FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended April 30, 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 0-18183
G-III APPAREL GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 41-1590959
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 West 37th Street, New York, New York 10018
(Address of Principal Executive Office) (Zip Code)
(212) 629-8830
(Registrant's telephone number, including area code)
(Former name, former address and 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 XX No
________ ________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 1, 1998.
Common Stock, $.01 par value per share: 6,526,386 shares.
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Condensed Consolidated Balance Sheets -
April 30, 1998 and January 31, 1998..................3
Condensed Consolidated Statements of Operations -
For the Three Months Ended
April 30, 1998 and 1997..............................4
Condensed Consolidated Statements of Cash Flows -
For the Three Months Ended
April 30, 1998 and 1997..............................5
Notes to Condensed Consolidated Financial Statements.........6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................................8-10
* The Balance Sheet at January 31, 1998 has been taken from the audited
financial statements at that date. All other financial statements are
unaudited.
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................10
1. Amendment No. 1 to the Fourth Amended and
Restated Loan Agreement dated June 1, 1998
by and among G-III Leather Fashions, Inc., the
Banks signatory thereto and Fleet Bank, N.A., as Agent.
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G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS APRIL 30, JANUARY 31,
1998 1998
---- ----
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 627 $ 5,842
Accounts receivable 7,546 12,664
Allowance for doubtful accounts and sales discounts (1,055) (1,247)
Inventories - net 30,257 20,232
Prepaid expenses and other current assets 4,588 1,758
------- -------
Total current assets 41,963 39,249
PROPERTY, PLANT AND EQUIPMENT, NET 3,512 3,431
DEFERRED INCOME TAXES 3,057 3,125
OTHER ASSETS 1,003 941
-------- --------
$49,535 $46,746
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 12,623 $ 3,478
Current maturities of obligations under capital leases 279 256
Income taxes payable -0- 973
Accounts payable 1,840 2,627
Accrued expenses 1,531 2,138
Accrued nonrecurring charges 528 538
-------- --------
Total current liabilities 16,801 10,010
OBLIGATIONS UNDER CAPITAL LEASE 267 352
NONRECURRING CHARGES - LONG-TERM 396 397
MINORITY INTEREST 299 301
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized; no shares
issued and outstanding in all periods
Common stock - $.01 par value; authorized, 20,000,000 shares; issued and
outstanding, 6,514,286 and 6,506,276 Shares on April 30, 1998 and January
31, 1998, Respectively 65 65
Additional paid-in capital 23,716 23,700
Retained earnings 7,991 11,921
------- -------
31,772 35,686
------- -------
$49,535 $46,746
======= =======
The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED APRIL 30,
----------------------------
(Unaudited)
1998 1997
----- -------
Net sales $4,950 $6,531
Cost of goods sold 5,248 6,069
------- -------
Gross profit (loss) (298) 462
Selling, general and administrative expenses 6,340 5,814
------- -------
Operating loss (6,638) (5,352)
Interest and financing charges, net 163 60
------- --
Loss before minority interest (6,801) (5,412)
and income taxes
Minority interest in loss of joint venture (251) 0
-------- --------
Loss before income taxes (6,550) (5,412)
Income tax benefit (2,620) (2,164)
-------- -------
Net loss $(3,930) $ (3,248)
======== ========
LOSS PER COMMON SHARE:
Basic and Diluted;
Net loss per common share $ (.60) $ (.50)
========= =========
Weighted average number of shares outstanding 6,509,943 6,477,443
========= =========
The accompanying notes are an integral part of these statements.
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G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED APRIL 30,
----------------------------
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities
Net loss $ (3,930) $ (3,248)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 323 296
Minority Interest 251 0
Changes in operating assets and liabilities:
Accounts receivable 4,926 4,148
Inventories (10,025) (5,040)
Prepaid income taxes (3,992) (2,586)
Prepaid expenses and other current assets 257 (749)
Other assets (62) (46)
Accounts payable and accrued expenses (1,397) 128
Accrued Nonrecurring Charge (11) (16)
-------- --------
Net cash used in operating activities (13,660) (7,113)
-------- --------
Cash flows from investing activities
Capital expenditures (404) (118)
Capital dispositions 0 2
Investment in joint venture 250 0
-------- --------
Net cash used in investing activities (654) (116)
-------- ---------
Cash flows from financing activities
Increase in notes payable, net 9,145 18
Payments for capital lease obligations (62) (154)
Proceeds from exercise of stock options 16 1
-------- ---------
Net cash from (used in) financing activities 9,099 (135)
-------- ---------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (5,215) (7,364)
Cash and cash equivalents at beginning of period 5,842 13,067
-------- ---------
Cash and cash equivalents at end of period $ 627 $ 5,703
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 175 $ 94
Income taxes 1,539 440
The accompanying notes are an integral part of these statement
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General Discussion
The results for the three month period ended April 30, 1998 are not necessarily
indicative of the results expected for the entire fiscal year. The accompanying
financial statements included herein are unaudited. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented have been reflected.
During the quarter ended July 31, 1997, a newly formed subsidiary, BET Design
Studio, LLC commenced operations. The Company owns 50.1% of the subsidiary, and
accordingly consolidates its results from its startup date in May 1997.
The accompanying financial statements should be read in conjunction with the
financial statements and notes included in the Company's Form 10K filed with the
Securities and Exchange Commission for the year ended January 31, 1998.
Note 2 - Inventories
April 30, January 31,
1998 1998
------ -----
Inventories consist of: (in thousands)
Finished products $ 19,340 $ 14,137
Work-in-process 162 1
Raw materials 10,755 6,094
-------- --------
$ 30,257 $ 20,232
======== ========
Note 3 - Net Loss Per Common Share
As of January 31, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
statement establishes new standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly-held common stock or
potential common stock. This statement replaces the presentation of primary EPS
with a presentation of basic EPS. It requires dual presentation of basic and
diluted EPS on the face of the statement of operations for all entities with
complex capital structures and requires a reconciliation of the numerators and
denominators of the basic and diluted EPS computations. This statement also
requires a restatement of all prior period EPS data presented.
Basic earnings per share amounts have been computed using the weighted average
number of common shares outstanding during each year. Diluted earnings per share
amounts have been computed using the weighted average number of common shares
and the dilutive potential common shares outstanding during the year. All prior
year amounts have been restated to conform to the new presentation
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Note 4 - Notes Payable
The company's loan agreement, which expires on May 31, 1999 provides for a line
of credit in the amount of $52,000,000 until June 14, 1998, $56,000,000 from
June 15, 1998 to September 30, 1998, $52,000,000 from October 1, 1998 to October
30, 1998 and $40,000,000 from October 31, 1998 to May 30, 1999. The amounts
available include direct borrowings of $40,000,000 until June 14, 1998,
$44,000,000 from June 15, 1998 to September 30, 1998, $40,000,000 from October
1, 1998 to November 14, 1998 and $30,000,000 from November 15, 1998 to May 30,
1999. The balance of the credit line may be used for letters of credit. All
amounts available for borrowing are subject to borrowing base formulas and
overadvances specified in the agreement.
Note 5 - Nonrecurring Charges
Included in the original 1995 non-recurring charge was approximately $2.0
million to sell or liquidate a factory located in Indonesia. During the year
ended January 31,1998, the Company applied approximately $1.6 million of the
reserve as a reduction of the Indonesian property, plant and equipment, since
the Company cannot assure any recoveries in connection with its disposition. In
December 1997, the factory was contracted to manufacture luggage, and as a
result, the Company has since discontinued its plan to sell or liquidate the
factory. However, due to the political and economic instability being
experienced in Indonesia, management determined that the remaining nonrecurring
balance with respect to its Indonesian assets should be maintained. The
remaining nonrecurring balance ($333,000) relates to the reserve associated with
the closure of the Company's domestic factory that was completed by January 31,
1995. Based on current estimates, management believes that existing accruals are
adequate.
The status of the provision at the end of the period was:
Balance 1998 Balance
January 31, 1998 Activity April 30, 1998
---------------- -------- --------------
(in thousands)
Closure of Domestic Facility $ 473 $ (140) $ 333
Uncertainty of Indonesian Assets 462 - 462
------ ------ ------
$ 935 $ 140 $ 462
====== ====== ======
Note 6 - Comprehensive Income
As of February 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). The adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity during a period from transactions in other events and
circumstances unrelated to net income (e.g., foreign currency translation gains
and losses). For the three month periods ended April 30, 1998 and 1997, other
comprehensive income was not material.
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Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Statements in this Quarterly Report on Form 10-Q concerning the Company's
business outlook or future economic performance; anticipated revenues, expenses
or other financial items; product introductions and plans and objectives related
thereto; and statements concerning assumptions made or expectations as to any
future events, conditions, performance or other matter, are "forward-looking
statements" as that term is defined under the Federal securities laws.
Forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from those stated in such
statements. Such risks, uncertainties and factors include, but are not limited
to, reliance on foreign manufacturers, the nature of the apparel industry,
including changing consumer demand and tastes, seasonality, customer acceptance
of new products, the impact of competitive products and pricing, dependence on
existing management, general economic conditions, as well as other risks
detailed in the Company's filings with the Securities and Exchange Commission,
including this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Traditionally, the three month period ending April 30 has been the quarter with
the lowest sales volume during the Company's fiscal year. Net sales for the
three months ended April 30, 1998 were $5.0 million compared to $6.5 million for
the same period last year. The decrease in net sales during the quarter was
primarily attributable to a decrease in the sales of the women's and men's G-III
and private label businesses ($1.5 million) and the discontinuance of two
product lines ($700,000), partially offset by an increase in sales of Kenneth
Cole licensed product ($500,000).
The Company incurred a gross loss of $298,000 for the three month period ended
April 30, 1998 compared to a gross profit of $462,000 for the same period last
year. The negative gross margin is primarily attributable to the sale of prior
season merchandise at deep discounts.
Selling, general and administrative expenses for the three months ended April
30, 1998 were $6.3 million, inclusive of BET Design Studio expenses of $500,000.
Excluding BET Design Studio expenses, the Company's selling, general and
administrative expenses were $5.8 million in each of the three month periods,
ended April 30, 1998 and 1997.
Interest expense and finance charges for the three month period ended April 30,
1998 were $163,000 compared to $60,000 for the comparable period last year. This
increase is primarily attributable to a higher levels of bank debt compared to
the prior period.
Income tax benefit of $2.6 million reflects an effective tax rate of 40% for the
three months ended April 30, 1998 compared to an income tax benefit of $2.2
million which reflected the same effective tax rate in the comparable period
last year.
As a result of the foregoing for the three months ended April 30, 1998 the
Company had a net loss of $3.9 million or $0.60 per share, compared to a net
loss of $3.2 million, or $0.50 share, for the comparable period last year.
-8-
LIQUIDITY AND CAPITAL RESOURCES
The Company's loan agreement, which expires on May 31, 1999 provides for a line
of credit in the amount of $52,000,000 until June 14, 1998, $56,000,000 from
June 15, 1998 to September 30, 1998, $52,000,000 from October 1, 1998 to October
30, 1998 and $40,000,000 from October 31, 1998 to May 30, 1999. The amounts
available include direct borrowings of $40,000,000 until June 14, 1998,
$44,000,000 from June 15, 1998 to September 30, 1998, $40,000,000 from October
1, 1998 to November 14, 1998 and $30,000,000 from November 15, 1998 to May 30,
1999. The balance of the credit line may be used for letters of credit. All
amounts available for borrowing are subject to borrowing base formulas and
overadvances specified in the agreement.
Direct borrowings bear interest at the agent's prime rate (8.5% as of June 1,
1998) or LIBOR plus 250 basis points at the election of the Company. All
borrowings are collateralized by the assets of the Company. The loan agreement
requires the Company, among other covenants, to maintain certain earnings and
tangible net worth levels, and prohibits the payment of cash dividends. As of
April 30, 1998, there were $9.1 million in direct borrowings and approximately
$16.3 million of contingent liability under open letters of credit. The amount
borrowed under the line of credit varies based upon the Company's seasonal
requirements.
In February 1997, the Company formed a joint venture with Black Entertainment
Television (BET) to provide a BET-branded clothing and accessory line. The joint
venture agreement provides for the Company and BET each to make an initial
capital contribution in the amount of $1.0 million. In addition, the agreement
provides for the Company and BET each to make an additional capital contribution
of up to $1.0 million. As of April 30, 1998, BET and the Company have each
contributed $1.0 million to this joint venture. The joint venture has negotiated
an asset-based credit facility with The CIT Group. To support the requirement
for over advances which occur when the available collateral is not sufficient to
support the level of direct bank debt and letters of credit opened to pay for
product, both partners have opened stand-by letters of credit in the amount of
$750,000 under which The CIT Group is the beneficiary.
The Company's wholly-owned Indonesian subsidiary has a line of credit with a
bank for approximately $3.5 million which is supported by a $2.0 million
stand-by letter of credit issued under the Company's loan agreement. As of April
30, 1998, the borrowing by the Indonesian subsidiary under its line of credit
approximated $3.5 million. During May 1998, the Company paid down the $2.0
million stand-by letter of credit reducing the factory's credit line and bank
debt balance to $1.5 million.
YEAR 2000 COMPLIANCE
The Company has conducted a review of its computer systems and operations to
identify those systems of the Company as well as those of customers and vendors
that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The year 2000 problem is the result of
computer programs being written using two digits rather than four digits to
define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations.
-9-
The Company expects its year 2000 date conversion project to be completed on a
timely basis. During the execution of this project the Company will incur
internal staff costs as well as consulting and other expenses related to
enhancements necessary to prepare its systems for the year 2000. The expense of
the year 2000 project, as well as the related potential effect on the Company's
earnings is not expected to have a material effect on its financial position or
results of operations.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Segment Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which will be effective the Company's
financial statements for the fiscal year ending January 31, 1999. This statement
establishes standards for reporting information about segments in annual and
interim financial statements. This statement introduces a new model for segment
reporting, called the "management approach." The management approach is based on
the way the chief operating decision-maker organizes segments within a Company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure and management
structure. The Company does not believe that this statement will have a
significant impact on the consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Amendment No. 1 to the Fourth Amended and Restated Loan Agreement dated June 1,
1998 by and among G-III Leather Fashions, Inc., the Bank's signatory thereto and
Fleet Bank, N.A., as Agent.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
G-III APPAREL GROUP, LTD.
(Registrant)
Date: June 12, 1998 By: /s/ Morris Goldfarb
_____________________________________
Morris Goldfarb
Chief Executive Officer
Date: June 12, 1998 By: /s/ Wayne S. Miller
_____________________________________
Wayne S. Miller
Chief Financial Officer
-11-
EXECUTION COPY
AMENDMENT NO. 1 TO THE FOURTH
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDMENT NO. 1 TO THE FOURTH AMENDED AND RESTATED LOAN
AGREEMENT, dated as of June 1, 1998 (this "Amendment"), by and among G-III
LEATHER FASHIONS, INC., a New York corporation (the "Borrower"), the Lenders
that have executed the signature pages hereto (individually, a "Lender" and
collectively, the "Lenders"), and FLEET BANK, N.A., a national banking
association as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Agent"),
W I T N E S S E T H:
WHEREAS:
A. The Borrower, the Lenders and the Agent are parties to the
Fourth Amended and Restated Loan Agreement, dated as of May 31, 1997, as amended
hereby (as it may be further amended, modified and supplemented from time to
time, the "Loan Agreement"); and
B. The parties hereto wish to amend the Loan Agreement as
hereinafter provided; and
C. Each capitalized term used but not otherwise defined herein
shall have the meaning ascribed thereto in the Loan Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENT TO LOAN AGREEMENT.
1.1 This Amendment shall be deemed to be an amendment to the
Loan Agreement and shall not be construed in any way as a replacement or
substitution therefor. All of the terms and conditions of, and terms defined in,
this Amendment are hereby incorporated by reference into the Loan Agreement as
if such terms and provisions were set forth in full therein. This Amendment
shall be effective as of March 1, 1998.
1.2 The following definitions set forth in Article 1 of the
Loan Agreement are amended by deleting such existing definitions in their
entirety and replacing them with the following:
"'COMMITMENT' - (i) Fifty-two Million ($52,000,000) Dollars
during the period from June 1, 1998 to and including June 14, 1998,
(ii) Fifty-six Million ($56,000,000) Dollars during the period from
June 15, 1998 to and including September 30, 1998, (iii) Fifty-two
Million ($52,000,000) Dollars during the period from October 1, 1998 to
and including
October 30, 1998, and (iv) Forty Million ($40,000,000) Dollars during
the period from October 31, 1998 to and including the Commitment
Termination Date, in each case in the aggregate, allocated among each
of the Lenders, respectively, in the amount set forth opposite such
Lender's name on the signature pages hereof under the caption
'Commitment,' as such amount is reduced in accordance with the terms
hereof."
"'DIRECT DEBT SUBLIMIT' - (i) Thirty Million ($30,000,000)
Dollars during the period from November 15, 1997 through and including
May 31, 1998; (ii) Forty Million ($40,000,000) Dollars during the
period from June 1, 1998 through and including June 14, 1998; (iii)
Forty-four Million ($44,000,000) Dollars from June 15, 1998 through and
including September 30, 1998; (iv) Forty Million ($40,000,000) Dollars
during the period from October 1, 1998 through and including November
14, 1998; and (v) Thirty Million ($30,000,000) Dollars during the
period from November 15, 1998, through the Commitment Termination Date;
provided that, at the Lenders' discretion, upon the request of the
Borrower, the applicable Direct Debt Sublimit may be increased by an
amount of Two Million ($2,000,000) Dollars."
"'INDEBTEDNESS' - with respect to any Person, all: (i)
liabilities or obligations, direct and contingent, which in accordance
with generally accepted accounting principles would be included in
determining total liabilities as shown on the liability side of a
balance sheet of such Person at the date as of which Indebtedness is to
be determined, including, without limitation, contingent liabilities
that in accordance with such principles, would be set forth in a
specific Dollar amount on the liability side of such balance sheet, and
Capitalized Lease Obligations of such Person; (ii) liabilities or
obligations of others for which such Person is directly or indirectly
liable, by way of guaranty (whether by direct guaranty, suretyship,
discount, endorsement, take-or-pay agreement, agreement to purchase or
advance or keep in funds or other agreement having the effect of a
guaranty) or otherwise; (iii) liabilities or obligations secured by
Liens on any assets of such Person, whether or not such liabilities or
obligations shall have been assumed by it; (iv) liabilities or
obligations of such Person, direct or contingent, with respect to
letters of credit issued for the account of such Person and bankers
acceptances created for such Person; and (v) liabilities or obligations
of such Person in respect of Bank Hedge Agreements."
"'LOAN DOCUMENTS' - (a) this Agreement, (b) the Notes, (c) the
Guaranties, (d) the Guaranty Confirmations, (e) the Security Documents,
(f) the L/Cs, (g) the Applications, (h) the Acceptances, (i) the
Continuing Agreements for Issuance of Steamship Guaranties and Airway
Releases and (j) the Bank Hedge Agreements to which any Loan Party is a
party and all other agreements executed and delivered in connection
herewith or therewith, including all amendments, modifications and
supplements of or to all such agreements.
"'OUTSTANDING OBLIGATIONS' - the aggregate principal and/or
face (or stated) amount, as applicable, of all outstanding Obligations;
provided, that for purposes of calculating Availability, the
outstanding Obligations under Bank Hedge Agreements shall be calculated
by including the following percentages of such Obligations: (i) 20% of
the face amount of
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foreign currency exchange Bank Hedge Agreements (other than foreign
currency Bank Hedge Agreements related to the Indonesian Rupiah), (ii)
25% of the face amount of foreign currency exchange Bank Hedge
Agreements related to the Indonesian Rupiah and (iii) 2% of the face
amount of all other Bank Hedge Agreements."
"'OVERADVANCE' - the amount set forth below for the period
indicated:
Period Amount
------ -------
March 1, 1998 - March 31, 1998 $ 9,000,000
April 1, 1998 - April 30, 1998 $15,000,000
May 1, 1998 - May 31, 1998 $26,000,000
June 1, 1998 - June 30, 1998 $30,000,000
July 1, 1998 - July 31, 1998 $25,000,000
August 1, 1998 - August 31, 1998 $22,000,000
September 1, 1998 - September 30, 1998 $15,000,000
October 1, 1998 - October 26, 1998 $15,000,000
October 27, 1998 - October 31, 1998 $ 4,000,000
November 1, 1998 - January 31, 1999 -0-
and the periods and amounts from February 1, 1999 through and including
the Commitment Termination Date shall be as determined by the Lenders
based on the Projections and the business plan for the period from
February 1, 1999 through the Commitment Termination Date, which shall
each be satisfactory in form and substance to the Lenders, but in no
event shall the periods be of different durations or the amounts be
less than the amounts for the periods corresponding to the periods set
forth above unless the Lenders determine (in their reasonable
discretion) that such periods and amounts warrant adjustment based upon
such Projections or business plan which determination shall be made
within 30 days of receipt by the Lenders of such Projections; provided,
however, that with respect to the Overadvance at all times (x) the then
applicable Overadvance amount and all subsequent Overadvance amounts
shall be reduced by (i) 50% of all tax refunds paid to the Borrower or
the Parent (or paid to the Collection Account, in accordance with the
terms hereof), (ii) the proceeds of the sale of any assets other than
in the ordinary course of business, and (iii) 50% of the proceeds of
any sale-leaseback, all of such reductions to be effective immediately
upon the Borrower's receipt (or, if applicable, the Collateral
Monitoring Agent's receipt for the account of the Borrower) of such
refunds or proceeds; but there shall be no reduction to the then
applicable Overadvance amount in the case of any sale-leaseback of
newly acquired assets, provided that (A) the sale-leaseback transaction
is closed within 90 days of the acquisition of the assets and (B) both
the acquisition and the closing of the sale-leaseback are completed
during the same fiscal year; and (y) at any time when Outstanding
Obligations have exceeded the Borrowing Base as a result of (A)
Accounts or Inventory believed to be Eligible Accounts or Eligible
Inventory, as the case may be, in fact being or becoming ineligible or
(B) the return of uncollected checks or other items applied to reduce
Loans, the Collateral Monitoring Agent shall have the discretion to
continue to advance Loans and to
-3-
instruct the Issuing Bank to issue L/Cs, Acceptances, Steamship
Guaranties and Airway Releases, as the case may be, up to an amount
which would result in the relevant Overadvance amount specified above
being exceeded by a factor of 10% (it being understood that the
Collateral Monitoring Agent shall advise the Lenders of all such
issuances and advances within 24 hours); and (z) the applicable
Overadvance amount shall be increased by the amount of (a) any cash
collateral held by the Collateral Monitoring Agent for the sole purpose
of securing such increases to the applicable Overadvance amount, and
(b) any amounts invested in U.S. government securities or money market
mutual funds backed by U.S. government securities maintained in an
account with Fleet Bank, N.A. by the Borrower or the Parent and pledged
or assigned to the Agent for the benefit of the Lenders by the Borrower
or the Parent, as the case may be, as collateral security for the
Obligations pursuant to documentation satisfactory to the Lenders."
"'PROJECTIONS' - the balance sheets, income statements and
statements of cash flow of the Borrower, prepared by the Borrower, as
at, and for the fiscal year ending January 31, 1998, for the fiscal
year ending January 31, 1999, for the period from February 1, 1999
through the Commitment Termination Date and for the fiscal year ending
January 31, 2000."
1.3 Article 1 of the Loan Agreement is amended to include the
following definitions in their appropriate alphabetic order:
"'BANK HEDGE AGREEMENT' - any Hedge Agreement required or
permitted under this Agreement whether now existing or hereafter
entered into by and between the Borrower and any Hedge Bank; provided,
that each Bank Hedge Agreement shall (i) have a termination date of no
later than August 31, 1999 and (ii) shall be cash collateralized on
after June 1, 1999."
"'G-III STANDBY L/C' - the standby letter of credit in the
face amount of $750,000 issued by the Borrower on March 26, 1998 for
the benefit of The CIT Group/Commercial Services, Inc. to secure
certain obligations of BET Studio LLC under its credit facility with
The CIT Group/Commercial Services, Inc."
"'HEDGE AGREEMENTS' - interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap,
cap or collar agreements, currency future or option contracts, and
other similar agreements."
"'HEDGE BANK' - any Lender in its capacity as a party to a
Bank Hedge Agreement."
1.4 Section 5.10(e) of the Loan Agreement is amended by
deleting such existing definition in its entirety and replacing it with the
following:
"(e) By no later than (i) December 1, 1998, (A) Projections
for the period from February 1, 1999 through the Commitment Termination
Date and (B) a business plan for the period from February 1, 1999
through the Commitment Termination Date and (ii) January
-4-
31, 1999, (A) Projections for the fiscal year ending January 31, 2000
and (B) a business plan for the fiscal year ending January 31, 2000."
1.5 Section 6.9(a) of the Loan Agreement is amended by
deleting such Section in its entirety and replacing it with the following:
"(a) Have or maintain, with respect to the Parent on a
consolidated basis (excluding BET Studio LLC), EBITDA on a cumulative
basis from the first day of each fiscal year through the date set forth
below at not less than, or, in the case of a loss, not more than, the
respective amounts set forth below opposite each such last day of the
fiscal quarter:
Date EBITDA
---- ------
April 30, 1998 ($7,000,000)
July 31, 1998 ($5,000,000)
October 31, 1998 $7,000,000
January 31, 1999 $5,000,000
and the periods and respective amounts from February 1, 1999 through
and including the Commitment Termination Date shall be as determined by
the Lenders based on the Projections and the business plan for the
period from February 1, 1999 through the Commitment Termination Date,
which shall each be satisfactory in form and substance to the Lenders,
but in no event shall the periods be of different durations or the
amounts be less than (if such amount is negative) or greater than (if
such amount is positive) the amounts for the periods corresponding to
the periods set forth above unless the Lenders determine (in their
reasonable discretion) that such periods and amounts warrant adjustment
based on the financial condition of the Borrower as set forth in such
Projections or business plan, which determination shall be made within
30 days of receipt by the Lenders of such Projections and business
plan."
1.6 Section 6.9(b) of the Loan Agreement is amended by
deleting such Section in its entirety and replacing it with the following:
"(b) Have or maintain, with respect to the Parent on a
consolidated basis (excluding BET Studio LLC), Tangible Net Worth as of
the dates set forth below at not less than the respective amounts set
forth opposite each such date:
Minimum Tangible
Date Net Worth
---- ----------
April 30, 1998 $31,000,000
July 31, 1998 $32,000,000
October 31, 1998 $38,400,000
January 31, 1999 $36,800,000
-5-
and the periods and respective amounts from February 1, 1999 through
and including the Commitment Termination Date shall be determined in
the sole discretion of the Lenders within 30 days of receipt by the
Lenders of the Projections and the business plan for the period from
February 1, 1999 through the Commitment Termination Date.
1.7 Section 7.1 of the Loan Agreement is amended by deleting
subsections (d) and (e) thereof and replacing it with the following:
"(d) Indebtedness of the Borrower to the Lenders with respect
to the Korean L/C;
(e) Indebtedness of the Borrower under Bank Hedge Agreements;
provided, that the amount of Indebtedness pursuant to this subsection
(e) shall not exceed a face amount in the aggregate of $4,000,000 at
any time; and
(f) Indebtedness of the Borrower under the G-III Standby L/C;
provided, that the amount of Indebtedness pursuant to this subsection
(f) shall not exceed in the aggregate $750,000 at any time;
(g) As set forth on Exhibit M hereto which shall include,
without limitation, with respect to each such item of Indebtedness, its
terms, maturity, conditions, the collateral security therefor and the
use of the proceeds thereof."
1.8 Section 7.3 of the Loan Agreement is amended by deleting
the first sentence of such Section in its entirety and replacing it with the
following:
"Except as set forth on Exhibit M hereto, assume, endorse, be or become
liable for, or guarantee, the obligations of any Person, except by the
endorsement of negotiable instruments for deposit or collection in the
ordinary course of business; provided, however, that the Parent may
guaranty (i) the obligations of Siena and the Borrower in respect of
trade accounts payable, rental obligations and Capitalized Lease
Obligations permitted to be incurred in accordance with the provisions
of Sections 7.1(b), 7.18 and 7.14, respectively and (ii) up to $500,000
in the aggregate of the obligations of Hong Kong and Global permitted
to be incurred in accordance with the terms of this Agreement;
provided, further, that the Borrower may guaranty the obligations of
BET Studio LLC under its credit facility with The CIT Group/Commercial
Services, Inc. to the extent of, and by issuing, the G-III Standby L/C
(to the extent permitted by this Agreement) to The CIT Group/Commercial
Services, Inc."
1.9 Section 7.9(d) of the Loan Agreement is amended by
deleting such Section in its entirety and replacing it with the following:
"(d) Investments in BET Studio LLC; provided that the amount
of Investments pursuant to this subsection (d) shall not exceed in the
aggregate $2,000,000 including the G-
-6-
III Standby L/C (to the extent permitted by this Agreement), which
standby letter of credit is an Investment expressly permitted under
this Section 7.9;"
1.10 Section 7.9 of the Loan Agreement is amended by deleting
subsections (e) and (f) thereof and replacing it with the following:
"(e) Investments in no more than one (1) retail store from the
date hereof through May 31, 1998 and three (3) retail stores in the
aggregate from the date hereof through the Commitment Termination Date,
which Investments shall not exceed $175,000 individually and $500,000
in the aggregate;
(f) Investments by the Borrower in Bank Hedge Agreements to
the extent permitted by Section 7.1(e) hereof; and
(g) Other Investments in any factories, ventures or retail
stores as in effect on the date hereof as set forth on Schedule 7.9
hereof."
1.11 Section 7.13 of the Loan Agreement is amended by deleting
such Section in its entirety and replacing it with the following:
"SECTION 7.13 CAPITAL EXPENDITURES.
Make or be or become obligated to make Capital
Expenditures for the Parent, Borrower and the Subsidiaries, in an
amount in excess of (a) $1,200,000 in the aggregate during the period
commencing on February 1, 1998 and ending on January 31, 1999; and (b)
an aggregate amount during the period commencing on February 1, 1999
and ending on the Commitment Termination Date as determined by the
Lenders based on the Projections and the business plan for the period
from February 1, 1999 through the Commitment Termination Date, which
shall each be satisfactory in form and substance to the Lenders, but in
no event less than $400,000 unless the Lenders determine (in their
reasonable discretion) that such amount warrants adjustment based on
the financial condition of the Borrower as set forth in such
Projections or business plan, which determination shall be made within
30 days of receipt by the Lenders of such Projections and business
plan."
1.12 Section 7.14 of the Loan Agreement is amended by deleting
such Section in its entirety and replacing it with the following:
"SECTION 7.14 CAPITALIZED LEASE OBLIGATIONS.
Become obligated to make expenditures in respect of
Capitalized Lease Obligations in excess of the amount outstanding on
the date hereof with respect to Capitalized Lease Obligations plus (a)
aggregate annual payments of $400,000 for expenditures in respect of
Capitalized Lease Obligations with respect to all Leases entered into
during the period from February 1, 1998 through January 31, 1999, and
(b) aggregate
-7-
annual payments for expenditures in respect of Capitalized Lease
Obligations with respect to all Leases entered into during the period
from February 1, 1999 through the Commitment Termination Date as
determined by the Lenders based on the Projections and the business
plan for the period from February 1, 1999 through the Commitment
Termination Date, which shall each be satisfactory in form and
substance to the Lenders, but in no event less than $133,333 unless the
Lenders determine (in their reasonable discretion) that such amount
warrants adjustment based on the financial condition of the Borrower as
set forth in such Projections or business plan, which determination
shall be made within 30 days of receipt by the Lenders of such
Projections and business plan, provided, however, that the amounts
permitted in (a) and (b) above shall apply only to Leases relating to
Capital Expenditures permitted under Section 7.13."
1.13 Section 7.18 of the Loan Agreement is amended by deleting
such Section in its entirety and replacing it with the following:
"SECTION 7.18 RENTAL OBLIGATIONS.
Enter into any Lease (other than Capitalized Leases that are
governed by Section 7.14 hereof), other than Leases which require the
Borrower, the Parent or any Subsidiary to pay in the aggregate not in
excess of (a) $400,000 during the period from February 1, 1998 through
January 31, 1999; and (b) an amount during the period from February 1,
1999 through the Commitment Termination date as determined by the
Lenders and the Borrower based on the Projections and the business plan
for the period from February 1, 1999 through the Commitment Termination
Date, which shall each be satisfactory in form and substance to the
Lenders, but in no event less than $133,333 unless the Lenders
determine (in their reasonable discretion) that such amount warrants
adjustment based on the financial condition of the Borrower as set
forth in such Projections or business plan, which determination shall
be made within 30 days of receipt by the Lenders of such Projections
and business plan; provided, however, that such limitations shall not
apply to the portion of any lease payment due which is determined as a
percentage of the revenues of the applicable retail store of the
Borrower, the Parent or any Subsidiary."
1.14 The Loan Agreement, the Loan Documents and all
agreements, instruments and documents executed and delivered in connection with
any of the foregoing, shall each be deemed to be amended hereby to the extent
necessary, if any, to give effect to the provisions of this Amendment. Except as
so amended hereby, the Loan Agreement and the Loan Documents shall remain in
full force and effect in accordance with their respective terms.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Agent and
the Lenders that:
2.1 After giving effect to the amendment of the Loan Agreement
pursuant to this Amendment: (i) each of the representations and warranties set
forth in Article 3 of the Loan
-8-
Agreement is true and correct in all respects as if made on the date hereof ;
and (ii) there exists no Default or Event of Default under the Loan Agreement
after giving effect to this Amendment.
2.2 The Borrower has full corporate power and authority to
execute and deliver this Amendment and to perform the obligations on its part to
be performed thereunder and under the Loan Agreement as amended hereby.
SECTION 3. CONDITIONS PRECEDENT TO AMENDMENTS.
The effectiveness of the amendments contained in Section 1 of
this Amendment, are each and all subject to the satisfaction, in form and
substance satisfactory to the Agent, of each of the following conditions
precedent:
3.1 The Borrower shall have duly executed and delivered this
Amendment.
3.2 Each of the conditions precedent set forth in Section 4.1
and Section 4.2 of the Loan Agreement shall have been satisfied or waived in
accordance with the terms of the Loan Agreement.
3.3 The representations and warranties set forth in Section 2
hereof shall be true, correct and complete on and as of the closing date of this
Amendment as though made on such date.
3.4 The Agent shall have received such approvals, opinions or
documents as any Lender through the Agent may reasonably request, the Borrower
and the Guarantors shall have taken all such other actions as any Lender through
the Agent may reasonably request, and all legal matters incident to the
foregoing shall be satisfactory to the Agent.
SECTION 4. REFERENCE TO AND EFFECT UPON THE LOAN AGREEMENT
AND OTHER LOAN DOCUMENTS.
4.1 Except as specifically amended in Section 1 above, the
Loan Agreement and each of the other Loan Documents shall remain in full force
and effect and each is hereby ratified and confirmed.
4.2 The execution, delivery and effect of this Amendment shall
be limited precisely as written and shall not be deemed to (i) be a consent to
any waiver of any term or condition or to any amendment or modification of any
term or condition of the Loan Agreement or any other Loan Document, except, upon
the effectiveness, if any, of this Amendment, as specifically amended in Section
1 above, or (ii) prejudice any right, power or remedy which the Agent or any
Lender now has or may have in the future under or in connection with the Loan
Agreement or any other Loan Document. Upon the effectiveness of this Amendment,
each reference in the Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein" or any other word or words of similar import shall mean and be a
reference to the Loan Agreement as
-9-
amended hereby, and each reference in any other Loan Document to the Loan
Agreement or any word or words of similar import shall mean and be a reference
to the Loan Agreement as amended hereby.
SECTION 5. MISCELLANEOUS
5.1 This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original, but
all such counterparts shall constitute one and the same instrument.
5.2 The Borrower shall pay on demand all reasonable fees,
costs and expenses incurred by Agent in connection with the preparation,
execution and delivery of this Amendment (including, without limitation, all
reasonable attorneys' fees).
5.3 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF NEW YORK.
[SIGNATURE PAGE FOLLOWS]
-10-
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed on the date first above written.
G-III LEATHER FASHIONS, INC.
By:_____________________________
Name:___________________________
Title:__________________________
FLEET BANK, N.A., AS LENDER
By:_____________________________
Name:___________________________
Title:__________________________
THE CHASE MANHATTAN BANK,
AS LENDER
By:_____________________________
Name:___________________________
Title:__________________________
THE CIT GROUP/COMMERCIAL SERVICES,
INC., AS LENDER
By:_____________________________
Name:___________________________
Title:__________________________
FLEET BANK, N. A., AS AGENT
By:_____________________________
Name:___________________________
Title:__________________________
5
1,000
JAN-31-1999
FEB-01-1998
APR-30-1998
3-MOS
627
0
7,546
(1,055)
30,257
41,963
11,899
(8,387)
49,535
16,801
0
65
0
0
31,707
49,535
4,950
4,950
5,248
5,248
0
0
163
(6,801)
(2,620)
(3,930)
0
0
0
(3,930)
(0.60)
(0.60)
