North Face 2000 Annual Report Download - page 32

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Each outstanding share of Common Stock has one preferred
stock purchase right attached. The rights become exercisable ten
days after an outside party acquires, or makes an offer for, 15% or
more of the Common Stock. Once exercisable, each right will
entitle its holder to buy 1/100 share of Series A Preferred Stock
for $175. If the Company is involved in a merger or other business
combination or an outside party acquires 15% or more of the
Common Stock, each right will be modified to entitle its holder
(other than the acquirer) to purchase common stock of the acquir-
ing company or, in certain circumstances, VF Common Stock hav-
ing a market value of twice the exercise price of the right. In some
circumstances, rights other than those held by an acquirer may be
exchanged for one share of VF Common Stock. The rights, which
expire in January 2008, may be redeemed at $.01 per right prior to
their becoming exercisable.
Note K Redeemable Preferred Stock
Each share of Series B Preferred Stock has a redemption value of
$30.88 plus cumulative accrued dividends, is convertible into 1.6
shares of Common Stock and is entitled to two votes per share
along with the Common Stock. The trustee for the ESOP may
convert the preferred shares to Common Stock at any time or may
cause the Company to redeem the preferred shares under certain
circumstances. The Series B Preferred Stock also has preference in
liquidation over all other stock issues.
The ESOP’s purchase of the preferred shares was funded by a
loan of $65.0 million from the Company that bears interest at
9.80% and is payable in increasing installments through 2002.
Interest income on this loan was $1.7 million in 2000, $2.6 million
in 1999 and $3.3 million in 1998. Principal and interest obligations
on the loan are satisfied as the Company makes contributions to
the savings plan and dividends are paid on the Preferred Stock. As
principal payments are made on the loan, shares of Preferred Stock
are allocated to participating employees’ accounts within the ESOP.
At the end of 2000, 1,312,345 shares of Preferred Stock had been
allocated to participating employees’ accounts.
Note L Stock Option Plan
The Company has granted nonqualified stock options to officers,
directors and key employees under a stock compensation plan at
prices not less than fair market value on the date of grant. Options
become exercisable generally one year after the date of grant
and expire ten years after the date of grant. Activity in the stock
compensation plan is summarized as follows:
Weighted
Shares Average
Under Exercise
Options Price
Balance January 3, 1998 5,511,616 $28.21
Options granted 1,940,000 43.30
Options exercised (1,680,000) 27.26
Options canceled (69,310) 25.41
Balance January 2, 1999 5,702,306 33.65
Options granted 1,975,400 43.20
Options exercised (795,400) 31.87
Options canceled (250,810) 32.88
Balance January 1, 2000 6,631,496 36.74
Options granted 2,213,025 26.20
Options exercised (51,130) 21.60
Options canceled (294,500) 34.46
Balance December 30, 2000 8,498,891 $34.17
Stock options outstanding at December 30, 2000 are summa-
rized as follows:
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
$16– 20 41,220 .9 years $17.95
21– 25 599,586 3.7 years 23.48
26– 30 3,264,335 7.0 years 26.46
31– 35 1,081,100 5.9 years 34.49
40– 45 3,512,650 7.7 years 43.25
$16– 45 8,498,891 6.9 years $34.17
All above options are exercisable, except for those granted in
2000. There are 2,665,734 shares available for future grants of stock
options and stock awards, of which no more than 968,356 may be
grants of restricted stock awards.
Since all stock options are granted at market value, compensa-
tion expense is not required. However, had compensation expense
been determined based on the fair value of the options on the
grant dates, the Company’s net income would have been reduced
by $10.5 million ($.09 per share) in 2000, $11.9 million ($.10 per
share) in 1999 and $9.7 million ($.08 per share) in 1998.
The fair value of options granted during 2000 was $7.66 per
share, during 1999 was $9.97 per share and during 1998 was
$8.78 per share. Fair value is estimated based on the Black-Scholes
option-pricing model with the following assumptions: dividend
yield of 2.0%; expected volatility of 36% in 2000, 26% in 1999 and
20% in 1998; risk-free interest rates of 6.8% in 2000, 4.8% in 1999
and 5.4% in 1998; and expected lives of 4 years.
The Company has granted to key employees 69,706 shares of
restricted stock that vest in periods through 2005. Compensation
equal to the market value of shares at the date of grant is amortized
to expense over the vesting period. Expense for these shares was
$.6 million in 2000, $.3 million in 1999 and $.2 million in 1998.
In 2000 and 1999, the Company granted stock awards to certain
key employees under a stock award plan that replaced a portion of
the cash incentive compensation for those employees. The stock