type of Award or among Participants);
(d) construe and interpret this Plan and any agreements defining the rights
and obligations of the Company and Employee Participants under this Plan,
further define the terms used in this Plan, and prescribe, amend and rescind
rules and regulations relating to the administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights with respect to, or
modify, discontinue, suspend, or terminate any or all outstanding Awards held by
Eligible Persons, subject to any required consent under Section 6.6;
(f) accelerate or extend the exercisability or extend the term of any or
all such outstanding Awards within the maximum ten-year term of Awards under
Section 1.6; and
(g) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
1.2.3 Binding Determinations. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan will be within the absolute discretion of that entity or body and will
be conclusive and binding upon all persons. No member of the Board or Committee,
or officer of the Corporation or any Subsidiary, will be liable for any such
action or inaction of the entity or body, of another person or, except in
circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
1.2.4 Reliance on Experts. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the case may
be, may obtain and may rely upon the advice of experts, including professional
advisors to the Corporation. No director, officer or agent of the Company will
be liable for any such action or determination taken or made or omitted in good
faith.
1.2.5 Bifurcation of Plan Administration; Delegation. Subject to the limits
of Section 7, the Board may delegate different levels of authority to different
Committees with administration and grant authority under this Plan, provided
that each designated Committee granting any Awards hereunder shall consist
exclusively of a member or members of the Board. A majority of the members of
the acting Committee shall constitute a quorum. The vote of a majority of a
quorum or the unanimous written consent of the Committee shall constitute action
by the Committee. A Committee may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
1.3 Participation1.Discretionary Awards may be granted by the Committee
only to those persons that the Committee determines to be Eligible Persons. An
Eligible Person who has been granted an Award may, if otherwise eligible, be
granted additional Awards if the Committee so determines.
1.4 Shares Available for Awards; Share Limits
1.4.1 Shares Available. Subject to the provisions of Section 6.2, the
capital stock that may be delivered under this Plan will be shares of the
Corporation's authorized but unissued Common Stock and any shares of its Common
Stock held as treasury shares. The shares may be delivered for any lawful
consideration.
1.4.2 Share Limits. The maximum number of shares of Common Stock that may
be delivered pursuant to Awards granted to Eligible Persons under this Plan will
not exceed two million (2,000,000) shares (the "Share Limit"). The maximum
number of shares subject to those options and Stock Appreciation Rights that are
granted during any calendar year to any one individual will be limited to three
hundred thousand (300,000) and the maximum individual limit on the number of
shares in the aggregate subject to all Awards that during any calendar year are
granted under this Plan to any one individual will be three hundred thousand
(300,000). Each of the foregoing numerical limits will be subject to adjustment
as contemplated by this Section 1.4 and Section 6.2.
1.4.3 Share Reservation; Replenishment and Reissue of Unvested Awards. No
Award may be granted under this Plan unless, on the date of grant, the sum of
(a) the maximum number of shares issuable at any time pursuant to such Award,
plus (b) the number of shares that have previously been issued pursuant to
Awards granted under this Plan, other than reacquired shares available for
reissue consistent with any applicable legal limitations, plus (c) the maximum
number of shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does not exceed the Share
Limit. Shares that are subject to or underlie Awards that expire or for any
reason are canceled or terminated, are forfeited, fail to vest, or for any other
reason are not paid or delivered under this Plan, as well as reacquired shares,
will again, except to the extent prohibited by law, be available for subsequent
Awards under the Plan. Except as limited by law, if an Award is or may be
settled only in cash, such Award need not be counted against any of the limits
under this Section 1.4.
1.5 Grant of Awards. Subject to the express provisions of this Plan, the
Committee will determine the number of shares of Common Stock subject to each
Award, the price (if any) to be paid for the shares or the Award and, in the
case of performance share awards, in addition to matters addressed in Section
1.2.2, the specific objectives, goals and performance criteria (such as an
increase in sales, market value, earnings or book value over a base period, the
years of service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
performance share award. Each Award will be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the Participant.
1.6 Award Period. Any Option, SAR, warrant or similar right shall expire
and any other Award shall either vest or be forfeited not more than 10 years
after the date of grant; provided, however, that any payment of cash or delivery
of stock pursuant to an Award may be delayed until a future date if specifically
authorized by the Committee in writing.
1.7 Limitations on Exercise and Vesting of Awards
1.7.1 Provisions for Exercise1. Unless the Committee otherwise expressly
provides, no Award will be exercisable or will vest until at least six months
after the initial Award Date, and once exercisable an Award will remain
exercisable until the expiration or earlier termination of the Award.
1.7.2 Procedure. Any exercisable Award will be deemed to be exercised when
the Corporation receives written notice of such exercise from the Participant,
together with any required payment made in accordance with Section 2.2.2 or the
applicable Award Agreement.
1.7.3 Fractional Shares/Minimum Issue. Fractional share interests will be
disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Persons that cash, other securities, or other property will
be paid or transferred in lieu of any fractional share interests. No fewer than
100 shares may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for purchase under
the Award.
1.8 Acceptance of Notes to Finance Exercise. The Corporation may, with the
Committee's express approval, accept one or more notes from any Eligible Person
in connection with the exercise or receipt of any outstanding Award; but any
such note will be subject to the following terms and conditions:
1.8.1 Principal. The principal of the note will not exceed the amount
required to be paid to the Corporation upon the exercise or receipt of one or
more Awards under the Plan and the note will be delivered directly to the
Corporation in consideration of such exercise or receipt.
1.8.2 Term. The initial term of the note will be determined by the
Committee; but the term of the note, including extensions, will not exceed a
period of five years.
1.8.3 Recourse; Security. The note will provide for full recourse to the
Participant and will bear interest at a rate determined by the Committee but not
less than the interest rate necessary to avoid the imputation of interest under
the Code. If required by the Committee or by applicable law, the note will be
secured by a pledge of any shares or rights financed thereby in compliance with
applicable law. The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note will conform with
applicable rules and regulations of the Federal Reserve Board as then in effect.
1.8.4 Termination of Employment. If the employment or term of service of
the Participant terminates, the unpaid principal balance of the note will become
due and payable on the 10th business day after such termination; but if a sale
of such shares would cause such Participant to incur liability under Section
16(b) of the Exchange Act, the unpaid balance will become due and payable on the
10th business day after the first day on which a sale of such shares could have
been made without incurring such liability assuming for these purposes that
there are no other transactions (or deemed transactions in securities of this
Corporation) by the Participant after such termination.
1.9 No Transferability; Limited Exception to Transfer Restrictions
1.9.1 Limit On Exercise and Transfer. Unless otherwise expressly provided
in (or pursuant to) this Section 1.9, by applicable law and by the Award
Agreement, as the same may be amended, (a) all Awards are non-transferable and
will not be subject in any manner to sale, transfer, anticipation, alienation,
assignment, pledge, encumbrance or charge; Awards will be exercised only by the
Participant; and (b) amounts payable or shares issuable pursuant to an Award
will be delivered only to (or for the account of) the Participant.
1.9.2 Exceptions. The Committee may permit Awards to be exercised by and
paid only to certain persons or entities related to the Participant pursuant to
such conditions and procedures as the Committee may establish. Any permitted
transfer will be subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for estate and/or tax
planning purposes and without consideration (other than nominal consideration).
ISOs and Restricted Stock Awards, however, will be subject to any and all
additional transfer restrictions under the Code.
1.9.3 Further Exceptions to Limits On Transfer. The exercise and transfer
restrictions in Section 1.9.1 will not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive benefits if
the Participant dies or, if the Participant has died, transfers
to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or
the laws of descent and distribution,
(c) transfers pursuant to a QDRO if approved or ratified by
the Committee,
(d) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by the
Participant's legal representative, or
(e) the authorization by the Committee of "cashless
exercise" procedures with third parties who provide financing for
the purpose of (or who otherwise facilitate) the exercise of
Awards consistent with applicable laws and the express
authorization of the Committee.
2. Options
2.1 Grants One or more Options may be granted under this Section to any
Eligible Person. Each Option granted will be designated in the applicable Award
Agreement, by the Committee as either an Incentive Stock Option, subject to
Section 2.3, or a Non-Qualified Stock Option.
2.2 Option Price
2.2.1 Pricing Limits. The purchase price per share of the Common Stock
covered by each Option will be determined by the Committee at the time of the
Award, but in the case of Incentive Stock Options will not be less than 100%
(110% in the case of a Participant described in Section 2.4) of the Fair Market
Value of the Common Stock on the date of grant and in all cases will not be less
than the par value thereof.
2.2.2 Payment Provisions2.2.2 Payment Provisions. The purchase price of any
shares purchased on exercise of an Option granted under this Section will be
paid in full at the time of each purchase in one or a combination of the
following methods: (a) in cash or by electronic funds transfer; (b) by certified
or cashier's check payable to the order of the Corporation; (c) if authorized by
the Committee or specified in the applicable Award Agreement, by a promissory
note of the Participant consistent with the requirements of Section 1.8; (d) by
notice and third party payment in such manner as may be authorized by the
Committee; or (e) by the delivery of shares of Common Stock of the Corporation
already owned by the Participant, but the Committee may in its absolute
discretion limit the Participant's ability to exercise an Award by delivering
such shares, and any shares delivered that were initially acquired upon exercise
of a stock option must have been owned by the Participant at least six months as
of the date of delivery. Shares of Common Stock used to satisfy the exercise
price of an Option will be valued at their Fair Market Value on the date of
exercise. Without limiting the generality of the foregoing, the Committee may
provide that the Option can be exercised and payment made by delivering a
properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Corporation the amount of sale proceeds
necessary to pay the exercise price and, unless otherwise prohibited by the
Committee or applicable law, any applicable tax withholding under Section 6.5.
The Corporation will not be obligated to deliver certificates for the shares
unless and until it receives full payment of the exercise price therefor and any
related withholding obligations have been satisfied.
2.3 Limitations on Grant and Terms of Incentive Stock Options
2.3.1 $100,000 Limit To the extent that the aggregate "Fair Market Value"
of stock with respect to which incentive stock options first become exercisable
by a Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company or any
parent corporation, such options will be treated as Nonqualified Stock Options.
For this purpose, the "Fair Market Value" of the stock subject to options will
be determined as of the date the options were awarded. In reducing the number of
options treated as incentive stock options to meet the $100,000 limit, the most
recently granted options will be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
2.3.2 Option Period. Subject to Section 1.6, each Option and all rights
thereunder will expire no later than 10 years after the Award Date.
2.3.3 Other Code Limits. Incentive Stock Options may only be granted to
Eligible Employees of the Corporation or a Subsidiary that satisfies the other
eligibility requirements of the Code. There will be imposed in any Award
Agreement relating to Incentive Stock Options such other terms and conditions as
from time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.4 Limits on 10% Holders.
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions
Subject to Section 1.4 and Section 6.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person any
adjustment in the exercise or purchase price, the vesting schedule, the number
of shares subject to, the restrictions upon or the term of, an Award granted
under this Section by cancellation of an outstanding Award and a subsequent
regranting of an Award, by amendment, by substitution of an outstanding Award,
by waiver or by other legally valid means. Such amendment or other action may
result among other changes in an exercise or purchase price that is higher or
lower than the exercise or purchase price of the original or prior Award,
provide for a greater or lesser number of shares subject to the Award, or
provide for a longer or shorter vesting or exercise period.
2.6 Effects of Termination of Employment; Termination of Subsidiary
Status; Discretionary Provisions.
2.6.1 Options - Resignation or Dismissal. If the Participant's employment
by (or other service specified in the Award Agreement to) the Company terminates
for any reason (the date of such termination being referred to as the "Severance
Date") other than Retirement, Total Disability or death, or "for cause" (as
determined in the discretion of the Committee), the Participant will have,
unless otherwise provided in the Award Agreement and subject to earlier
termination pursuant to or as contemplated by Section 1.6 or 6.2, three months
after the Severance Date to exercise any Option to the extent it has become
exercisable on the Severance Date. In the case of a termination "for cause", the
Option will terminate on the Severance Date. In other cases, the Option, to the
extent not exercisable on the Severance Date, will terminate.
2.6.2 Options - Death or Disability. If the Participant's employment by (or
specified service to) the Company terminates as a result of Total Disability or
death, the Participant, Participant's Personal Representative or the
Participant's Beneficiary, as the case may be, will have, unless otherwise
provided in the Award Agreement and subject to earlier termination pursuant to
or as contemplated by Section 1.6 or 6.2, until 12 months after the Severance
Date to exercise any Option to the extent it will have become exercisable by the
Severance Date. Any Option to the extent not exercisable on the Severance Date
will terminate.
2.6.3 Options - Retirement. If the Participant's employment by (or
specified service to) the Company terminates as a result of Retirement, the
Participant, Participant's Personal Representative or the Participant's
Beneficiary, as the case may be, will have, unless otherwise provided in the
Award Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.2, until 12 months after the Severance Date to
exercise any Nonqualified Stock Option (three months after the Severance Date in
the case of an Incentive Stock Option) to the extent it will have become
exercisable by the Severance Date. The Option, to the extent not exercisable on
the Severance Date, will terminate.
2.6.4 Certain SARs. Any SAR granted concurrently or in tandem with an
Option will have the same post-termination provisions and exercisability periods
as the Option to which it relates, unless the Committee otherwise provides.
2.6.5 Other Awards. The Committee will establish in respect of each other
Award granted hereunder the Participant's rights and benefits (if any) if the
Participant's employment is terminated and in so doing may make distinctions
based upon the cause of termination and the nature of the Award.
2.6.6 Committee Discretion. Notwithstanding the foregoing provisions of
this Section 2.6, in the event of, or in anticipation of, a termination of
employment with the Company for any reason, other than discharge for cause, the
Committee may increase the portion of the Participant's Award available to the
Participant, or Participant's Beneficiary or Personal Representative, as the
case may be, or, subject to the provisions of Section 1.6, extend the
exercisability period upon such terms as the Committee determines and expressly
sets forth in or by amendment to the Award Agreement.
2.7 Options and Rights in Substitution for Stock Options Granted by Other
Corporations
Rights may be granted to Eligible Persons under this Plan in substitution
for employee stock options granted by other entities to persons who are or who
will become Eligible Persons in respect of the Company, in connection with a
distribution, merger or reorganization by or with the granting entity or an
affiliated entity, or the acquisition by the Company, directly or indirectly, of
all or a substantial part of the stock or assets of the employing entity.
3. Stock Appreciation Rights (Including Limited Stock Appreciation Rights)
3.1 Grants. The Committee may grant to any Eligible Person Stock
Appreciation Rights either concurrently with the grant of another Award or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option will contain such terms as may be required to comply with
the provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder otherwise agrees.
3.2 Exercise of Stock Appreciation Rights
3.2.1 Exercisability. Unless the Award Agreement or the Committee otherwise
provides, a Stock Appreciation Right related to another Award will be
exercisable at such time or times, and to the extent, that the related Award
will be exercisable.
3.2.2 Effect on Available Shares. To the extent that a Stock Appreciation
Right is exercised, only the actual number of delivered shares of Common Stock
will be charged against the maximum amount of Common Stock that may be delivered
pursuant to Awards under this Plan. The number of shares subject to the Stock
Appreciation Right and the related Option of the Participant will, however, be
reduced by the number of underlying shares as to which the exercise related,
unless the Award Agreement otherwise provides.
3.2.3 Stand-Alone SARs. A Stock Appreciation Right granted independently of
any other Award will be exercisable pursuant to the terms of the Award Agreement
but in no event earlier than six months after the Award Date, except in the case
of death or Total Disability.
3.2.4 Proportionate Reduction If an SAR extends to less than all the shares
covered by the related Award and if a portion of the related Award is thereafter
exercised, the number of shares subject to the unexercised SAR shall be reduced
only if and to the extent that the remaining number of shares covered by such
related Award is less than the remaining number of shares subject to such SAR.
3.3 Payment
3.3.1 Amount. Unless the Committee otherwise provides, upon exercise of a
Stock Appreciation Right and the attendant surrender of an exercisable portion
of any related Award, the Participant will be entitled to receive subject to
Section 6.5 payment of an amount determined by multiplying
(a) the difference obtained by subtracting the exercise price per share of
Common Stock under the related Award (if applicable) or the initial share value
specified in the Award from the Fair Market Value of a share of Common Stock on
the date of exercise of the Stock Appreciation Right, by
(b) the number of shares with respect to which the Stock Appreciation Right
has been exercised. 3.3.2 Form of Payment3.3.2 Form of Payment. The Committee,
in its sole discretion, will determine the form in which payment will be made of
the amount determined under Section 3.3.1 above, either solely in cash, solely
in shares of Common Stock (valued at Fair Market Value on the date of exercise
of the Stock Appreciation Right), or partly in such shares and partly in cash,
but the Committee will have determined that such exercise and payment are
consistent with applicable law. If the Committee permits the Participant to
elect to receive cash or shares (or a combination thereof) on such exercise, any
such election will be subject to such conditions as the Committee may impose.
3.4 Limited Stock Appreciation Rights. The Committee may grant to any
Eligible Person Stock Appreciation Rights exercisable only upon or in respect of
a change in control or any other specified event ("Limited SARs") and such
Limited SARs may relate to or operate in tandem or combination with or
substitution for Options, other SARs or other Awards (or any combination
thereof), and may be payable in cash or shares based on the spread between the
base price of the SAR and a price based upon or equal to the Fair Market Value
of the Shares during a specified period or at a specified time within a
specified period before, after or including the date of such event.
4. Restricted Stock Awards
4.1 Grants. The Committee may grant one or more Restricted Stock Awards to
any Eligible Person. Each Restricted Stock Award Agreement will specify the
number of shares of Common Stock to be issued to the Participant, the date of
such issuance, the consideration for such shares (but not less than the minimum
lawful consideration under applicable state law) by the Participant, the extent
(if any) to which and the time (if ever) at which the Participant will be
entitled to dividends, voting and other rights in respect of the shares prior to
vesting, and the restrictions (which may be based on performance criteria,
passage of time or other factors or any combination thereof) imposed on such
shares and the conditions of release or lapse of such restrictions. Such
restrictions will not lapse earlier than six months after the Award Date, except
to the extent the Committee may otherwise provide. Stock certificates evidencing
shares of Restricted Stock pending the lapse of the restrictions ("Restricted
Shares") will bear a legend making appropriate reference to the restrictions
imposed hereunder and will be held by the Corporation or by a third party
designated by the Committee until the restrictions on such shares have lapsed
and the shares have vested in accordance with the provisions of the Award and
Section 1.7. Upon issuance of the Restricted Stock Award, the Participant may be
required to provide such further assurance and documents as the Committee may
require to enforce the restrictions.
4.2 Restrictions
4.2.1 Pre-Vesting Restraints Except as provided in Sections 4.1 and 1.9,
restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares have become vested.
4.2.2 Dividend and Voting Rights Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted Stock Award
will be entitled to cash dividend and voting rights for all shares issued even
though they are not vested, but such rights will terminate immediately as to any
Restricted Shares which cease to be eligible for vesting.
4.2.3 Cash Payments If the Participant has been paid or received cash
(including any dividends) in connection with the Restricted Stock Award, the
Award Agreement will specify whether and to what extent such cash will be
returned (with or without an earnings factor) as to any restricted shares that
cease to be eligible for vesting.
4.3 Return to the Corporation.
Unless the Committee otherwise expressly provides, Restricted Shares that
remain subject to restrictions at the time of termination of employment or are
subject to other conditions to vesting that have not been satisfied by the time
specified in the applicable Award Agreement will not vest and will be returned
to the Corporation in such manner and on such terms as the Committee provides.
5. Performance Share Awards and Stock Bonuses
5.1 Grants of Performance Share Awards. The Committee may grant Performance
Share Awards to Eligible Employees based upon such factors as the Committee
deems relevant in light of the specific type and terms of the award. An Award
Agreement will specify the maximum number of shares of Common Stock (if any)
subject to the Performance Share Award, the consideration (but not less than the
minimum lawful consideration) to be paid for any such shares as may be issuable
to the Participant, the duration of the Award and the conditions upon which
delivery of any shares or cash to the Participant will be based. The amount of
cash or shares or other property that may be deliverable pursuant to such Award
will be based upon the degree of attainment over a specified period of not more
than 10 years (a "performance cycle") as may be established by the Committee of
such measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee may provide
for full or partial credit, prior to completion of such performance cycle or the
attainment of the performance achievement specified in the Award, in the event
of the Participant's death, Retirement, or Total Disability, a Change in Control
Event or in such other circumstances as the Committee (consistent with Section
6.10.3(b), if applicable) may determine.
5.2 Special Performance-Based Share Awards. Options or SAR's granted with
an exercise price not less than Fair Market Value at the applicable date of
grant for Section 162(m) purposes to Eligible Employees which otherwise satisfy
the conditions to deductibility under Section 162(m) of the Code are deemed
"Qualifying Awards". Without limiting the generality of the foregoing, and in
addition to Qualifying Awards granted under other provisions of this Plan, other
performance-based awards within the meaning of Section 162(m) of the Code
("Performance-Based Awards"), whether in the form of restricted stock,
performance stock, phantom stock or other rights, the vesting of which depends
on the performance of the Company on a consolidated, segment, subsidiary, or
division basis, with reference to revenue growth, net earnings (before or after
taxes or before or after taxes, interest, depreciation, and/or amortization),
cash flow, return on equity or on assets or on net investment, or cost
containment or reduction, or any combination thereof (the "business criteria")
relative to preestablished performance goals, may be granted under this Plan. To
the extent so defined, these terms are used as applied under generally accepted
accounting principles and in the Company's financial reporting. The applicable
business criterion or criteria and the specific performance goals must be
approved by the Committee in advance of applicable deadlines under the Code and
while the performance relating to such goals remains substantially uncertain.
The applicable performance measurement period may be not less than one nor more
than 10 years (except as provided in Section 1.6). Other types of performance
and non-performance awards may also be granted under the other provisions of
this Plan. The following provisions relate to all Performance-Based Awards
(other than Qualifying Awards) granted under this Plan:
5.2.1 Eligible Class. The eligible class of persons for Awards under this
Section is executive officers of the Corporation.
5.2.2 Maximum Award. Subject to Section 1.4.2, in no event will grants in
any calendar year to any one individual under this Section 5.2 relate to more
than three hundred thousand (300,000) shares or, (if payable solely in cash) a
cash amount of more than one million dollars ($1,000,000).
5.2.3 Committee Certification. To the extent required by Section 162(m),
before any Performance-Based Award under this Section 5.2 is paid, the Committee
must certify that the material terms of the Performance-Based Award were
satisfied.
5.2.4 Terms and Conditions of Awards. The Committee will have discretion to
determine the restrictions or other limitations of the individual Awards under
this Section 5.2 (including the authority to reduce Awards, payouts or vesting
or to pay no Awards, in its sole discretion, if the Committee preserves such
authority at the time of grant by language to this effect in its authorizing
resolutions or otherwise).
5.2.5 Stock Payout Features. In lieu of cash payment of an Award, the
Committee may require or allow all or a portion of the Award to be paid in the
form of stock, Restricted Shares, an Option, or another Award.
5.2.6 Adjustments for Material Changes. Performance goals or other features
of an Award under this Section 5.2 may provide that they (a) shall be adjusted
to reflect a change in corporate capitalization, a corporate transaction (such
as a reorganization, combination, separation, or merger) or a complete or
partial corporate liquidation, or (b) shall be calculated either without regard
for or to reflect any change in accounting policies or practices affecting the
Company and/or the business criteria or performance goals or targets, or (c)
shall be adjusted for any other circumstance or event, or (d) any combination of
(a) through (c), but only to the extent in each case that such adjustment or
determination in respect of Performance-Based Awards would be consistent with
the requirements of Section 162(m) to qualify as performance-based compensation.
5.3 Grants of Stock Bonuses. The Committee may grant a Stock Bonus to any
Eligible Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the Committee.
The number of shares so awarded will be determined by the Committee. The Award
may be granted independently or in lieu of a cash bonus.
5.4 Deferred Payments. The Committee may authorize for the benefit of any
Eligible Person the deferral of any payment of cash or shares that may become
due or of cash otherwise payable under this Plan, and provide for accredited
benefits thereon based upon such deferment, at the election or at the request of
such Participant, subject to the other terms of this Plan. Such deferral will be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.
5.5 Cash Bonus Awards.
5.5.1 Performance Goals. The Committee may establish a program of annual
incentive awards that are payable in cash to Eligible Persons based upon the
extent to which performance goals are met during the performance period. The
performance goals may depend upon the performance of the Company on a
consolidated, subsidiary division basis with reference to revenues, net earnings
(before or after interest, taxes, depreciation, or amortization), cash flow,
return on equity or on assets or net investment, cost containment or reduction,
or achievement of strategic goals (or any combination of such factors). In
addition, the award may depend upon the Eligible Employee's individual
performance.
5.5.2 Payment in Restricted Stock. In lieu of cash payment of an Award, the
Committee may require or allow all or a portion of the Award to be paid in the
form of stock, Restricted Stock, an Option or other Award.
6. Other Provisions6. Other Provisions
6.1 Rights of Eligible Persons, Participants and Beneficiaries
6.1.1 Employment Status. Status as an Eligible Person will not be construed
as a commitment that any Award will be made under this Plan to an Eligible
Person or to Eligible Persons generally.
6.1.2 No Employment Contract. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Award) will confer upon any
Eligible Person or other Participant any right to continue in the employ or
other service of the Company or constitute any contract or agreement of
employment or other service, nor will interfere in any way with the right of the
Company to otherwise change such person's compensation or other benefits or to
terminate the employment of such person, with or without cause, but nothing
contained in this Plan or any related document will adversely affect any
independent contractual right of such person without the Participant's consent.
6.1.3 Plan Not Funded. Awards payable under this Plan will be payable in
shares or from the general assets of the Corporation, and (except as provided in
Section 1.4.3) no special or separate reserve, fund or deposit will be made to
assure payment of such Awards. No Participant, Beneficiary or other person will
have any right, title or interest in any fund or in any specific asset
(including shares of Common Stock, except as expressly otherwise provided) of
the Company by reason of any Award hereunder. Neither the provisions of this
Plan (or of any related documents), nor the creation or adoption of this Plan,
nor any action taken pursuant to the provisions of this Plan will create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive payment
pursuant to any Award hereunder, such right will be no greater than the right of
any unsecured general creditor of the Company.
6.2 Adjustments; Acceleration
6.2.1 Adjustments. The following provisions will apply if any extraordinary
dividend or other extraordinary distribution occurs in respect of the Common
Stock (whether in the form of cash, Common Stock, other securities, or other
property), or any reclassification, recapitalization, stock split (including a
stock split in the form of a stock dividend), reverse stock split,
reorganization, merger, combination, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or other securities of the
Corporation, or any similar, unusual or extraordinary corporate transaction (or
event in respect of the Common Stock) or a sale of substantially all the assets
of the Corporation as an entirety occurs. The Committee will, in such manner and
to such extent (if any) as it deems appropriate and equitable
(a) proportionately adjust any or all of (i) the number and type of shares
of Common Stock (or other securities) that thereafter may be made the subject of
Awards (including the specific maxima and numbers of shares set forth elsewhere
in this Plan), (ii) the number, amount and type of shares of Common Stock (or
other securities or property) subject to any or all outstanding Awards,(iii) the
grant, purchase, or exercise price of any or all outstanding Awards, (iv) the
securities, cash or other property deliverable upon exercise of any outstanding
Awards, or (v) the performance standards appropriate to any outstanding Awards,
or
(b)in the case of an extraordinary dividend or other distribution,
recapitalization, reclassification, merger, reorganization, consolidation,
combination, sale of assets, split up, exchange, or spin off, make provision for
a cash payment or for the substitution or exchange of any or all outstanding
Awards or the cash, securities or property deliverable to the holder of any or
all outstanding Awards based upon the distribution or consideration payable to
holders of the Common Stock of the Corporation upon or in respect of such event.
In each case, with respect to Awards of Incentive Stock Options, no such
adjustment will be made that would cause the Plan to violate Section 422 or
424(a) of the Code or any successor provisions without the written consent of
holders materially adversely affected thereby. In any of such events, the
Committee may take such action sufficiently prior to such event if necessary to
permit the Participant to realize the benefits intended to be conveyed with
respect to the underlying shares in the same manner as is available to
stockholders generally.
6.2.2 Acceleration of Awards Upon Change in Control. Unless prior to a
Change in Control Event the Committee determines that, upon its occurrence,
benefits under any or all Awards will not accelerate or determines that only
certain or limited benefits under any or all Awards will be accelerated and the
extent to which they will be accelerated, and/or establishes a different time in
respect of such Event for such acceleration, then upon the occurrence of a
Change in Control Event:
(a)each Option and Stock Appreciation Right will become immediately
exercisable,
(b) Restricted Stock will immediately vest free of restrictions, and
(c) each Performance Share Award will become payable to the Participant.
However, in the case of a transaction intended to be accounted for as a
pooling of interests transaction, the Committee shall have no discretion with
respect to the foregoing acceleration of Awards. The Committee may override the
limitations on acceleration in this Section 6.2.2 by express provision in the
Award Agreement and may accord any Eligible Person a right to refuse any
acceleration, whether pursuant to the Award Agreement or otherwise, in such
circumstances as the Committee may approve. Any acceleration of Awards will
comply with applicable legal requirements.
6.2.3 Possible Early Termination of Accelerated Awards. If any Option or
other right to acquire Common Stock under this Plan has been fully accelerated
as required or permitted by Section 6.2.2 but is not exercised prior to (a) a
dissolution of the Corporation, or (b) an event described in Section 6.2.1 that
the Corporation does not survive, or (c) the consummation of an event described
in Section 6.1 involving a Change of Control approved by the Board, such Option
or right will terminate, subject to any provision that has been expressly made
by the Committee through a plan of reorganization approved by the Board or
otherwise for the survival, substitution, assumption, exchange or other
settlement of such Option or right.
6.2.4 Golden Parachute Limitations. Unless otherwise specified in an Award
Agreement, no Award will be accelerated under this Plan to an extent or in a
manner that would not be fully deductible by the Company for federal income tax
purposes because of Section 280G of the Code, nor will any payment hereunder be
accelerated if any portion of such accelerated payment would not be deductible
by the Company because of Section 280G of the Code. If a holder would be
entitled to benefits or payments hereunder and under any other plan or program
that would constitute "parachute payments" as defined in Section 280G of the
Code, then the holder may by written notice to the Company designate the order
in which such parachute payments will be reduced or modified so that the Company
is not denied federal income tax deductions for any "parachute payments" because
of Section 280G of the Code.
6.3 Effect of Termination of Employment. The Committee will establish in
respect of each Award granted to an Eligible Person the effect of a termination
of employment on the rights and benefits thereunder and in so doing may make
distinctions based upon the cause of termination.
6.4 Compliance with Laws. This Plan, the granting and vesting of Awards
under this Plan and the offer, issuance and delivery of shares of Common Stock
and/or the payment of money under this Plan or under Awards granted hereunder
are subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law,
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan will be subject to such restrictions, and to any restrictions the
Committee may require to preserve a pooling of interests under generally
accepted accounting principles, and the person acquiring such securities will,
if requested by the Corporation, provide such assurances and representations to
the Corporation as the Corporation may deem necessary or desirable to assure
compliance with all applicable legal requirements.
6.5 Tax Withholding
6.5.1 Provision for Tax Withholding Offset. Upon any exercise, vesting, or
payment of any Award or upon the disposition of shares of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option prior to satisfaction of
the holding period requirements of Section 422 of the Code, the Company shall
have the right at its option to (i) require the Participant (or Personal
Representative or Beneficiary, as the case may be) to pay or provide for payment
of the amount of any taxes which the Company may be required to withhold with
respect to such Award event or payment or (ii) deduct from any amount payable in
cash the amount of any taxes which the Company may be required to withhold with
respect to such cash payment. In any case where a tax is required to be withheld
in connection with the delivery of shares of Common Stock under this Plan, the
Committee may in its sole discretion (subject to Section 6.4) grant (either at
the time of the Award or thereafter) to the Participant the right to elect,
pursuant to such rules and subject to such conditions as the Committee may
establish, to have the Corporation reduce the number of shares to be delivered
by (or otherwise reacquire) the appropriate number of shares valued at their
then Fair Market Value, to satisfy such withholding obligation.
6.5.2 Tax Loans. If so provided in the Award Agreement, the Company may, to
the extent permitted by law, authorize a loan to an Eligible Person in the
amount of any taxes that the Company may be required to withhold with respect to
shares of Common Stock received (or disposed of, as the case may be) pursuant to
a transaction described in Section 6.5.1. Such a loan will be for a term, at a
rate of interest and pursuant to such other terms and conditions as the Company,
under applicable law may establish and such loan need not comply with the
provisions of Section 1.8.
6.6 Plan Amendment, Termination and Suspension.
6.6.1 Board Authorization. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part. No Awards
may be granted during any suspension of this Plan or after termination of this
Plan, but the Committee will retain jurisdiction as to Awards then outstanding
in accordance with the terms of this Plan.
6.6.2 Stockholder Approval. To the extent then required under Sections 422
and 424 of the Code or any other applicable law, or deemed necessary or
advisable by the Board, any amendment to this Plan shall be subject to
stockholder approval. The changes to this Plan approved by the Board prior to
May 1, 1998 to redefine the term Other Eligible Person to permit the grant of
additional discretionary Awards to, and to permit the amendment of formula
Awards then outstanding and held by, Non-Employee Directors, and to increase
Plan and Award share limits shall be subject to stockholder approval.
6.6.3 Amendments to Awards. Without limiting any other express authority of
the Committee under but subject to the express limits of this Plan, the
Committee by agreement or resolution may waive conditions of or limitations on
Awards to Eligible Persons that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and may make other
changes to the terms and conditions of Awards that do not affect in any manner
materially adverse to the Participant, the Participant's rights and benefits
under an Award.
6.6.4 Limitations on Amendments to Plan and Awards. No amendment,
suspension or termination of this Plan or change of or affecting any outstanding
Award will, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 will
not be deemed to constitute changes or amendments for purposes of this Section
6.6.
6.6.5 Amendments to Formula Awards. Options granted under the formula Award
feature of Section 8 of the prior version of this Plan may be amended by the
Board or a duly authorized Committee of the Board in a manner permitted under
this Plan in respect of Options granted to Eligible Employees.
6.7 Privileges of Stock Ownership. Except as otherwise expressly authorized
by the Committee or this Plan, a Participant will not be entitled to any
privilege of stock ownership as to any shares of Common Stock not actually
delivered to and held of record by the Participant. No adjustment will be made
for dividends or other rights as a stockholder for which a record date is prior
to such date of delivery.
6.8 Effective Date of the Plan. The Plan was first approved by the Board
effective as of August 1, 1997, and, as amended and restated as of September 12,
1997, then approved by the Board and by the Corporation's stockholders. The Plan
was further amended and restated in its entirety by the Board as of January 1,
1998 and February 5, 1998. The restatement as of February 5, 1998 is subject to
stockholder approval and if not so approved will be rescinded, leaving the
restatement as of January 1, 1998 in effect, subject to Section 6.6.
6.9 Term of the Plan. No Award will be granted under this Plan after July
31, 2007 (the "termination date"). Unless otherwise expressly provided in this
Plan or in an applicable Award Agreement, any Award granted prior to the
termination date may extend beyond such date, and all authority of the Committee
with respect to Awards hereunder, including the authority to amend an Award,
will continue during any suspension of this Plan and in respect of Awards
outstanding on the termination date.
6.10 Governing Law/Construction/Severability
6.10.1 Choice of Law. This Plan, the Awards, all documents evidencing
Awards and all other related documents will be governed by, and construed in
accordance with the laws of the state of California.
6.10.2 Severability. If a court of competent jurisdiction holds any
provision invalid and unenforceable, the remaining provisions of this Plan will
continue in effect.
6.10.3 Plan Construction.
(a) Rule 16b-3. It is the intent of the Corporation that transactions
involving the Awards under this Plan, in the case of Participants who are or may
be subject to Section 16 of the Exchange Act, satisfy to the extent feasible the
requirements for applicable exemptions under Rule 16 so that such persons
(unless they otherwise agree) will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Exchange Act in respect of those
transactions and will not be subjected to avoidable liability thereunder.
(b) Section 162(m). It is the further intent of the Company that Options or
SARs with an exercise or base price not less than Fair Market Value on the date
of grant and Performance-Based Awards under Section 5.2 of this Plan that are
granted to or held by a person subject to Section 162(m) of the Code will
qualify as performance-based compensation under Section 162(m) of the Code to
the extent that the Committee authorizing the Award (or the payment thereof, as
the case may be) satisfies the administrative requirements thereof. This Plan
shall be interpreted consistent with such intent.
6.11 Captions. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings will not be deemed in any way material or relevant to the construction
or interpretation of this Plan or any provision thereof.
6.12 Effect of Change of Subsidiary Status. For purposes of this Plan and
any Award hereunder, if an entity ceases to be a Subsidiary a termination of
employment and service will be deemed to have occurred with respect to each
Eligible Person in respect of such Subsidiary who does not continue as an
Eligible Person in respect of another entity within the Company.
6.13 Non-Exclusivity of Plan. Nothing in this Plan will limit or be deemed
to limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common Stock,
under any other plan or authority.
7. Definitions
"Award" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
"Award Agreement" means any writing setting forth the terms of an Award that has
been authorized by the Committee.
"Award Date" means the date upon which the Committee took the action granting an
Award or such later date as the Committee designates as the Award Date at the
time of the Award.
"Award Period" means the period beginning on an Award Date and ending on the
expiration date of such Award.
"Beneficiary" means the person, persons, trust or trusts designated by a
Participant or, in the absence of a designation, entitled by will or the laws of
descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
"Board" means the Board of Directors of the Corporation.
"Change in Control Event" means any of the following:
(a) Approval by the stockholders of the Corporation of the dissolution or
liquidation of the Corporation;
(b) Approval by the stockholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more entities
that are not Subsidiaries or other affiliates, as a result of which less than
50% of the outstanding voting securities of the surviving or resulting entity
immediately after the reorganization are, or will be, owned, directly or
indirectly, by stockholders of the Corporation immediately before such
reorganization (assuming for purposes of such determination that there is no
change in the record ownership of the Corporation's securities from the record
date for such approval until such reorganization and that such record owners
hold no securities of the other parties to such reorganization), but including
in such determination any securities of the other parties to such reorganization
held by affiliates of the Corporation);
(c) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a person or
entity that is not a Subsidiary or other affiliate; or;
(d) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act but excluding any person described in and satisfying the conditions
of Rule 13d-1(b)(1) thereunder), other than a Current Affiliate, becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing more than 50% of the
combined voting power of the Corporation's then outstanding securities entitled
to then vote generally in the election of directors of the Corporation;
provided, however, that a Change of Control will not be deemed to have occurred
if a Current Affiliate transfers to an organization described under Section 501
of the Code beneficial ownership of more than 50% of the combined voting power
of the Corporation's then outstanding securities entitled to then vote generally
in the election of directors of the Corporation; or
(e) During any period not longer than two consecutive years, individuals
who at the beginning of such period constituted the Board cease to constitute at
least a majority thereof, unless the election, or the nomination for election by
the Corporation's stockholders, of each new Board member was approved by a vote
of at least three-fourths of the Board members then still in office who were
Board members at the beginning of such period (including for these purposes, new
members whose election or nomination was so approved).
"Current Affiliate" means Fred Kayne or any of his affiliates (within the
meaning of the Exchange Act), successors, heirs, descendants or members of his
immediate family.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Commission" means the Securities and Exchange Commission.
"Committee" means the Board or any one or more committees of director(s)
appointed by the Board to administer this Plan with respect to the Awards within
the scope of authority delegated by the Board. At least one committee will be
comprised only of two or more directors, each of whom, in respect of any
decision involving both (i) a Participant affected by the decision who is or may
be subject to Section 162(m) of the Code and (ii) compensation intended as
performance-based compensation within the meaning of Section 162(m) of the Code,
will be Disinterested; in acting on any transaction with or for the benefit of a
Section 16 Person, the participating members of such Committee also shall be
Non-Employee Directors within the meaning of Rule 16b-3 under the Exchange Act.
"Common Stock" means the Common Stock of the Corporation and such other
securities or property as may become the subject of Awards, or become subject to
Awards, pursuant to an adjustment made under Section 6.2 of this Plan.
"Company" means, collectively, the Corporation and its Subsidiaries.
"Corporation" means Big Dog Sportswear, a Delaware corporation, and its
successors.
"Disinterested" means a director who is an "outside director" within the meaning
of Section 162(m) of the Code any applicable legal or regulatory requirements.
"Eligible Employee" means an officer (whether or not a director) or employee of
the Company.
"Eligible Person" means an Eligible Employee, or any Other Eligible Person, as
determined by the Committee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Fair Market Value" on any date means (a) if the stock is listed or admitted to
trade on a national securities exchange, the closing price of the stock on the
Composite Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on such
date, then the closing price of the stock as quoted on such Composite Tape on
the next preceding date on which there was trading in such shares; (b) if the
stock is not listed or admitted to trade on a national securities exchange, the
last/closing price for the stock on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ National
Market Reporting System or a similar organization if the NASD is no longer
reporting such information; (c) if the stock is not listed or admitted to trade
on a national securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for the stock on such
date, as furnished by the NASD or a similar organization; or (d) if the stock is
not listed or admitted to trade on a national securities exchange, is not
reported on the National Market Reporting System and if bid and asked prices for
the stock are not furnished by the NASD or a similar organization, the value as
established by the Committee at such time for purposes of this Plan.
"Incentive Stock Option" means an Option that is designated and intended as an
incentive stock option within the meaning of Section 422 of the Code, the award
of that contains such provisions (including but not limited to the receipt of
stockholder approval of this Plan, if the award is made prior to such approval)
and is made under such circumstances and to such persons as may be necessary to
comply with that section.
"Nonqualified Stock Option" means an Option that is designated as a Nonqualified
Stock Option and will include any Option intended as an Incentive Stock Option
that fails to meet the applicable legal requirements thereof. Any Option granted
hereunder that is not designated as an incentive stock option will be deemed to
be designated a nonqualified stock option under this Plan and not an incentive
stock option under the Code.
"Non-Employee Director" means a member of the Board of Directors of the
Corporation who is not an officer or employee of the Company. For purposes of
this Plan, the Chairman of the Board` will be deemed an officer of the Company.
"Option" means an option to purchase Common Stock granted under this Plan. The
Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
"Other Eligible Person" means (a) any individual consultant or advisor or agent
who renders or has rendered bona fide services (other than services in
connection with the offering or sale of securities of the Company in a capital
raising transaction) to the Company, and who (to the extent provided in the next
sentence) is selected to participate in this Plan by the Committee; or (b) any
director. A person who is neither an employee, officer nor director who provides
bona fide services to the Company may be selected as an Other Eligible Person
only if such person's participation in this Plan would not adversely affect (c)
the Corporation's eligibility to use Form S-8 to register under the Securities
Act of 1933, as amended, the offering of shares issuable under this Plan by the
Company or (d) the Corporation's compliance with any other applicable laws.
"Participant" means an Eligible Person who has been granted an Award under this
Plan and a Non-Employee Director who received an Award under Section 8 of the
prior version of this Plan.
"Performance Share Award" means an Award of a right to receive shares of Common
Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of that
is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"Personal Representative" means the person or persons who, upon the disability
or incompetence of a Participant, has acquired on behalf of the Participant, by
legal proceeding or otherwise, the power to exercise the rights or receive
benefits under this Plan by virtue of having become the legal representative of
the Participant.
"Plan" means this Amended and Restated 1997 Performance Award Plan, as amended
from time to time.
"QDRO" means a qualified domestic relations order as defined in Section 414(p)
of the Code or Title I, Section 206(d)(3) of ERISA (to the same extent as if
this Plan were subject thereto), or the applicable rules thereunder.
"Restricted Shares" or "Restricted Stock" means shares of Common Stock awarded
to a Participant under this Plan, subject to payment of such consideration, if
any, and such conditions on vesting (which may include, among others, the
passage of time, specified performance objectives or other factors) and such
transfer and other restrictions as are established in or pursuant to this Plan
and the related Award Agreement, for so long as such shares remain unvested
under the terms of the applicable Award Agreement.
"Retirement" means retirement with the consent of the Company or, from active
service as an employee or officer of the Company on or after attaining age 55
with ten or more years of service or age 65.
"Rule 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant to the
Exchange Act, as amended from time to time.
"Section 16 Person" means a person subject to Section 16(a) of the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Stock Appreciation Right" or "SAR" means a right authorized under this Plan to
receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"Stock Bonus" means an Award of shares of Common Stock granted under this Plan
for no consideration other than past services and without restriction other than
such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.
"Subsidiary" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"Total Disability" means a disability where Participant is unable to effectively
engage in the material activities required for Participant's position with the
Company by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a period of 90 consecutive days or for shorter periods aggregating 180
days in any consecutive 12 month period
Exhibit 10.10B
TERMS AND CONDITIONS FOR
NON-QUALIFIED OPTIONS GRANTED UNDER THE
AMENDED AND RESTATED 1997 PERFORMANCE AWARD PLAN
1. Exercisability of Option. The Option shall vest and become exercisable in
percentage installments of the aggregate number of shares of Common Stock of the
Company as set forth in the Option Agreement. The Option may be exercised only
to the extent the Option is exercisable and vested.
a. Cumulative Exercisability. To the extent the Optionee does not in any
year purchase all the shares that the Optionee may then exercise, the Optionee
has the right cumulatively thereafter to purchase any shares not so purchased
until the Option terminates or expires.
b. No Fractional Shares. Fractional share interests shall be disregarded,
but may be cumulated.
c. Minimum Exercise. No fewer than 100 shares may be purchased at any one
time, unless the number purchased is the total number at the time exercisable
under the Option.
2. Method of Exercise of Option. To the extent exercisable, the Option may be
exercised by the delivery to the Company of a written notice from the Optionee
stating the number of shares to be purchased pursuant to the Option and
accompanied by payment:
a. made in cash or electronic funds transfer, or by certified or cashier's
check payable to the order of the Company, in the full amount of the purchase
price of the shares and amounts required to satisfy applicable withholding
taxes, or
b. by the delivery of shares that have been held by the Optionee for at
least six months, in accordance with Section 2.2.2(e) of the Plan, unless
otherwise provided by the Committee.
Other payment methods may be permitted only if expressly authorized by the
Committee with respect to this option or all options under the Plan. The Option
is non-transferable and may be exercised only by the Optionee, except as the
Committee may otherwise expressly permit.
3. Continuance of Employment Required. The vesting schedule requires continued
service through each applicable vesting date as a condition to the vesting of
the applicable installment and rights and benefits under this Agreement. Partial
service, even if substantial, during any vesting period will not entitle the
Optionee to any proportionate vesting or avoid or mitigate a termination of
rights and benefits upon or following a termination of employment or service as
provided in Section 4 below or under the Plan.
4. Effect of Termination of Employment or Death. If the Optionee's employment by
either the Company or any subsidiary terminates, the Option and all other rights
and benefits under this Agreement terminate except that the Optionee may, at any
time within the following periods after the Severance Date, exercise the Option
to the extent the Option was exercisable on the Severance Date and has not
otherwise expired:
a. Termination by the Company or a subsidiary, other than a Dismissal for
Cause (as defined below) --- for a period of 3 months
b. Voluntary resignation (other than in anticipation of or in connection
with a Dismissal for Cause) --for a period of 3 months
c. Retirement --- for a period of 12 months
d. Total Disability or death of Optionee --- for a period of 12 months
In case of a Dismissal for Cause or a voluntary resignation in anticipation
of or in connection with a Dismissal for Cause, the Option shall terminate
immediately, in its entirety.
"Dismissal for Cause" means the Company or a subsidiary has terminated
Optionee's employment because of any of the following:
e. Any wrongful act by Optionee that has resulted in the Optionee's
personal gain at the expense of the Company or any of its subsidiaries;
f. Optionee's refusal to perform assigned duties;
g. Optionee's incompetence, insubordination, negligence, willful
misconduct, breach of fiduciary duty, or conviction of (or pleading guilty or no
contest to) a crime (other than minor traffic violations or similar offenses);
h. Optionee's being under the influence of, or using, distributing or
possessing, unauthorized or illegal drugs or intoxicating beverages while on
duty or on the Company's premises;
i. Suspicion or finding of Optionee's theft, embezzlement, breach of
confidentiality, fraud or dishonesty;
j. Optionee's willful destruction or defacement of the Company's, a
visitor's, or an employee's property;
k. Optionee's unauthorized disclosure or use of confidential or inside
information, or trade secrets;
l. Optionee's falsification or alteration of the Company's records;
m. Optionee's inappropriate unauthorized absences from work;
n. Optionee's violation of any policy or rule of the Company; or
o. Optionee's unfair competition, disparagement of the Company, inducement
of an employee to terminate his or her employment with the Company, or any other
conduct that results or may be expected to result in a substantial detriment to
the business or reputation of the Company or any of its subsidiaries.
In addition, if the Optionee's employment is terminated other than upon a
Dismissal for Cause, but the Optionee then commits or the Company then discovers
an act referred to in (a), (e), (f), (g), (h) or (k) after such termination, the
remaining Options held by such Optionee shall immediately terminate. Each case
shall be determined by the Committee in its sole discretion, whether before or
after the date of termination of employment.
5. Change in Subsidiary's Status; Leaves of Absence. If the Optionee is employed
by an entity that ceases to be a subsidiary, this event is deemed for purposes
of this Agreement to be a termination of the Optionee's employment by the
Company other than a Dismissal for Cause. Absence from work caused by military
service, authorized sick leave or other leave approved in writing by the Company
shall not be considered a termination of employment by the Company for purposes
of Section 4.
6. Notices. Any notice to be given shall be in writing and addressed to the
Company at its principal office, to the attention of the General Counsel, and to
the Optionee at his or her last address of record, or at such other address as
either party may hereafter designate in writing to the other for purposes of
notices in respect of the Option.
7. Optionee not a Stockholder. Neither the Optionee nor any other person
entitled to exercise the Option shall have any of the rights or privileges of a
stockholder of the Company as to any shares of Common Stock until the issuance
and delivery to him or her of a certificate evidencing the shares registered in
his or her name.
8. No Employment Commitment by Company. Nothing contained in these Terms and
Conditions or the Option Agreement or in the Plan constitutes an employment
commitment by the Company, affects Optionee's status as an employee at will who
is subject to termination without cause, confers upon Optionee any right to
remain employed by the Company or any subsidiary, interferes in any way with the
right of the Company or any subsidiary at any time to terminate such employment,
or affects the right of the Company or any subsidiary to increase or decrease
Optionee's other compensation.
9. Effect of Award Agreement. The Option Agreement shall be binding upon and
inure to the benefit of any successor or successors of the Company, except to
the extent the Committee determines otherwise.
10. Choice of Law. The constructive interpretation, performance and enforcement
of the Option Agreement and the Option shall be governed by the laws of the
State of California.
11. Defined Terms. Capitalized terms used herein or in the Option Agreement and
not otherwise defined herein shall have the meaning assigned by the Plan.
12. Plan. The Option and all rights of Optionee thereunder are subject to, and
the Optionee agrees to be bound by, all of the terms and conditions of the
provisions of the Plan. Unless otherwise expressly provided in these Terms and
Conditions, provisions of the Plan that confer discretionary authority on the
Committee do not (and shall not be deemed to) create any additional rights in
the Optionee not expressly set forth in the Optionee's Option Agreement or in a
written amendment thereto.
13. Arbitration of Claims. Any controversy or claim arising out of or relating
to the Option, the Option Agreement, the Plan, or these Terms and Conditions,
their enforcement or interpretation, or an alleged breach, default, or
misrepresentation in connection with any of their provisions, shall be submitted
to binding arbitration in accordance with the provisions of the Optionee's
agreement with the Company to submit all employment-related disputes to
arbitration. This understanding shall not be deemed to limit in any way the
provisions of Section 1.2.3 of the Plan, as to the effect of actions by the
Board or the Committee relating or pursuant to the Plan as conclusive and
binding on all persons and as to other matters.
Exhibit 10.10C
BIG DOG HOLDINGS, INC.
ELIGIBLE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of , is between BIG DOG HOLDINGS, INC.
, a Delaware corporation (the "Company"), and __________________________ (the
"Director"). The Company and the Director agree to the terms and conditions of
this Award Agreement under the 1997 Plan described below.
1. Option Grant. This Agreement evidences the grant to the Director, as of , of
an Option to purchase an aggregate of shares of Common Stock , subject to the
terms and conditions and to adjustment as set forth herein or pursuant to the
Amended and Restated 1997 Performance Award Plan, as amended from time to time
(the "1997 Plan").
2. Exercise Price. The Option entitles the Director to purchase (subject to the
terms of Sections 3 through 5 below and to the extent exercisable) all or any
part of the Option shares at a price per share of $ , which equals or exceeds
the Fair Market Value of the shares on the date of this Agreement. The exercise
price of the Option will be paid in full at the time of each purchase in cash or
by check or in shares of Common Stock valued at their Fair Market Value on the
date of exercise of the Option, or partly in such shares and partly in cash, but
any such shares used in payment must be owned by the Participant at least six
months prior to the date of exercise.
3. Option Exercisability and Term. Subject to adjustment pursuant to the 1997
Plan, the Option will first become and remain exercisable as to ( %) of the
shares on and as to an additional shares ( %) on each of the next four
anniversaries of that date, in each case subject to adjustments and acceleration
under Section 5 below. The Option will expire on , unless earlier terminated in
accordance with the terms of the 1997 Plan or Section 4 or 5 below.
4. Service and Effect of Termination of Service. The Director agrees to serve as
a director, subject to and in accordance with the provisions of the Company's
Certificate of Incorporation, bylaws and applicable law. If the Director's
services as a member of the Board terminate, this Option will terminate at the
times and to the extent set forth below or pursuant to any other applicable
provisions of the 1997 Plan, including but not limited to Section 6.6.5 of the
1997 Plan. If the Director's services as a member of the Board terminate by
reason of death, Disability or Retirement, the Option will immediately become
and will remain exercisable for two years after the date of such termination or
until , whichever first occurs. If the Director's services as a member of the
Board terminate for any other reason, any portion of the Option that is not then
exercisable will terminate and any portion of such Option that is then
exercisable may be exercised for six months after the date of such termination
or until , whichever first occurs.
5. Adjustments; Acceleration; Termination. The Option will be subject to
adjustments, accelerations and terminations as provided in Section 6.2 of the
1997 Plan, but only to the extent that in the case of a Change in Control Event
such effect and any Board or Committee action in respect thereof is effected
pursuant to the terms of a reorganization agreement approved by stockholders of
the Company or is otherwise consistent with the effect on Options held by
persons other than executive officers or directors of the Company (or, if there
are none, consistent in respect of the underlying shares with the effect on
stockholders generally).
Upon the occurrence of a Change in Control Event and acceleration under
Section 6.2.2 of the 1997 Plan, the Option will become immediately exercisable
in full.
The Option may be amended by the Board or a duly authorized Committee
of the Board in a manner permitted under the 1997 Plan in respect of Options
granted to Eligible Employees.
6. General Terms. The Option and this Amended Nonqualified Stock Option
Agreement are subject to, and the Company and the Director agree to be bound by,
the provisions of the 1997 Plan that apply to the Option. Such provisions are
incorporated herein by this reference. The Director has received a copy of the
1997 Plan and has read its applicable provisions. Capitalized terms not
otherwise defined herein have the meaning set forth in the 1997 Plan.
The parties have signed this Non-Qualified Stock Option Agreement as of .
BIG DOG HOLDINGS, INC.
(a Delaware corporation)
By _____________________________
Its ____________________________
Participant/Director
-------------------------------
(Signature)
-------------------------------
(Print Name)
Exhibit 10.12
FOURTH LEASE AMENDMENT
THIS FOURTH LEASE AMENDMENT dated as of December 18, 1998 is entered into by
FREELAND REALTY LLC, assignee of S.V.B. Properties ("Landlord") and BIG DOG
HOLDINGS, INC. d/b/a BIG DOG SPORTSWEAR, assignee of Fortune Dogs, Inc.
("Tenant").
RECITALS
A. Landlord and Tenant are parties to a Lease dated June 1, 1994 (the "Original
Lease"), under which Landlord has leased to Tenant certain premises, consisting
of approximately 10,600 sf, in a building described as 121 Gray Avenue, Santa
Barbara, California (the "Gray Building"). Such Lease has been amended by a
Lease Amendment dated December 1, 1994, a Second Lease Amendment dated March 1,
1996, an oral month-to-month lease of a loading dock on the first floor, and a
Third Lease Amendment dated July 22, 1996 (as so amended, the "Lease"). As a
result of such amendments, Tenant now leases approximately 13,897 sf in the Gray
Building (the "Current Space").
B. Tenant now desires to lease additional space in the Gray Building consisting
of 3,132 sf know as Suite 208 and comprising all of the space formerly occupied
by Miramar Systems (the "New Space"). WHEREFORE, the parties agree as follows:
TERMS AND CONDITIONS
1. Tenant agrees to lease from Landlord and Landlord agrees to lease to Tenant
the New Space on the terms as provided herein. The total square footage of the
premises leased to Tenant under the Lease is increased to 17,029 sf (provided
that all provisions for rent, expenses and other items based upon square footage
shall be subject to Tenant's right to a retroactive adjustment upon a
remeasurement). Tenant shall immediately have the exclusive right to the six (6)
additional parking spaces in the parking lot of the Gray Building designated for
the New Space.
2. Landlord shall deliver exclusive possession of the New Space to Tenant no
later than March 1, 1999 (and agrees to deliver the New Space earlier if it has
completed the refurbishments provided below). The initial term for the lease of
the New Space shall end on July 31, 2004. Prior to March 1, 1999, Landlord shall
(i) repaint and recarpet the New Space with new materials consistent in quality
with those existing in the executive offices on the 3rd floor of the Gray
Building (colors to be selected by Tenant) and (ii) recarpet the stairways
located between the 1st and 2nd floors with new materials consistent in quality
with those presently there. Landlord represents and warrants that all
electrical, phoneline, plumbing, HVAC and other mechanical systems in or serving
the New Space shall be in good working order as of the delivery date. Except as
provided in this paragraph, the Tenant shall accept the New Space in its "as is"
condition.
3. Landlord acknowledges that Tenant desires to also lease Suites 205 and 205A
currently occupied by WSPA and that Tenant is negotiating with WSPA for them to
vacate such space. Landlord agrees that in the event Tenant acquires the use of
Suites 205 and 205A, Tenant shall be permitted, at its cost, to remove the
interior walls on the second floor of the Gray Building separating Suites 205
and 205A from Suite 203 and separating New Space from Suite 203 (so that all of
the second floor becomes one unit). If Tenant removes such walls, and thereby
gains exclusive use of common area, the Lease shall be amended to reflect the
additional space so occupied and the rent paid by Tenant shall increase
proportionately.
4. Commencing on the later of April 1, 1999 and the date 31 calendar days after
Landlord has turned over possession of the New Space in complete compliance with
the requirements, representations and warranties in paragraph 2 above (the "Rent
Commencement Date"), Tenant shall be obligated to pay minimum monthly rent on
the New Space at the rate of $1.35 per sf ($4,228.20 based on 3,132 sf).
Effective as of the end of the 24th full month after the Rent Commencement Date
(the "Adjustment Date"), and on each 12-month anniversary of the Adjustment
Date, the minimum monthly rent for the New Space shall be adjusted in accordance
with CPI as per the formula in Section 4 of the Original Lease (except that in
such formula, "C" shall equal the monthly index for the 9th full month after the
Rent Commencement Date). Except as to the foregoing provisions regarding the
minimum monthly rent for the New Space, the lease of the New Space shall be
subject to the other rent provisions of the Lease (including Section 3), which
include payment of operating expenses by Tenant. The parties agree that
effective as of the Rent Commencement Date, Tenant's proportionate share of
operating costs shall be increased to 87.65%.
5. Tenant shall have the option to renew the lease of the New Space for one (1)
additional five (5) year period on the same terms and conditions as set forth
herein except that the total rent shall be adjusted to the then current market
rate.
6. Landlord and Tenant hereby acknowledge that Pacifica Commercial Realty
represents Landlord and Blair Hayes Commercial Realty represents Tenant.
Landlord will pay a fee upon execution of this Amendment equal to six percent
(6%) of the total minimum monthly rent for years 1-5, said commission to be
split equally between the brokers.
7. Landlord and Tenant also agree that the month-to-month lease of the loading
dock on the first floor of the Gray Building consisting of 338 sf is hereby
converted to a permanent lease on the same terms as those applicable to the
Current Space (same rent per sf, contiguous term, etc.). No commission shall be
payable on such space.
8. Except as amended hereby, the parties agree and acknowledge that the Lease
shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above
Landlord
FREELAND REALTY LLC
By /s/ DIRK FREELAND
Dirk Freeland, Managing General Partner
Tenant
BIG DOG HOLDINGS INC. d/b/a BIG DOG SPORTSWEAR
By /s/ ANTHONY WALL
Anthony Wall, Executive Vice President