UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 1, 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 0-14678
ROSS STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1390387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8333 Central Avenue, Newark, 94560-3433
California (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, (510) 505-4400
including area code
Former name, former address and N/A
former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No__
The number of shares of Common Stock, with $.01 par value, outstanding
on August 28, 1998 was 46,951,511.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000) August 1, January 31, August 2,
ASSETS 1998 1998 1997
(Unaudited) (Note A) (Unaudited)
Current Assets
Cash and cash equivalents $ 31,972 $ 56,369 $ 31,770
Accounts receivable 11,722 8,122 9,250
Merchandise inventory 468,952 418,825 427,114
Prepaid expenses and other 15,440 15,108 14,253
_____________________________________
Total Current Assets 528,086 498,424 482,387
Property and Equipment
Land and buildings (Note B) 48,748 24,115 24,115
Fixtures and equipment 197,679 190,186 180,521
Leasehold improvements 132,306 144,247 141,235
Construction-in-progress 32,856 25,763 10,196
_____________________________________
411,589 384,311 356,067
Less accumulated depreciation and amortization 177,271 179,590 164,458
_____________________________________
234,318 204,721 191,609
Other assets 40,318 34,808 30,191
$802,722 $737,953 $704,187
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $212,249 $201,998 $196,444
Accrued expenses and other 96,068 82,290 78,226
Accrued payroll and benefits 29,699 39,458 33,944
Short-term debt 37,500
_____________________________________
Total Current Liabilities 375,516 323,746 308,614
Other liabilities 41,119 33,526 29,592
Stockholders' Equity
Capital stock 472 479 496
Additional paid-in capital 200,688 195,562 170,803
Retained earnings 184,927 184,640 194,682
_____________________________________
386,087 380,681 365,981
_____________________________________
$802,722 $737,953 $704,187
See notes to condensed consolidated financial statements.
3
ROSS STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended Six Months Ended
($000 except per share data, unaudited) August 1, August 2, August 1, August 2,
1998 1997 1998 1997
Sales $536,975 $490,679 $1,021,251 $933,520
Costs and Expenses
Cost of goods sold and occupancy 371,996 341,109 708,812 650,622
General, selling and administrative 103,355 95,556 197,412 182,220
Depreciation and amortization 8,230 7,635 16,112 14,910
Interest expense (income) 265 (283) 130 (483)
__________________ __________________________
483,846 444,017 922,466 847,269
Earnings before taxes 53,129 46,662 98,785 86,251
Provision for taxes on earnings 20,720 18,664 38,526 34,500
__________________ _________________________
Net earnings $ 32,409 $ 27,998 $ 60,259 $ 51,751
Net earnings per share:
Basic $ .68 $ .56 $ 1.26 $ 1.04
Diluted $ .67 $ .55 $ 1.24 $ 1.02
Weighted average shares outstanding:
Basic 47,455 49,791 47,652 49,594
Diluted 48,358 50,851 48,582 50,666
Stores open at end of period 339 318 339 318
See notes to condensed consolidated financial statements.
4
ROSS STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
($000, unaudited) August 1, August 2,
1998 1997
Cash Flows From Operating Activities
Net earnings $ 60,259 $ 51,751
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and equipment 16,112 14,910
Other amortization 4,663 4,060
Change in assets and liabilities:
Merchandise inventory (50,127) (53,425)
Other current assets - net (3,931) (2,382)
Accounts payable 12,886 14,563
Other current liabilities - net 6,668 (8,694)
Other 3,172 1,276
____________________
Net cash provided by operating activities 49,702 22,059
Cash Flows From Investing Activities
Additions to property and equipment (49,825) (19,202)
_____________________
Net cash used in investing activities (49,825) (19,202)
Cash Flows From Financing Activities
Borrowing under lines of credit 37,500 4,600
Repayment of long-term debt (63) (59)
Issuance of common stock related to stock plans 6,347 5,693
Repurchase of common stock (62,825) (21,642)
Dividends paid (5,233) (4,456)
_____________________
Net cash used in financing activities (24,274) (15,864)
_____________________
Net Decrease In Cash (24,397) (13,007)
Cash and cash equivalents:
Beginning of year 56,369 44,777
___________________
End of quarter $ 31,972 $ 31,770
Interest Paid $ 307 $ 83
Income Taxes Paid $ 21,947 $ 45,671
See notes to condensed consolidated financial statements.
5
ROSS STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended August 1, 1998 and August 2, 1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared from the records of the company without audit and, in
the opinion of management, include all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position at August 1, 1998 and August 2, 1997; the interim results of
operations for the three and six months ended August 1, 1998 and August
2, 1997; and changes in cash flows for the six months then ended. The
balance sheet at January 31, 1998, presented herein, has been derived
from the audited financial statements of the company for the fiscal year
then ended.
Accounting policies followed by the company are described in Note A to
the audited consolidated financial statements for the fiscal year ended
January 31, 1998. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted for
purposes of the condensed consolidated interim financial statements.
The condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements,
including notes thereto, for the year ended January 31, 1998.
The results of operations for the three and six month periods herein
presented are not necessarily indicative of the results to be expected
for the full year.
The condensed consolidated financial statements at August 1, 1998 and
August 2, 1997, and for the three and six months then ended have been
reviewed, prior to filing, by the registrant's independent auditors
whose report covering their review of the financial statements is
included in this report on page 6.
NOTE B - PURCHASE OF CENTRAL OFFICE AND WEST COAST DISTRIBUTION CENTER
The company exercised its right to purchase its West Coast distribution
center and central office, both of which are located in Newark,
California. This transaction was closed on June 3, 1998 with funding
provided by cash generated by operations and bank borrowings under the
company's existing credit agreement.
6
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders of Ross Stores, Inc.
Newark, California
We have reviewed the accompanying condensed consolidated balance sheets
of Ross Stores, Inc. (the "Company") as of August 1, 1998 and August 2,
1997, and the related condensed consolidated statements of earnings for
the three-month and six-month periods then ended and the related
condensed consolidated statements of cash flows for the six-month
periods then ended. These condensed consolidated financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to such condensed consolidated financial statements
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Ross Stores, Inc.
as of January 31, 1998, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated March 17, 1998, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of January 31, 1998
is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
San Francisco, California
August 21, 1998
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. The Company's actual
results may vary significantly from the results discussed in the forward
looking statements. Factors that might cause such differences include,
but are not limited to, those discussed in the subsection entitled
"Forward Looking Statements and Factors That May Affect Future
Performance" below. The following discussion should be read in
conjunction with the condensed financial statements and notes thereto
included elsewhere in this Form 10-Q and in the Company's 1997 Form 10-
K. All information is based on the Company's fiscal calendar.
RESULTS OF OPERATIONS
PERCENTAGE OF SALES
Three Months Ended Six Months Ended
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
SALES
Sales ($000) $536,975 $490,679 $1,021,251 $933,520
Sales growth 9.4% 21.0% 9.4% 20.2%
Comparable store sales growth 4% 12% 4% 12%
COSTS AND EXPENSES
Cost of goods sold and occupancy 69.3% 69.5% 69.4% 69.7%
General, selling and administrative 19.2% 19.5% 19.3% 19.5%
Depreciation and amortization 1.5% 1.6% 1.6% 1.6%
Interest expense (income) 0.0% (0.1)% 0.0% (0.1)%
NET EARNINGS 6.0% 5.7% 5.9% 5.5%
Sales
The results of operations for the three and six months ended August 1,
1998, over the same period last year, reflect a greater number of open
stores during the current period and positive comparable store sales.
Costs and Expenses
The decreases from the prior year in cost of goods sold and occupancy as
a percentage of sales for the three and six month periods were primarily
due to leverage on occupancy costs realized from the comparable store
sales gain of 4%.
General, selling and administrative expenses as a percentage of sales
also declined from the comparable quarter in the prior year and the
comparable six-month period. This improvement was due to the company's
continued focus on strict expense controls combined with leverage on
store expenses realized from the comparable store sales gain of 4%,
lower advertising costs, and lower costs related to the company's
incentive compensation plan, partially offset by slightly higher
distribution costs and by costs associated with the company's year 2000
remediation efforts.
8
Net earnings for the three months ended August 1, 1998 totaled $32.4
million, or $.67 per share, compared to net earnings of $28.0 million,
or $.55 per share, for the three months ended August 2, 1997.
Taxes on Earnings
The company paid $21.9 million in income taxes in the first six months
of 1998, compared to $45.7 million in the first six months of 1997.
This $23.8 million decrease in income taxes paid in the first six months
of 1998 compared to the same period in the prior year is attributable
principally to the timing of tax deductions taken by the company
primarily related to the company's stock option plans. The company's
effective tax rate for the second quarter of 1998 was 39%, compared to
40% in the same period in 1997. The rate for both periods reflects the
applicable statutory tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The primary uses of cash, other than for operating expenses, during the
first six months of fiscal 1998 were for (i) the repurchase of the
company's common stock, (ii) the purchase of inventory, (iii) the
purchase of the company's Newark, California distribution center and
corporate headquarters and (iv) capital expenditures for new stores,
improvements to existing locations and improvements in management
information systems.
Total consolidated inventories were up 10% at the end of the second
quarter from the same quarter last year driven by (i) a planned increase
in packaway inventories and (ii) a larger number of open stores (339)
over the prior year (318).
In January 1998, the company announced a $110 million common stock
repurchase program. For the six months ended August 1, 1998, the
company spent $62.8 million to repurchase 1,464,700 shares of common
stock compared to the $21.6 million spent for 789,000 shares of common
stock for the six months ended August 2, 1997.
The company exercised its right to purchase its Newark, California
distribution center and corporate headquarters for $24.6 million. The
company closed this transaction on June 3, 1998 with funding provided by
internally generated cash and bank borrowings under its existing credit
agreement.
The increase in interest expense in the second quarter of fiscal 1998
compared to the comparable period in the prior year reflects increased
short-term borrowings to finance operations and the June 1998 real
estate purchase.
The company believes it can fund its operating cash requirements and
capital needs on a short-term and long-term basis and complete the
current stock repurchase program through internally generated cash,
trade credit, established bank lines and lease financing.
9
YEAR 2000 MATTERS
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Certain
information technology systems and their associated software ("IT
Systems"), and certain equipment that utilizes programmable logic chips
to control aspects of their operation ("embedded chip equipment"), may
recognize "00" as a year other than the year 2000. Some IT Systems and
embedded chip equipment of the company and of third parties who do
business with the company contain two-digit programming to define a
year. The year 2000 issue could result, at the company and elsewhere,
in system failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions or to engage in other normal business activities.
Readiness for Year 2000
The company is addressing the year 2000 issue, including efforts
relating to IT Systems and embedded chip equipment used within the
company, efforts to assess issues the company faces if third parties who
do business with the company are not prepared for the year 2000, and
contingency planning. In 1997 the company created a corporation-wide
year 2000 project team representing all business and staff units with
the goal of achieving an uninterrupted transition into the year 2000.
For IT Systems and embedded chip equipment used within the company, the
company has divided its year 2000 efforts into four phases: (i)
identification and inventorying of IT Systems and embedded chip
equipment with potential year 2000 problems; (ii) assessment of scope of
year 2000 issues for, and assigning priorities to, each item based on
its importance to the company's operations; (iii) remediation of year
2000 issues in accordance with assigned priorities, by correction,
upgrade, replacement or retirement; (iv) testing for and validation of
year 2000 compliance. Because the company uses a variety of IT Systems,
internally-developed and third-party provided software and embedded chip
equipment, depending upon business function and location, various
aspects of the company's year 2000 efforts are in different phases and
are proceeding in parallel.
The company's operations are also dependent on the year 2000 readiness
of third parties who do business with the company. In particular, the
company's IT Systems interact with commercial electronic transaction
processing systems to handle customer credit card purchases and other
point of sale transactions, and the company is dependent on third-party
suppliers of such infrastructure elements as, but not limited to,
telephone service, electric power, water and banking facilities. The
company does not depend to any significant degree on any single
merchandise vendor or upon electronic transaction processing with
individual vendors for merchandise purchases. The company has begun to
identify and initiate formal communications with key third parties and
suppliers and with significant merchandise vendors to determine the
extent to which the company will be vulnerable to such parties' failure
to resolve their own year 2000 issues. Although the company has not
been put on notice that any known third party problem will not be
resolved, the company has limited information and no assurance of
additional information concerning the year 2000 readiness of third
parties. The resulting risks to the company's business are very
difficult to assess. Where commercially reasonable to do so, the
company intends to assess its risks with respect to failure by third
parties to be year 2000 compliant and to seek to mitigate those risks.
The company is at an early stage in those efforts.
The company is using both internal and external resources to identify,
correct, upgrade or replace and test internally deployed IT Systems and
embedded chip equipment for year 2000 compliance.
Costs
The company estimates that its internally-deployed IT Systems and
embedded chip equipment will be year 2000 compliant by mid-1999.
Aggregate costs for work related to year 2000 efforts in fiscal 1998 and
1999 currently are anticipated to total approximately $12.0 million,
including about $6.0 million for capital investments in IT Systems and
embedded chip equipment, and are expected to be funded through operating
cash flows. Operating costs related to year 2000 compliance
10
projects will be incurred over several quarters and will be expensed as
incurred. They include $732,000 in costs reported in fiscal 1998 first
quarter results. In the second quarter of fiscal 1998, the company
incurred $1.1 million in expenses related to year 2000 compliance, with
an estimated $2.2 million expected in the second half of fiscal 1998 and
approximately $2.0 million expected in fiscal 1999. Approximately $4.0
million of the expected capital outlay will be incurred in fiscal 1998,
with another $2.0 million in capital expenditures expected in fiscal 1999.
Risks
The company intends and expects to implement the changes necessary to
address the year 2000 issue for IT Systems and embedded chip equipment
used within the company. The company presently believes that, with
modifications to existing software, conversions to new software, and
appropriate remediation of embedded chip equipment, the year 2000 issue
is not reasonably likely to pose significant operational problems for
the company's IT Systems and embedded chip equipment as so modified and
converted. However, if unforeseen difficulties arise or such
modifications, conversions and replacements are not completed timely, or
if the company's vendors' or suppliers' systems are not modified to
become year 2000 compliant, the year 2000 issue may have a material
impact on the results of operations and financial condition of the
company.
The company is presently unable to assess the likelihood that the
company will experience significant operational problems due to
unresolved year 2000 problems of third parties who do business with the
company. There can be no assurance that other entities will achieve
timely year 2000 compliance; if they do not, year 2000 problems could
have a material impact on the company's operations. Similarly, there
can be no assurance that the company can timely mitigate its risks
related to a supplier's failure to resolve its year 2000 issues. If
such mitigation is not achievable, year 2000 problems could have a
material impact on the company's operations.
The company's estimates of the costs of achieving year 2000 compliance
and the date by which year 2000 compliance will be achieved are based on
management's best estimates, which were derived using numerous
assumptions about future events including the continued availability of
certain resources, third party modification plans and other factors.
However, there can be no assurance that these estimates will be
achieved, and actual results could differ materially from these
estimates. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in year 2000 remediation work, the ability to locate and correct
all relevant computer codes, the success achieved by the company's
suppliers in reaching year 2000-readiness, the timely availability of
necessary replacement items and similar uncertainties.
Contingency Plans
The company presently believes that the most reasonably likely worst-
case scenarios that the company might confront with respect to year 2000
issues have to do with the possible failure in one or more geographic
regions of third party systems over which the company has no control,
such as, but not limited to, power and telephone service. For example,
if such services were to fail, it could be necessary for the company to
temporarily close stores in the affected geographic areas. The company
has in place a business resumption plan that addresses recovery from
various kinds of disasters, including recovery from significant
interruptions to data flows and distribution capabilities at the company's
major data systems centers and major distribution centers. The company
is using that plan as a starting point for developing specific year 2000
contingency plans, which the company expects to complete by
approximately the first quarter of fiscal year 1999. However, there can
be no assurance that the company will be able to complete its
contingency planning on that schedule.
11
FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE
PERFORMANCE
This report includes a number of forward looking statements, which
reflect the company's current beliefs and estimates with respect to
future events and the company's future financial performance, operations
and competitive strengths. The words "expect," "anticipate,"
"estimate," "believe" and similar expressions identify forward looking
statements.
The company's continued success depends, in part, upon its ability to
increase sales at existing locations, to open new stores and to operate
stores on a profitable basis. There can be no assurance that the
company's existing strategies and store expansion program will result in
a continuation of revenue and profit growth. Future economic and
industry trends that could potentially impact revenue and profitability
remain difficult to predict.
As a result, the forward looking statements that are contained herein
are subject to certain risks and uncertainties that could cause the
company's actual results to differ materially from historical results or
current expectations. These factors include, without limitation,
ongoing competitive pressures in the apparel industry, obtaining
acceptable store locations, the company's ability to continue to
purchase attractive name brand merchandise at desirable discounts, the
company's ability to successfully implement its merchandise
diversification strategy, the company's ability to successfully expand
its geographic reach, unseasonable weather trends, changes in the level
of consumer spending on or preferences in apparel or home-related
merchandise and greater than planned costs, including those that could
be related to necessary modifications to or replacements of the
company's IT Systems and embedded chip equipment to enable them to
process information with dates or date ranges spanning the year 2000 and
beyond. If unforeseen difficulties arise or such modifications and
replacements are not completed timely, or if the company's vendors' or
suppliers' IT Systems, software and embedded chip equipment are not
modified to become year 2000 compliant, the year 2000 issue may have a
material impact on the operations of the company. In addition, the
company's corporate headquarters, one distribution center and 44% of its
stores are located in California. Therefore, a downturn in the
California economy or a major natural disaster could significantly
impact the company's operating results and financial condition.
In addition to the above factors, the apparel industry is highly
seasonal. The combined sales of the company for the third and fourth
(holiday) fiscal quarters are higher than the combined sales for the
first two fiscal quarters. The company has realized a significant
portion of its profits in each fiscal year during the fourth quarter.
Intensified price competition, lower than anticipated consumer demand or
other factors, if they were to occur during the third and fourth
quarters, and in particular during the fourth quarter, could adversely
affect the company's fiscal year results.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 28, 1998 (the "1998
Annual Meeting"), the stockholders of the company voted on and approved
the following proposals:
Proposal 1 to elect three Class III Directors for a three-year term.
Proposal 2 to amend the 1992 Stock Option Plan to increase the share
reserve by 2,300,000 shares of common stock.
Proposal 3 to amend the company's certificate of incorporation to
increase the number of shares of common stock authorized for issuance
from 100,000,000 shares to 170,000,000 shares.
12
Proposal 4 to ratify the appointment of Deloitte & Touche LLP as the
company's certified public accountants for the fiscal year ending
January 30, 1999.
INFORMATION ON THE BOARD OF DIRECTORS
The following directors were elected at the 1998 Annual Meeting to serve
three-year terms expiring in 2001 as Class III Directors:
Norman A. Ferber, Philip Schlein and Melvin A. Wilmore
The following directors are continuing to serve their three-year terms
of office:
Incumbent Class I Directors whose terms expire in 1999:
Stuart G. Moldaw, Donald H. Seiler and George P. Orban
Incumbent Class II Directors whose terms expire in 2000:
Michael Balmuth and Donna L. Weaver
1998 ANNUAL MEETING ELECTION RESULTS
PROPOSAL 1: ELECTION OF DIRECTORS
Broker
Director In Favor Withheld Non-Votes
Norman A. Ferber 42,334,568 624,981 n/a
Philip Schlein 42,433,274 526,275 n/a
Melvin A. Wilmore 42,333,483 626,066 n/a
PROPOSAL 2: INCREASE SHARE RESERVE OF THE
1992 STOCK OPTION PLAN
Broker
For Against Abstain Non-Votes
24,685,313 17,849,563 424,672 1
PROPOSAL 3: INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK
Broker
For Against Abstain Non-Votes
40,009,818 2,352,465 410,874 186,392
13
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF DELOITTE &
TOUCHE LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Broker
For Against Abstain Non-Votes
42,908,322 24,582 26,644 1
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Incorporated herein by reference to the list of Exhibits contained
in the Exhibit Index which begins on page 14 of this Report.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
ROSS STORES, INC.
Registrant
Date: September 14, 1998 /s/John G. Call
John G. Call, Senior Vice President,
Chief Financial Officer, Corporate Secretary
and Principal Accounting Officer
INDEX TO EXHIBITS
14
Exhibit
Number Exhibit
3.1 First Restated Certificate of Incorporation, dated May 28,
1998, filed with the Delaware Secretary of State on June 4,
1998 by Ross Stores, Inc., a Delaware corporation ("Ross
Stores"), incorporated by reference to Exhibit 3.1 to the
Form 10-Q filed by Ross Stores for its quarter ended May 2,
1998.
3.2 Amended By-laws, dated August 25, 1994, incorporated by
reference to Exhibit 3.2 to the Form 10-Q filed by Ross
Stores for its quarter ended July 30, 1994.
10.1 Amended and Restated 1992 Stock Option Plan.
10.2 Fifth Amendment to Employment Agreement by and between Ross
Stores and Melvin A. Wilmore, effective as of June 29, 1998.
15 Letter re: Unaudited Interim Financial Information
27 Financial Data Schedule (submitted for SEC use only)
ROSS STORES, INC.
SECOND AMENDED AND RESTATED
1992 STOCK OPTION PLAN
Introduction. On February 24, 1984, the Ross Stores, Inc.
1984 Stock Option Plan (the "Initial Plan") was adopted. The
Initial Plan has been amended from time to time. On March 16,
1992, the Initial Plan was amended and restated in its entirety
and renamed the Ross Stores, Inc. 1992 Stock Option Plan (the
"1992 Plan"), and has been subsequently amended from time to
time, once in the form of an amendment and restatement. The 1992
Plan is hereby amended and restated in its entirety (the "Plan"),
effective as of the date of the 1998 Annual Meeting of the
Stockholders of Ross Stores, Inc.
1. Purpose.
(a) The purpose of the Plan is to provide a means by
which selected employees and directors of and consultants to Ross
Stores, Inc. (the "Company") and its Affiliates, may be given an
opportunity to benefit from increases in value of the stock of
the Company through the granting of incentive stock options and
nonqualified stock options.
(b) The Company, by means of the Plan, seeks to retain
the services of persons who are now employees or directors of or
consultants to the Company or its Affiliates, to secure and
retain the services of new employees, directors and consultants,
and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
2. Administration.
(a) The Plan shall be administered by the Board of
Directors (the "Board") unless and until the Board delegates
administration to a Committee as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the
persons eligible under the Plan shall be granted an option under
the Plan (an "Option"); when and how each Option shall be
granted; whether an Option will be an incentive stock option as
defined in section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") or a nonqualified stock option; the
provisions of each Option granted (which need not be identical),
including the time or times such Option may be exercised in whole
or in part; and the number of shares for which an Option shall be
granted to each such person.
2
(ii) To construe and interpret the Plan and
Options granted under it, and to establish, amend and revoke
rules and regulations for its administration. The Board, in the
exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any option agreement, in a manner
and to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iii) To amend the Plan as provided in
paragraph 12.
(iv) Generally, to exercise such powers and to
perform such acts as the Board deems necessary or expedient to
promote the best interests of the Company, which are not in
conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan
to a committee composed of two (2) or more members (the
"Committee"), all of the members of which Committee may be, in
the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by
the Board, including the power to delegate to a subcommittee of
two (2) or more directors (who may or may not be Outside
Directors or Non-Employee Directors) any of the administrative
powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or
such a subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration
of the Plan. Notwithstanding anything in this paragraph 2 to the
contrary, the Board or the Committee may delegate to a committee
of one (1) or more members of the Board the authority to grant
Options to eligible persons who: (1) are not then subject to
Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the
time of recognition of income resulting from such Option, or (ii)
not persons with respect to whom the Company wishes to comply
with section 162(m) of the Code.
(d) "Affiliate" means any parent corporation or
subsidiary corporation, whether now or hereafter existing, as
those terms are defined in Sections 424(e) and (f) respectively,
of the Code.
(e) "Covered Employee" means the chief executive
officer and the four (4) other highest compensated officers of
the Company for whom total compensation is required to be
reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(f) "Non-Employee Director" means a Director who
either (i) is not a current employee or officer of the Company or
its parent or subsidiary, does not receive compensation (directly
or indirectly) from the Company or its parent or subsidiary for
services rendered as a consultant or in any capacity other than
as a director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other
3
transaction as to which disclosure would be required under Item
404(a) of Regulation S-K, and is not engaged in a business
relationship as to which disclosure would be required under Item
404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
(g) "Outside Director" means a director who either (i)
is not a current employee of the Company or an "affiliated
corporation" (as defined in the Treasury regulations promulgated
under section 162(m) of the Code), is not a former employee of
the Company or an "affiliated corporation" receiving compensation
for prior services (other than benefits under a tax-qualified
pension plan), was not an officer of the Company or an
"affiliated corporation" at any time, and is not currently
receiving direct or indirect remuneration from the Company or an
"affiliated corporation" for services in any capacity other than
as a director, or (ii) is otherwise considered an "outside
director" for purposes of section 162(m) of the Code.
(h) "Securities Act" means the Securities Act of 1933,
as amended.
3. Eligibility.
(a) The Options may be granted only to employees
(including officers and directors), persons who become employees
within thirty (30) days of the date of grant of an Option and
consultants of the Company. The Board shall, in the Board's sole
discretion, determine which persons shall be granted Options (an
"Optionee"). Incentive stock options may be granted only to
employees. Nonqualified stock options may be granted only to
employees, directors and consultants. A Non-Employee Director
shall not be eligible to receive the grant of an Option, even if
providing consulting services to the Company.
(b) To the extent that the aggregate fair market value
(determined at the time of grant) of stock with respect to which
incentive stock options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company
and its Affiliates) exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such
limit (according to the order in which they were granted) shall
be treated as nonqualified stock options.
(c) Subject to the provisions of paragraph 7 relating
to adjustments upon changes in stock, no person shall be eligible
to be granted Options covering more than that number of shares
equal to two percent (2%) of the Company's outstanding common
stock on April 10, 1995, the record date for the Company's 1995
Annual Meeting of Stockholders (or four hundred ninety-two
thousand six hundred fifty-five (492,655)) shares of the
Company's common stock during any calendar year.
4. Shares Subject to the Plan. The maximum number of
shares which may be issued under the Plan shall be seventeen
million five hundred thousand (17,500,000) shares of the
Company's authorized but unissued common stock or treasury stock,
subject to the provisions of paragraph 7 relating to adjustments
upon changes in stock. In the event that any outstanding Option
for any reason expires or is terminated and/or shares subject to
repurchase are repurchased by the Company, the shares of common
stock allocable to the unexercised portion of such Option, or so
repurchased, may again be subjected to an Option.
4
5. Time for Granting Options. All Options shall be
granted, if at all, within ten (10) years from March 16, 1992.
6. Terms, Conditions and Form of Options. Subject to the
provisions of the Plan, the Board shall determine for each Option
(which need not be identical) the number of shares for which the
Option shall be granted, the option price of the Option, the
exercisability of the Option, whether the Option is a
nonqualified stock option or an incentive stock option, and all
other terms and conditions of the Option not inconsistent with
this paragraph 6. All Options shall be separately designated
incentive stock options or nonqualified stock options at the time
of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
Options granted pursuant to the Plan shall be evidenced by
written agreements specifying the number of shares covered
thereby, in such form as the Board shall from time to time
establish, and shall comply with and be subject to the following
terms and conditions:
(a) The exercise price shall be not less than one
hundred percent (100%) of the fair market value, as determined by
the Board, of the stock of the Company subject to the Option on
the date the Option is granted, except that the exercise price
for an incentive stock option granted to any person who owns (or
is deemed to own pursuant to Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any of
its Affiliates (a "Ten Percent Owner Optionee") shall be not less
than one hundred ten percent (110%) of the fair market value of
the stock of the Company subject to the incentive stock on the
date the incentive stock option is granted. Notwithstanding the
foregoing, an Option (whether an incentive stock option or a
nonqualified stock option) may be granted with an exercise price
(other than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for
another Option in a manner satisfying the provisions of Section
424(a) of the Code.
(b) Exercise Period of Options. The Board shall have
the power to set the time or times within which each Option shall
be exercisable or the event or events upon the occurrence of
which all or a portion of each Option shall be exercisable and
the term of each Option; provided, however, that no incentive
stock option shall be exercisable after the expiration of ten
(10) years from the date such Option is granted, no nonqualified
stock option shall be exercisable after the expiration of ten
(10) years and one (1) month from the date such Option is
granted, and provided further that no Option which is an
incentive stock option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years from
the date such Option is granted.
(c) Payment of Option Price. Payment of the exercise
price for the number of shares being purchased pursuant to any
Option shall be made to the extent permitted by applicable
statutes and regulations, either (i) in cash or by check or (ii)
at the discretion of the Board, at the time of the grant of the
Option, under one of the following alternatives:
5
(i) Provided that at the time of exercise the
common stock is publicly traded pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board
which, prior to the issuance of common stock, results in either
the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(ii) Provided that at the time of exercise the
common stock is publicly traded, by delivery of already-owned
shares of common stock, held for the period required to avoid a
charge to the Company's reported earnings, and owned free and
clear of any liens, claims, encumbrances or security interests,
which common stock shall be valued at its fair market value on
the date of exercise;
(iii) Pursuant to a deferred payment
alternative, provided that, at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par
value" (as defined in the Delaware General Corporation Law) shall
not be made by deferred payment, the principal shall be due and
payable not more than four (4) years after the Option is granted,
interest shall be payable at least annually and be at least equal
to the minimum interest rate to avoid imputed interest pursuant
to all applicable sections of the Code, and the Board shall have
the authority from time to time to permit the Optionee to secure
any promissory note used to exercise an Option with collateral
other than the Company's common stock.
(iv) In any other form of legal consideration that
may be acceptable to the Board; or
(v) By any combination of the above methods.
Notwithstanding the foregoing, in the event the Company at
any time becomes subject to the regulations promulgated by the
Board of Governors of the Federal Reserve System affecting the
extension of credit in connection with the Company's securities,
any promissory note shall not initially exceed the maximum loan
value of the collateral as defined by applicable regulations and
the Optionee shall prepay, at the request of the Company, any
promissory note to the extent necessary to permit the Company to
comply with applicable regulations. The Company reserves, at any
and all times, the right, in the Company's sole and absolute
discretion, to establish, decline to approve and/or terminate any
program and/or procedures for the exercise of Options by means of
an assignment of the proceeds of a sale of some or all of the
shares of stock to be acquired upon such exercise.
(d) Option Transferability. An incentive stock option
shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the
lifetime of the person to whom the incentive stock option is
granted only by such person. A nonqualified stock option may be
transferable to the extent expressly provided in the option
agreement provided, however, that if the Option agreement does
not specifically provide for transferability, then such
nonqualified stock option shall not be transferable except by
will or by the laws of descent and distribution or pursuant to a
domestic relations order, and shall be exercisable during the
lifetime of the person to whom the nonqualified stock option is
granted only by such person or any transferee pursuant to a
domestic relations order. Notwithstanding the
6
foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory
to the Company, designate a third party who, in the event of the
death of the person to whom such Option was granted, shall
thereafter be entitled to exercise the Option, or as the Board or
Committee shall determine in its discretion.
(e) Early Exercise. The Option may, but need not,
include a provision whereby the Optionee may elect at any time
before such Optionee terminates service with the Company to
exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any
unvested shares so purchased shall be subject to a repurchase
right in favor of the Company or any other restriction the Board
determines appropriate.
(f) Standard Option Terms.
(i) Incentive Stock Options. Unless otherwise
provided for by the Board at the time an Option is granted, an
Option designated by the Board as an "Incentive Stock Option"
shall comply with and be subject to the terms and conditions set
forth in the form of Incentive Stock Option Agreement.
(ii) Nonqualified Stock Options. Unless otherwise
provided for by the Board at the time an Option is granted, an
Option designated by the Board as a "Nonqualified Stock Option"
shall comply with and be subject to the terms and conditions set
forth in the form of Nonqualified Stock Option Agreement.
(iii) Authority to Vary Terms. The Board
shall have the authority from time to time to vary the terms of
the option agreements either in connection with the grant of an
individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and
conditions of such option agreements shall be in accordance with
the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are not
immediately exercisable; provided, however, that in the event of
(1) a merger in which the Company is not the surviving
corporation, (2) the sale or exchange by the stockholders of the
Company of all or substantially all of the stock of the Company
where the stockholders before such sale or exchange do not
retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Company, or (3)
the sale or exchange of all or substantially all of the Company's
assets (other than a sale or transfer to a subsidiary of the
Company as defined in section 424(f) of the Code), any
outstanding Options which are not immediately exercisable under
their terms, shall become fully exercisable prior to consummation
of such merger or sale of assets at such time as the Board shall
determine; or the surviving or acquiring corporation, as a
condition precedent to consummation of such merger or sale of
assets shall assume the outstanding Options or issue substitute
Options.
7. Effect of Change in Stock Subject to Plan. Appropriate
adjustments shall be made in the number and class of shares of
stock subject to the Plan, the maximum number of shares subject
to award to any person during any calendar year pursuant to
subparagraph 3(c), and to any outstanding Options and in the
exercise price of any outstanding Options in the event any change
is made in the stock subject to the Plan, or subject to any
7
Option, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than
cash, stock split, liquidating dividend, combination of shares,
exchange of shares, change in corporate structure or other
transaction not involving the receipt of consideration by the
Company). Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company
shall not be treated as a "transaction not involving the receipt
of consideration by the Company.")
8. Covenants Of The Company.
(a) During the terms of the Options, the Company shall
keep available at all times the number of shares of stock
required to satisfy such Options.
(b) The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan
such authority as may be required to grant Options and to issue
and sell shares of common stock upon exercise of the Options;
provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any
Options or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company
shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Options unless and until such
authority is obtained.
9. Use Of Proceeds From Stock.
Proceeds from the sale of stock pursuant to Options shall
constitute general funds of the Company.
10. Miscellaneous.
(a) The Board shall have the power to accelerate the
time at which an Option may first be exercised or the time during
which an Option or any part thereof will vest, notwithstanding
the provisions in the Option stating the time at which it may
first be exercised or the time during which it will vest.
(b) No Optionee shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such person has
satisfied all requirements for exercise of the Option pursuant to
its terms.
(c) Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionee
any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a director or consultant) or
shall affect the right of the Company or any Affiliate to
terminate the employment of any employee with or without cause,
the right of the Board and/or the Company's stockholders to
remove any director pursuant to the terms of the Company's Bylaws
and the provisions of applicable laws, or the right to terminate
8
the relationship of any consultant pursuant to the terms of such
consultant's agreement with the Company or Affiliate to which
such consultant is providing services.
(d) The Company may require any Optionee, or any
person to whom an Option is transferred pursuant to subsection
6(d), as a condition of exercising or acquiring stock under any
Option, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial
and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she
is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option;
and (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the stock subject to the
Option for such person's own account and not with any present
intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise or acquisition of stock under the Option
has been registered under a then currently effective registration
statement under the Securities Act, or (ii) as to any particular
requirement, a determination is made by counsel for the Company
that such requirement need not be met in the circumstances under
the then applicable securities laws. The Company may require the
holder of the Option to provide such other representations,
written assurances or information which the Company shall
determine is necessary, desirable or appropriate to comply with
applicable securities and other laws as a condition of granting
an Option to such person or permitting the holder of the Option
to exercise such Option. The Company may, upon advice of counsel
to the Company, place legends on stock certificates issued under
the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not
limited to, legends restricting the transfer of the stock.
(e) To the extent provided by the terms of an Option
agreement, the Optionee may satisfy any federal, state or local
tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following
means or by a combination of such means (in addition to the
Company's right to withhold from any compensation paid to the
Optionee by the Company): (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the
common stock otherwise issuable to the Optionee as a result of
the exercise or acquisition of stock under the Option; or (3)
delivering to the Company owned and unencumbered shares of the
common stock of the Company.
11. Provision of Information. Each Optionee shall be given
information concerning the Company equivalent to that information
generally made available to the Company's common stockholders.
12. Amendment of The Plan.
(a) The Board at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 7
relating to adjustments upon changes in stock, no amendment shall
be effective unless approved by the stockholders of the Company
to the extent
9
stockholder approval is necessary for the Plan to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq
or securities exchange listing requirements.
(b) The Board may in its sole discretion submit any
other amendment to the Plan for stockholder approval, including,
but not limited to, amendments to the Plan intended to satisfy
the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may
amend the Plan in any respect the Board deems necessary or
advisable to provide eligible employees with the maximum benefits
provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to incentive
stock options and/or to bring the Plan and/or incentive stock
options granted under it into compliance therewith.
(d) Rights and obligations under any Option granted
before amendment of the Plan shall not be impaired by any
amendment of the Plan unless (i) the Company requests the consent
of the Optionee and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may
amend the terms of any one or more Options; provided, however,
that the rights and obligations under any Option shall not be
impaired by any such amendment unless (i) the Company requests
the consent of the Optionee and (ii) such person consents in
writing.
13. Termination Or Suspension Of The Plan.
(a) The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on
March 15, 2002, which shall be within ten (10) years from the
date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Options
may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any Option granted
while the Plan is in effect shall not be impaired by suspension
or termination of the Plan, except with the written consent of
the Optionee.
14. Continuation of Initial Plan and 1992 Plan as to
Outstanding Options. Notwithstanding any other provision of the
Plan to the contrary, the terms of the Initial Plan and the 1992
Plan shall remain in effect and apply to Options granted pursuant
to such version of stock option plan.
15. Choice Of Law. All questions concerning the
construction, validity and interpretation of this Plan, shall be
governed by the law of the State of Delaware, without regard to
such state's conflict of laws rules.
FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Fifth Amendment")
is made effective as of June 29, 1998, by and between Ross Stores, Inc.
(the "Company") and Melvin A. Wilmore (the "Executive"). The Executive and
the Company are parties to an Employment Agreement of March 15, 1994, as
amended on March 16, 1995, June 1, 1995, July 29, 1996, and May 19, 1997
(the "Employment Agreement"). The Company and the Executive now desire to
further amend the Employment Agreement to set forth (a) the terms upon
which the Executive will resign from his employment with the Company, and
(b) the payments and benefits that the Executive will be entitled to
receive upon his resignation. Accordingly, the Executive and the Company
now enter into this Fifth Amendment.
1. Resignation. The Executive hereby voluntarily resigns from any
and all positions that he holds as an officer, director and/or employee of
the Company and any of its subsidiaries effective as of the earlier of (a)
January 28 , 2000, or (b) the date that is 60 days after the date on which
the Executive's successor commences employment with the Company (the
"Resignation Date"). The Executive and the Company may mutually agree in
writing to an earlier or later Resignation Date.
2. Terms of Continued Employment. The Executive shall continue to
be employed by the Company in accordance with the terms of the Employment
Agreement until the Resignation Date or the earlier termination of the
parties' employment relationship in accordance with the terms of the
Employment Agreement. Prior to the Resignation Date, it is agreed that
there shall be no reduction in Executive's reporting responsibilities
unless mutually agreed upon between the Company and the Executive.
3. Salary and Bonuses. The Executive's salary, referenced in
paragraph 4(a) of the Employment Agreement, shall be not less than $645,000
through February 28, 1999. Effective on March 1, 1999, the Executive's
salary shall be increased to $680,000.
4. Resignation Payments and Benefits. The Executive and the Company
agree that his voluntary resignation as of the Resignation Date will be a
Voluntary Termination as defined in Paragraph 7(g) of the Employment
Agreement. Accordingly, the Executive shall not be entitled to any
payments or benefits from the Company following the Resignation Date except
as set forth in this Fifth Amendment.
5. Consideration For Release of Claims. In consideration of (a) the
Executive's continued performance of his duties for the Company in a
satisfactory fashion through the Resignation Date, and (b) the Executive's
release (the "Release") of any claims as of the Resignation Date as set
forth in Paragraph 6 of this Fifth Amendment (provided that the Release is
not revoked by the Executive within seven days after the Resignation Date),
then the Company shall provide the Executive with the following payments
and benefits when the Release becomes effective:
2
(i) for the period commencing on the Resignation Date and ending
February 1, 2001, the continuation of the Executive's base salary rate as
described in Paragraph 3 above, less applicable withholding, payable in
installments in accordance with the Company's standard payroll policies;
(ii) if the Resignation Date precedes the last day of either
Fiscal 1998, and/or Fiscal 1999, the Executive shall be entitled to receive
annual bonus(es) attributable to such fiscal year(s), if any, when paid in
accordance with the Company's standard practices, less applicable
withholdings;
(iii) a lump sum payment on February 1, 2001, equal to the
highest annual bonus that the Executive received, if any, for either fiscal
1998 or fiscal 1999, less applicable withholding;
(iv) with respect to any stock options granted to the Executive
by the Company, the Executive shall immediately become vested in any
unvested stock options;
(v) with respect to any restricted stock granted to the
Executive by the Company, the Executive shall immediately become vested in
any unvested restricted stock;
(vi) with respect to Paragraph 4(f) [Services Furnished] of the
Employment Agreement, the Company shall provide the office space and
services described therein to the Executive for a period commencing on the
Resignation Date and ending February 1, 2001; and
(vii) until his death or the date of his 65th birthday,
whichever occurs first, the Executive shall be entitled to continue to
participate (at no cost to the Executive) in the following Company employee
benefit plans and arrangements in effect on the date hereof (or other
benefit plans or arrangements providing substantially similar benefits) in
which the Executive now participates: executive medical, dental, vision
and mental health insurance; life insurance; accidental death and
dismemberment insurance; travel insurance; group excess personal liability;
and matching of Executive's 401(k) and supplemental 401(k) contributions
(the "Matching Contributions"). The Company shall not make any changes in
such plans or arrangements that would adversely affect the Executive's
rights or benefits thereunder, unless such change occurs pursuant to a
program applicable to all senior executives of the Company and does not
result in a proportionately greater reduction in the rights of, or benefits
to, the Executive as compared with any other senior executive of the
Company. For purposes of this Paragraph 5(vi), in the event of a Change of
Control, as defined in Paragraph 7(f) of the Employment Agreement, the
"Company" shall include any other entity that is a successor to the
Company, whether by merger, consolidation, liquidation, as a result of the
sale, exchange or transfer of all or substantially all of the Company's
assets, or otherwise, and the provisions of this Paragraph 5(vi) shall
continue to be binding on and shall be performed by such successor for the
benefit of the Executive and his heirs and successors. Further, in the
event of any such change of control the "senior executives of the Company"
referred to in the second sentence of this Paragraph shall mean the senior
executives who are members of its executive committee, or equivalent, or if
there is no such committee who hold the most senior rank in the successor
entity.
3
(viii) until his death, the Executive and all members of his
immediate family shall be entitled to Company employee discount cards.
(ix) until his death or the date of his 65th birthday, whichever
occurs first, the Executive shall be reimbursed by the Company for any
estate planning fees or expenses actually incurred by the Executive, up to
a maximum annual reimbursement of $5,000; provided, however, that such
annual limit shall be increased from time to time consistent with increases
in similar benefits provided to Norman Ferber.
With respect to Paragraphs 5(iv) and (v), the Executive agrees to comply
with applicable federal and state securities laws and/or the Company's
insider trading policies as in effect on the Resignation Date.
6. Release. (a) In exchange for the payments and benefits provided
to him pursuant to this Fifth Amendment, effective as of the Resignation
Date, the Executive and his successors release the Company, its
subsidiaries and their respective shareholders, investors, directors,
officers, employees, agents, attorneys, legal successors and assigns of and
from any and all claims, actions and causes of action, whether known or
unknown, which the Executive has, or at any other time had, or shall or may
have against the released parties based upon or arising out of any matter,
cause, fact, thing, act or omission whatsoever occurring or existing at any
time up to and including the Resignation Date including, but not limited
to, any claims of breach of contract, wrongful termination, fraud,
defamation, infliction of emotional distress or national origin, race, age,
sex, sexual orientation, disability or other discrimination or harassment
under the Civil Rights Act of 1964, the Age Discrimination In Employment
Act of 1967, the Americans With Disabilities Act, the Fair Employment and
Housing Act or any other applicable law.
Nothing herein, however, is intended to release the Executive's
claims, if any, relating to vested shares, vested retirement benefits or
the Executive's rights under California Labor Code Section 2802 and under
California General Corporation Law Section 317 which are expressly not
released.
(b) In exchange for the release provided herein, the
Company releases the Executive, effective as of the Resignation Date, from
any and all claims, actions and causes of actions, whether known or
unknown, which the Company has, or at any other time had, or shall or may
have against the Executive based upon or arising out of any matters, cause,
fact, thing, act or omission whatsoever occurring or existing at any time
up to and including the Registration Date.
(c) The Executive and the Company acknowledge that each has
read section 1542 of the Civil Code of the State of California, which
states in full:
A general release does not extend to claims which
the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
The Executive and the Company waive any rights that each has or may have
under section 1542 to the full extent that each may lawfully waive such
rights pertaining to this general release of claims, and affirms that each
is releasing all known and unknown claims that each has or may have against
the parties listed above.
4
THE EXECUTIVE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO
SIGNING THIS FIFTH AMENDMENT AND THAT EFFECTIVE ON THE RESIGNATION DATE HE
IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE PARTIES RELEASED ABOVE BY
SIGNING THIS FIFTH AMENDMENT. THE EXECUTIVE FURTHER UNDERSTANDS THAT HE
MAY HAVE UP TO 21 DAYS TO CONSIDER THIS RELEASE, THAT HE MAY REVOKE THIS
RELEASE AT ANY TIME DURING THE 7 DAYS AFTER THE RESIGNATION DATE BY SENDING
WRITTEN NOTICE TO THE CHAIRMAN OF THE COMPENSATION COMMITTEE OF THE
COMPANY'S BOARD OF DIRECTORS, AND THAT THIS RELEASE SHALL NOT BECOME
EFFECTIVE UNTIL THAT 7-DAY REVOCATION PERIOD HAS PASSED. THE EXECUTIVE
ACKNOWLEDGES THAT HE IS SIGNING THIS FIFTH AMENDMENT KNOWINGLY, WILLINGLY
AND VOLUNTARILY IN EXCHANGE FOR THE PAYMENTS AND BENEFITS DESCRIBED IN THIS
FIFTH AMENDMENT.
7. Non-Solicitation; Non-Competition. For a period of three years
following the Resignation Date:
(i) The Executive shall not, directly or indirectly, solicit any
employee or officer of the Company to terminate his/her employment with the
Company.
(ii) The Company and the Executive acknowledge that the Company
has a special interest in and derives significant benefit from the unique
skills and experience of the Executive. In addition, the Executive will
use and have access to some of the Company's proprietary and valuable
confidential information during the course of the Executive's employment.
Accordingly, unless otherwise prohibited by law, the Executive shall not
provide any labor, work, services or assistance to (whether as an officer,
director, employee, partner, agent, owner, independent contractor,
stockholder or otherwise) Burlington Coat Factory Warehouse Corporation,
Dillard Department Stores, Inc., Filene's Basement Corp., The Federated
Stores, The May Department Stores Company, The TJX Companies, Inc. and
Value City Department Stores, Inc. as well as all subsidiaries, divisions
and/or the surviving entity of any of the above that do business in the
retail industry in the case of a merger or acquisition. However, this
subsection shall not prohibit the Executive from making any investment of
1% or less of the equity securities of any publicly-traded corporation that
is engaged in any business of the type or character engaged in by the
Company. If the Executive breaches this paragraph 7, he shall be liable to
the Company for any damages caused by such breach and shall not be entitled
to the benefits described in Paragraph 5(vi) and (vii) following such
breach.
8. Attorneys' Fees. The Company shall reimburse the Executive for
his reasonable attorneys' fees incurred in the negotiation and
documentation of this Fifth Amendment. Each party
5
shall bear its own attorneys' fees and costs incurred in any dispute
arising out of this Fifth Amendment.
9. Governing Law; Severability. The validity, interpretation,
construction and performance of this Agreement shall be governed by the
laws of the State of New York. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
10. Effect On Employment Agreement. Except as modified by this Fifth
Amendment, the Employment Agreement shall remain in full force and effect,
and the provisions of the Employment Agreement that are to remain in effect
following the termination of the parties' employment relationship
(including, but not limited to, paragraphs 6, 10, 11, 12, 17 and 18) shall
remain in effect following the Resignation Date.
11. Entire Agreement; Modification. This Fifth Amendment, along with
the Employment Agreement, constitutes the entire agreement between the
Executive and the Company concerning the termination of their employment
relationship and the subjects described herein. This Fifth Amendment
cannot be modified or amended except in a document signed by the Executive
and the chairman of the Compensation Committee of the Company's Board of
Directors (or such other person as may be designated by the Company's Board
of Directors).
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment
effective as of the day and year first written above.
ROSS STORES, INC.
By: /s/ Michael Balmuth 7/22/98 /s/Melvin A. Wilmore 6/29/98
MELVIN A. WILMORE
EXHIBIT 15
September 11, 1998
Ross Stores, Inc.
Newark, California
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim condensed consolidated financial statements of Ross Stores,
Inc. for the three-month and six-month periods ended August 1, 1998
and August 2, 1997, as indicated in our independent accountantsO
report dated August 21, 1998; because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q for the quarter ended August 1,
1998 is incorporated by reference in Registration Statements Nos. 33-
56831, 333-06119, 33-61373, 33-51916, 33-51896, 33-51898, 33-41415, 33-
41413 and 33-29600 of Ross Stores, Inc. on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of
the Registration Statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of
Sections 7 and 11 of that Act.
Yours truly,
Deloitte & Touche LLP
San Francisco, California
5
0000745732
ROSS STORES, INC.
1,000
6-MOS
JAN-30-1999
FEB-01-1998
AUG-01-1998
31,972
0
11,722
0
468,952
528,086
411,589
177,271
802,722
338,016
0
0
0
472
385,615
802,722
1,021,251
1,021,251
708,812
922,466
0
0
130
98,785
38,526
60,259
0
0
0
60,259
1.26
1.24
For purposes of this exhibit, primary means basic
