Petsmart 2001 Annual Report Download - page 52

PETsMART, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Ì (Continued)
Additionally, rental income receivable from MMI totaled $2,061,000 and $3,762,000 at January 28, 2001 and
January 30, 2000, respectively, and is included in receivables in the accompanying consolidated balance
sheets.
Note 14 Ì Commitments and Contingencies
Minimum rental commitments under operating leases at January 28, 2001 exclude commitments of up to
$26,215,000 relating to future store sites under development and construction.
On January 16, 2001, certain former stockholders of Pet City Holdings, a U.K. corporation, including
Richard Northcott, who was a PETsMART board member from December 1996 to September 1997, Ñled two
complaints, one in federal court and one in state court, seeking damages against PETsMART and certain of its
former or current oÇcers and directors. Each complaint relates to the 1996 acquisition of Pet City by
PETsMART, and each complaint alleges misrepresentations or omissions that misled the shareholders of Pet
City concerning PETsMART's business, Ñnancial status, and prospects. The state court complaint also alleges
breaches of Ñduciary duties owed to the Pet City plaintiÅs. PETsMART has Ñled a motion to dismiss the
federal complaint, and a demurrer and motion to stay discovery in the state court. Neither court has issued any
rulings on these motions or the merits as of this time. The Company believes the allegations are without merit
and intends to vigorously defend these matters. However, no assurance can be provided as to the outcome of
these complaints and at this time, management cannot estimate the range of possible loss, if any.
The Company is involved in certain other litigation arising from various matters. Management believes
that the ultimate resolution of such legal matters will not have a material adverse aÅect on the Company's
consolidated Ñnancial position or results of operations.
Note 15 Ì Stock Incentive Plans
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan under which essentially all employees with six or
more months of service can purchase common stock on semi-annual oÅering dates at 85% of the fair market
value on the oÅering date or, if lower, at 85% of the fair market value of the shares on the exercise date. A
maximum of 3,000,000 shares are authorized for purchase until the plan termination date of December 31,
2002. A total of 607,000, 346,000, and 182,000 shares were purchased in Ñscal 2000, 1999, and 1998,
respectively, for aggregate proceeds of $1,749,000, $2,366,000, and $1,246,000, respectively. Only one semi-
annual oÅering was made during Ñscal 1998, as the second oÅering date occurred after January 31, 1999.
Restricted Stock Bonus
The Company maintains a Restricted Stock Bonus Plan. Under the terms of the plan, employees of the
Company may be awarded shares of common stock of the Company, subject to approval by the Board of
Directors. The employee is not required to make any cash payment as a condition of receiving the award. The
shares of common stock awarded under this plan are subject to a reacquisition right held by the Company. In
the event that the award recipient's employment by, or service to, the Company is terminated for any reason,
the Company shall simultaneously and automatically reacquire for no consideration all of the unvested shares
of restricted common stock previously awarded to the recipient. The shares of restricted common stock
awarded under this plan vest and are released from the Company's reacquisition right under an accelerated
schedule if the Company's common stock price reaches certain speciÑed targets. If the speciÑed stock price
targets are not reached, the shares nevertheless become 100% vested Ñve years after the award date, provided
that the award recipient has been in continuous service with the Company from the award date.
In Ñscal 1998, the Company awarded 286,000 shares under the plan and recorded approximately
$3,003,000 as deferred compensation (a deduction from stockholder's equity) with an oÅsetting credit to
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