FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended November 28, 1998
- -------------------------------------------------------------------
Commission File Number 0-1500
- -------------------------------------------------------------------
EVANS, INC.
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-1050870
- -------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
36 South State Street, Chicago, Illinois 60603
- -------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312-855-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: as of January 18, 1999,
1,299,961 shares of common stock, $.20 par value, were outstanding.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Condensed Consolidated Balance Sheets -
November 28, 1998, November 29, 1997 and
November 30, 1996 2
Condensed Consolidated Statements of Operations -
Thirteen and Thirty-nine weeks ended November 28, 1998
and November 29, 1997 3
Condensed Consolidated Statements of Cash Flows -
Thirty-nine weeks ended November 28, 1998
and November 29, 1997 4
Notes to Condensed Consolidated Financial Statements 5 - 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
Part II. Other Information 11
Signatures 12
Index to Exhibits 13
<PAGE>
PART I. FINANCIAL INFORMATION
Evans, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
November 28, November 29, February 28,
1998 1997 1998
----------- ----------- -----------
(unaudited) (unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 801,000 $ 384,000 $ 650,000
Accounts receivable (net) 13,231,000 15,125,000 12,639,000
Merchandise inventories 37,772,000 39,640,000 25,495,000
Prepaid expenses and other
asset 659,000 1,306,000 923,000
Assets held for sale - 4,750,000 -
----------- ----------- -----------
Total current assets 52,463,000 61,205,000 39,707,000
----------- ----------- -----------
Property and equipment 11,958,000 11,566,000 11,642,000
Accumulated depreciation
and amortization (8,759,000) (7,948,000) (8,203,000)
----------- ----------- -----------
Net property and equipment 3,199,000 3,618,000 3,439,000
----------- ----------- -----------
Other assets 5,000,000 5,344,000 5,254,000
----------- ----------- -----------
$ 60,662,000 $ 70,167,000 $ 48,400,000
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 20,273,000 $ 16,857,000 $ 13,021,000
Current portion of long-term
debt 1,490,000 1,959,000 1,411,000
Accounts payable 21,152,000 26,220,000 11,165,000
Accrued liabilities 6,478,000 7,294,000 4,694,000
----------- ----------- -----------
Total current liabilities 49,393,000 52,330,000 30,291,000
----------- ----------- -----------
Long-term debt 931,000 3,918,000 1,808,000
----------- ----------- -----------
Other liabilities - 12,000 -
----------- ----------- -----------
Shareholders' equity:
Preferred stock, 3,000,000
shares authorized, none
issued
Common stock, 8,000,000
shares authorized,
6,333,435 shares issued 1,267,000 1,267,000 1,267,000
Capital in excess of par
value 15,011,000 15,503,000 15,495,000
Unearned compensation (86,000) - -
(Accumulated deficit)
retained earnings (2,171,000) 1,503,000 3,890,000
----------- ----------- -----------
14,021,000 18,273,000 20,652,000
Treasury stock (1,133,590
shares at cost) (3,683,000) (4,366,000) (4,351,000)
----------- ----------- -----------
10,338,000 13,907,000 16,301,000
----------- ----------- -----------
$ 60,662,000 $ 70,167,000 $ 48,400,000
=========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Evans, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen weeks ended Thirty-nine weeks ended
------------------------- -------------------------
November 28, November 29, November 28, November 29,
1998 1997 1998 1997
------------ ---------- ---------- ----------
Net sales $ 20,857,000 $ 24,619,000 $ 39,763,000 $ 40,935,000
Service revenues 1,545,000 1,887,000 12,223,000 10,660,000
---------- ---------- ---------- ----------
22,402,000 26,506,000 51,986,000 51,595,000
---------- ---------- ---------- ----------
Costs and expenses:
Cost of goods and
services sold, buying
and occupancy 14,659,000 16,310,000 34,806,000 32,869,000
Selling and general
expenses 8,879,000 9,454,000 21,706,000 20,230,000
Provision for doubtful
accounts 142,000 218,000 398,000 475,000
Interest expense 445,000 446,000 1,147,000 1,246,000
Other income, net (3,000) (1,000) (10,000) (3,000)
---------- ---------- ---------- ----------
24,122,000 26,427,000 58,047,000 54,817,000
---------- ---------- ---------- ----------
Net (loss) income (1,720,000) 79,000 (6,061,000) (3,222,000)
---------- ---------- ---------- ----------
Net (loss) income per
common share and
share equivalents
Basic $ (0.33) $ 0.02 $ (1.17) $ (0.65)
========== ========== ========== ==========
Diluted $ (0.33) $ 0.02 $ (1.17) $ (0.65)
========== ========== ========== ==========
Weighted average number
of common shares and
share equivalents
outstanding
Basic 5,199,845 4,987,837 5,196,112 4,966,935
========== ========== ========== ==========
Diluted 5,199,845 5,174,635 5,196,112 4,966,935
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Evans, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine weeks ended
---------------------------------------
November 28, 1998 November 29, 1997
---------------------------------------
Cash Flows from Operating Activities:
Net loss $ (6,061,000) $ (3,222,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 819,000 802,000
Provision for doubtful accounts 398,000 438,000
Non-cash compensation expense 81,000 22,000
Change in assets and liabilities, net of effects of acquisition:
Accounts receivable (990,000) (2,898,000)
Merchandise inventories (12,277,000) (19,506,000)
Prepaid expenses and other current assets 281,000 (354,000)
Other assets - (192,000)
Accounts payable 9,987,000 16,902,000
Accrued liabilities 1,784,000 2,311,000
Other liabilities - (31,000)
--------------- ----------------
Net cash used in operating activities (5,978,000) (5,728,000)
Cash Flows from Investing Activities:
Acquisition of business - (5,387,000)
Additions to property and equipment (325,000) (164,000)
--------------- ----------------
Net cash used in investing activities (325,000) (5,551,000)
Cash Flows from Financing Activities:
Proceeds from short-term borrowing 7,252,000 7,549,000
Notes payable related to acquisition - 3,815,000
Proceeds from long-term debt - 437,000
Payments on acquisition debt (617,000) -
Payments on long-term debt (181,000) (291,000)
--------------- ---------------
Net cash provided by financing activities 6,454,000 11,510,000
--------------- ---------------
Net increase in cash and cash equivalents 151,000 231,000
Cash and cash equivalents at beginning of period 650,000 153,000
--------------- ---------------
Cash and cash equivalents at end of period $ 801,000 $ 384,000
=============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,090,000 $ 1,107,000
Income taxes 45,000 13,000
See accompanying notes to condensed consolidated financial statements.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The financial information included herein was prepared in conformity with
generally accepted accounting principles and such principles were applied
on a basis consistent with those reflected in the 1998 Form 10-K Annual
Report filed with the Securities and Exchange Commission. The accompanying
financial data should be read in conjunction with the notes to
consolidated financial statements contained in the 1998 Form 10-K Annual
Report.
The information furnished herein, other than the Condensed Consolidated
Balance Sheet as of February 28, 1998, is unaudited and includes all
adjustments and accruals consisting only of normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods. The Condensed Consolidated Balance Sheet
as of February 28, 1998 has been derived from, and does not include, all
the disclosures contained in the audited financial statements as of and
for the year ended February 28, 1998.
2. Because of the seasonal nature of the Company's business, operating
results for the first thirty-nine weeks are not considered to be
indicative of the results that may be expected for the full year.
Historically, the Company realizes a major portion of its annual revenues
and most of its earnings in the fourth quarter of its fiscal year.
3. Certain reclassifications have been made to the consolidated financial
statements. The reclassifications did not effect operating results.
4. The following table sets forth the computation of basic and diluted
earnings per share:
Weighted
Avg. Per
Net loss Shares Share
(Numerator) (Denominator) Amounts
Thirteen weeks ended
November 28, 1998
Basic EPS:
Loss available to common shareholder $(1,720,000) 5,199,845 $(0.33)
Effect of dilutive options 0
Dilutive EPS:
Loss available to common
shareholder plus assumed conversions $(1,720,000) 5,199,845 $(0.33)
Thirty-nine weeks ended
November 28, 1998
Basic EPS:
Loss available to common shareholder $(6,061,000) 5,196,112 $(1.17)
Effect of dilutive options 0
<PAGE>
Dilutive EPS:
Loss available to common
shareholder plus assumed conversions $(6,061,000) 5,196,112 $(1.17)
Thirteen weeks ended
November 29, 1997
Basic EPS:
Loss available to common shareholder $ 79,000 4,987,837 $0.02
shareholder
Effect of dilutive options 186,798
Dilutive EPS:
Loss available to common
shareholder plus assumed conversions $ 79,000 5,174,635 $0.02
Thirty-nine weeks ended
November 29, 1997
Basic EPS:
Loss available to common shareholder $(3,222,000) 4,966,935 $(0.65)
Effect of dilutive options 0
Dilutive EPS:
Loss available to common
shareholder plus assumed conversions $(3,222,000) 4,966,935 $(0.65)
5. On January 14, 1999, the Company amended its agreement with its lender
to, among other items, establish and modify certain financial covenants
to reflect the Company's current operating results and financial
needs. The agreement establishes a year to date debt service coverage
ratio and requires the maintenance of a certain level of earnings
before interest, taxes, depreciation and amortization (EBITDA) as of
January 30, 1999 as well as modify all financial covenants to revised
levels for the year ended February 27, 1999. In addition, the interest
rate was increased to 1.25% over the base rate (prime) for direct
borrowings under the revolving facility.
6. With the approval of its stockholders given at a Special Meeting of
stockholders on December 8, 1998, the Company approved a one-for-four
reverse stock split. In addition, Authorized Preferred Stock, par value
$1.00 per share was reduced from 3,000,000 shares to 1,000,000 shares and
authorized Common Stock, par value $0.20 per share, was reduced from
8,000,000 shares to 3,000,000 shares.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Cash and cash equivalents at November 28, 1998 were $801,000 as compared to
$650,000 at February 28, 1998. The increase was due to cash provided by
financing activities of $6,454,000 offset by cash used in operating activities
of $5,978,000 and cash used in investing activities of $325,000.
The cash used in operating activities was due primarily to the increase in
inventories of $12,277,000 due to the seasonal increase of inventory for the
fall season. Accounts payable increased $9,987,000 related to the inventory
requirements.
The cash used in investing activities was due to additions to property and
equipment of $325,000.
The cash provided by financing activities was due to proceeds from short-term
borrowings of $7,252,000. The additional debt was offset by payments on the
acquisition debt of $617,000 and principal payments on long-term debt
obligations of $181,000.
Working capital at November 28, 1998 was $3,070,000 as compared to $9,416,000 at
February 28, 1998.
On January 14, 1999, the Company amended its agreement with its lender to, among
other items, establish and modify certain financial covenants to reflect the
Company's current operating results and financial needs. The agreement
establishes a year to date debt service coverage ratio and requires the
maintenance of a certain level of earnings before interest, taxes, depreciation
and amortization (EBITDA) as of January 30, 1999 as well as modify all financial
covenants to revised levels for the year ended February 27, 1999. In addition,
the interest rate was increased to 1.25% over the base rate (prime) for direct
borrowings under the revolving facility.
The credit facility which expires June 15, 2000 is considered adequate to
finance seasonal inventory requirements as well as commitments for capital
expenditures during fiscal 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Total revenues for the third quarter ended November 28, 1998 decreased
$4,104,000 (15.5%) as compared to the same period last year. Fur merchandise
sales decreased $3,012,000 (16.3%) due primarily to a $2,878,000 decrease during
the months of October and November resulting from the impact of the unseasonably
warm pre-winter months. Women's ready-to-wear sales decreased $750,000 (12.3%)
due to a decline in the coats division, related to the weather. Service revenues
decreased $342,000 (18.1%) as compared to the prior year due primarily to the
impact of the unseasonably warm winter months as customers' needs for services
on their coats and purchases of new policies decreased.
Total revenues for the first nine months increased $391,000 (0.8%) as compared
to the same period last year. Fur merchandise sales decreased $743,000 (3.0%)
due to a decrease of $2,370,000 (12.4%) in sales at comparable locations and
sales of $855,000 associated with store closing events in the Macy's store in
Texas in the second quarter of 1998. These decreases were offset by sales of
$2,482,000 from locations acquired during the last month of the second quarter
of fiscal 1998. The decrease in fur merchandise sales at comparable locations
was largely due to a significant decrease of $2,400,000 during the months of
October and November resulting from the impact of the unseasonably warm
pre-winter months. For the first nine months, women's ready-to-wear sales
decreased $429,000 (2.7%). Sales for ready-to-wear were mainly impacted by the
third quarter decline in sales related to the decrease in the coat division as a
result of the unseasonably warm weather. Service revenues increased $1,563,000
(14.7%) due primarily to an increase of $2,348,000 from locations acquired
during the second quarter of fiscal 1998 offset by a comparable sales decrease
of $776,000. The comparable sales decrease is a result of the impact of the
unseasonably warm winter as customers' needs for services on their fur coats
decreased due to reduced use and purchase of the garments.
Cost of goods and services sold, buying and occupancy costs as a percentage of
total revenues increased for the third quarter and for the first nine months
(65.4% versus 61.5% and 67.0% versus 63.7%, respectively). Cost of goods and
services sold as a percentage of revenues increased from 48.8% to 49.3% for the
third quarter and increased from 48.3% to 49.0% for the nine month period. The
increase in the quarter and year to date is due to increased costs associated
with running the service business at locations acquired during the second
quarter of fiscal 1998. Buying costs as a percentage of total revenues, for both
the quarter and for the nine months ended, were comparable with prior year's
levels. Occupancy costs as a percentage of total revenues for the third quarter
(13.7% versus 10.8%) and the first nine months (14.9% versus 12.6%) increased in
comparison with the prior periods. The increases were due primarily to higher
average rental costs related to the rentals on locations acquired during the
second quarter of 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of operations, (continued)
Total selling and general expenses decreased $575,000 (6.1%) for the third
quarter and increased $1,476,000 (7.3%) for the first nine months as compared to
the prior year. Payroll and related fringe benefits decreased $447,000 (8.3%) in
the third quarter primarily due to variable costs related to the decline in
sales volume. For the nine months to date, payroll and related fringe benefits
increased $1,602,000 (12.8%). The increases are due primarily to the payroll and
benefits related to the acquisition and the operation of the Maximilian(R) Fur
Salons at Bloomingdale's Stores offset by the savings in the third quarter.
Advertising expense decreased $168,000 (6.5%) and $109,000 (2.8%) for the third
quarter and first nine months, respectively, due to the Company's concerted
efforts to manage expenditures through various types of media.
Interest expense for the third quarter remained consistent with the prior year.
The first nine months of interest expense decreased $99,000 (7.9%) due primarily
to a lower weighted average interest rate and higher average short-term
borrowings as compared to the same period last year.
Other
Evans recognizes the potential impact that the Year 2000 issue may have relative
to its computer systems and has implemented an action plan to ensure that all
systems will be fully Year 2000 compliant. The action plan includes a
combination of internal and external resources to be utilized for modifications.
These modifications will include hardware and software upgrades or replacement
of non-compliant systems. Modifications for all systems are in various stages of
completion. Some modifications have been fully implemented and satisfactorily
tested, while others are in lesser stages of completion. The Company is
confident that all systems will be appropriately modified in a timely manner to
handle the turn of the century computer issues. The Company has preliminary
estimated related costs of compliance ranging from $500,000 to $750,000.
The Company has completed its assessment with regard to non-financial software
and chip embedded technology. Modifications will include upgrades or replacement
of systems. The cost of making those adaptations are not expected to be material
and will be expensed in the period incurred.
The Company has contacted its critical suppliers, service providers and partners
to determine the extent to which the Company is vulnerable to those third
parties' failure to remedy their own Year 2000 issues. The Company has received
indications from a majority of its suppliers, service providers and partners
that they are in the process of working on Year 2000 compliance. In the event
that any of the Company's significant suppliers, service providers or partners
do not successfully and timely achieve Year 2000 compliance, the Company's
business or operations could be adversely affected.
The costs of the project and the date on which the Company plans to complete its
Year 2000 assessment and remediation are based on management's estimates, which
were derived utilizing
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ significantly from those plans.
The Company is developing contingency plans for the above areas addressing any
material failure to deal with Year 2000 issues and anticipates that the plan
will be completed by the fall of 1999.
Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995
Certain statements included in these financial statements that are not
historical facts may include forward-looking statements. The Company cautions
readers that these forward-looking statements are subject to a variety of risks
and uncertainties that could cause Evans' actual results to differ materially
from those expressed in forward-looking statements. These risks and
uncertainties include, without limitation, general economic and business
conditions affecting the customers in existing and new geographical markets,
competition from national, regional and local retailers, the availability of
sufficient capital, and the ability to obtain and identify the right product mix
and to maintain sufficient inventory to meet customer demand.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4.61 Third Amendment to Loan and Security Agreement
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None.
Items other than those listed are omitted because they are not
required.
<PAGE>
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 of the
undersigned thereunto duly authorized.
EVANS, INC.
DATE: January 18, 1999 ROBERT K. MELTZER
ROBERT K. MELTZER
President and
Chief Executive Officer
DATE: January 18, 1999 DEANNA L. HARNETT
DEANNA L. HARNETT
Vice President and
Chief Financial Officer
<PAGE>
EVANS, INC. AND SUBSIDIARIES
Exhibit Page Nos.
4.61 Third Amendment to Loan and
Security Agreement 14-21
27 Financial Data Schedule 22
<PAGE>
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment") is
made and entered into this 14th day of January, 1999, by and among EVANS, INC.,
a Delaware corporation ("Evans"), KOSLOW'S, INC., a Texas corporation
("Koslow's"), EVANS-ROSENDORF OF MARYLAND, INC., a Delaware corporation
("Rosendorf," along with each of Evans and Koslow, are referred to as the
"Borrowers") and JACKSON NATIONAL LIFE INSURANCE COMPANY, a Michigan insurance
corporation, ("Jackson" or "Lender"). .
PRELIMINARY STATEMENTS
A. Borrowers and Lender have entered into that certain Loan and Security
Agreement, dated June 16, 1997, as amended by the First Amendment to Loan and
Security Agreement dated August 7, 1997, and the Second Amendment ("Second
Amendment") to Loan and Security Agreement dated May 28, 1998 (collectively, the
"Loan Agreement", and together with this Amendment and with all other documents
evidencing and implementing this Amendment and the Loan Agreement, the "Loan
Documents").
B. The Borrowers have advised Lender that Borrowers are in violation of
certain financial covenants contained in the Loan Agreement.
C. The Lender is willing to amend the Loan Agreement subject to the terms
and conditions of this Amendment.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
Definitions
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
<PAGE>
ARTICLE II
Amendments to Loan Agreement
2.01 Amendment to Section 2 - Loans and Terms of Payment. The first full
sentence of Section 2.4(a) is deleted and replaced with the following:
"(a) The Borrowers will pay interest to Lender on the unpaid
principal amount of the Term Loan and all Revolving Loan Advances and all
other Obligations, if any, at a fluctuating rate per annum equal to one
and one-quarter percent (1.25%) above the Prime Rate."
2.02 Amendments to Section 10.3 - Financial Covenants. Sections 10.3(a)
and (b) are hereby amended in their entirety as follows; and section 10.3(c) is
added:
(a) Borrowers shall continuously maintain, on a consolidated basis:
(i) For the twelve-month period ending February 28, 1999,
Consolidated Tangible Net Worth equal to or greater than Eight
Million Five Hundred Thousand Dollars ($8,500,000) and thereafter
Consolidated Tangible Net Worth equal to or greater than Eight
Million Five Hundred Thousand Dollars ($8,500,000) increased
quarterly by 75% of the Borrowers' year to date consolidated Net
Income.
(ii) For the twelve-month period ended November 30, 1998,
Borrowers shall maintain a minimum ratio of EBITDA to interest
expense of (0.76) to 1.00; for the twelve-month period ended February
28, 1999, Borrowers shall maintain a minimum ratio of EBITDA to
interest expense of (0.35) to 1.00; and thereafter shall maintain a
minimum ratio of EBITDA to interest expense of 2.00 to 1.00 for each
Fiscal Quarter calculated on a rolling twelve month basis.
(iii)Borrowers will not permit consolidated EBITDA to be (x)
less than negative $1,100,000 for the twelve-month period ended
November 30, 1998, or (y) less than negative $125,000 for the
eleven-month period ended January 31, 1999, or (z) less than negative
$500,000 for the twelve-month period ended February 28, 1999.
(b) Borrowers shall not permit the ratio of Net Income excluding any
after-tax extraordinary gains or losses plus depreciation and amortization
deducted in determining Net Income minus Capital Expenditures not financed
("Adjusted Net Cash Flow") to current principal maturities of long term
debt and Capital Leases paid during such period for the periods set forth
below to be either greater than, or less than (as specified below),
<PAGE>
the ratio set forth opposite each such period, provided, however,
that Borrowers will be deemed to have complied for the rolling twelve-
month period ending nearest to February 28, 1999, if non-compliance would
result solely from Adjusted Net Cash Flow exceeding negative $2.40
million:
PERIOD RATIO
Rolling twelve-month period
ending Less than
nearest to November 30, 1998 (1.96) to
1.00
Rolling twelve-month period
ending Greater than
nearest to February 28, 1999 (2.30) to
1.001
Thereafter, for each rolling
twelve-month Less than
Fiscal Quarter 1.25 to 1.00
(c) Borrowers shall not permit the ratio of Net Income excluding any
after-tax extraordinary gains or losses plus depreciation and amortization
deducted in determining Net Income minus Capital Expenditures not
financed, multiplied by negative one, to current principal maturities of
long term debt and Capital Leases paid during such period for the period
set forth below to be less than the ratio set forth opposite such period,
provided, however, that Borrowers will be deemed to have complied for the
eleven-month period ending nearest to January 31, 1999, if non-compliance
would result solely from Adjusted Net Cash Flow exceeding negative $2.00
million:
PERIOD RATIO
Eleven-month period ended
nearest to 1.90 to 1.00
January 31, 1999
2.03 Amendment to Schedule 10.2 of the Loan Agreement. Schedule 10.2 to
the Loan Agreement, entitled Salary and Bonuses of Officers, is amended in its
entirety to conform to Schedule 10.2 hereof.
- --------
1 For example, if the ratio is (1.70) to 1.00, the Borrower would be in
violation. If the ratio is (2.50) to 1.00, the Borrower would be in
compliance.
<PAGE>
ARTICLE III
Amendment Fee
3.0 The Borrowers hereby agree to pay to the Lender on the date hereof an
amendment fee in the amount of $15,000, and to pay Lender a fee of $2,500 per
month to monitor collateral, monitor bankers' acceptances, and facilitate the
forwarding of banking information.
ARTICLE IV
Waiver of Compliance With
and Reset of Certain Covenants
4.01 Noncompliance with Certain Covenants. Borrowers acknowledge that, for
the period ending November 30, 1998, Borrowers were not in compliance with the
financial covenants set forth in Sections 10.3(a)(iii)(c) and 10.3(b) of the
Loan Agreement, as amended by the Second Amendment ("November Noncompliance"),
and that such noncompliance resulted in Events of Default under the Loan
Agreement. Subject to the terms and conditions of this Amendment, Lender hereby
agrees to waive the November Noncompliance and the Events of Default which
resulted therefrom, provided, however, that nothing contained in this Amendment
shall be or be deemed a waiver of any other presently existing or hereafter
arising or occurring breach, default or Event of Default, or preclude the
exercise of any of the Lender's rights or remedies under the Loan Agreement or
the Loan Documents resulting therefrom. Upon the occurrence of a default or an
Event of Default under this Amendment, or under the Loan Agreement or the Loan
Documents, Lender may exercise all of its rights and remedies, pursuant to this
Amendment, the Loan Agreement or the Loan Documents, at law, in equity or
otherwise.
4.02 Reset of Covenants. Lender agrees to reset certain financial
covenants for the period ended November 30, 1998, as set forth in Article 2.02
hereof. If any additional Events of Default under this Amendment, the Loan
Agreement or the Loan Documents, including but not limited to non-compliance
with the financial covenants set or reset in Article 2.02 hereof, occur or are
discovered after the date of this Amendment, Lender shall be entitled to
exercise all of its remedies under the Loan Agreement and the Loan Documents.
ARTICLE V
Ratifications, Representations and Warranties
5.01 Ratifications. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and the Loan Documents, and, except as expressly modified and
superseded by this Amendment, the terms and provisions of the Loan Agreement and
the Loan Documents are ratified and confirmed and shall continue in full force
and effect. Borrowers and Lender agree that the Loan Agreement and the Loan
Documents, as amended hereby, shall continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
<PAGE>
5.02 Representations and Warranties. Borrowers hereby represent and
warrant to Lender that (a) the execution, delivery and performance of this
Amendment and any and all Loan Documents executed and/or delivered in connection
herewith, have been authorized by all requisite corporate action on the part of
Borrowers and will not violate the Articles of Incorporation or Bylaws of any of
the Borrowers; (b) the representations and warranties contained in the Loan
Agreement, as amended hereby, and any Loan Documents are true and correct on and
as of the date hereof and on and as of the date of execution hereof as though
made on and as of each such date; (c) except as set forth expressly in Article
4.01 hereof, no Event of Default or event or condition which, with notice or
passage of time or both, would constitute an Event of Default under the Loan
Agreement, as amended hereby, has occurred and is continuing; and (d) except as
set forth herein, Borrowers are in full compliance with all covenants and
agreements contained in the Loan Agreement and the Loan Documents, as amended
hereby.
ARTICLE VI
Miscellaneous Provisions
6.01 Survival of Representations and Warranties. All representations and
warranties made in the Loan Agreement or any Loan Documents, including, without
limitation, any document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the Loan Documents, and
no investigation by Lender shall affect the representations and warranties or
the right of Lender to rely upon them.
6.02 Reference to Loan Agreement. Each of the Loan Agreement and the Loan
Documents, and any and all other agreements, documents or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of thc Loan Agreement, as amended hereby, are hereby amended so that any
reference in the Loan Agreement and the Loan Documents shall mean a reference to
the Loan Agreement and the Loan Documents as amended hereby.
6.03 Expenses of Agent. As provided in the Loan Agreement, Borrowers agree
to pay on demand all reasonable costs and expenses incurred by Lender in
connection with the preparation, negotiation and execution of this Amendment and
the Loan Documents executed pursuant hereto, and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
reasonable costs and fees of Lender's legal counsel.
6.04 Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to thc provision so held to be invalid or unenforceable.
6.05 Successors and Assigns. This Amendment is binding upon and shall
insure to the benefit of Lender and Borrowers and their respective successors
and assigns, except that Borrowers may not assign or transfer any of their
rights or obligations hereunder without the prior written consent of Lender.
<PAGE>
6.06 Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument, and facsimile signatures may serve as original signatures.
6.07 Effect of Waiver. No consent or waiver, express or implied, by Lender
to or for any breach of or deviation from any covenant or condition by Borrowers
shall be deemed a consent to or waiver of any other breach of the same or any
other covenant, condition or duty.
6.08 Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THE
LOAN AGREEMENT OR OF THE LOAN DOCUMENTS.
6.10 Governing Law. NOTWITHSTANDING ANYTHING ELSE IN THE LOAN AGREEMENT OR
THE LOAN DOCUMENTS, ALL MATTERS UNDER THIS AMENDMENT, THE LOAN AGREEMENT OR THE
LOAN DOCUMENTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE
OF THIS AMENDMENT, THE LOAN AGREEMENT AND THE LOAN DOCUMENTS, AND THE
OBLIGATIONS ARISING THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICT OF LAWS, AND COOK COUNTY, ILLINOIS OR NEW YORK COUNTY, NEW
YORK, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION AS TO ALL SUCH MATTERS. THE
LENDER AND BORROWERS AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY
OBJECTION AS TO VENUE IN COOK COUNTY, ILLINOIS OR NEW YORK COUNTY, NEW YORK.
THIS SPACE INTENTIONALLY LEFT BLANK
<PAGE>
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
EVANS, INC.,
By:
Title: Vice President
KOSLOW'S, INC.,
By:
Title: Vice President
EVANS-ROSENDORF OF MARYLAND, INC.,
By:
Title: Vice President
JACKSON NATIONAL LIFE INSURANCE
COMPANY, as Lender,
By:PPM America, Inc.,
Attorney-in-Fact
By:
Title:
<PAGE>
SCHEDULE 10.2 - SALARY AND BONUSES OF OFFICERS
NAME BASE BASE
OFFICER TITLE SALARY BONUS % BONUS $
Robert Meltzer President and CEO $190,000 12.5% $23,750
John Sarama Vice President
Operations, 150,000 12.5% 18,750
Director of Stores
Deanna Harnett Vice President, CFO 110,000 12.5% 15,000
Sam Garber Vice President,
Secretary, 115,000 12.5% 14,375
and General Counsel
Dean Obrecht Vice President,
Human Resources 100,000 12.5% 12,500
David Meltzer Chairman of the -0- N/A -0-
Board
$665,000 $84,375
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Feb-27-1999
<PERIOD-END> Nov-28-1998
<CASH> 801,000
<SECURITIES> 0
<RECEIVABLES> 13,231,000
<ALLOWANCES> 0
<INVENTORY> 37,772,000
<CURRENT-ASSETS> 52,463,000
<PP&E> 11,958,000
<DEPRECIATION> 8,759,000
<TOTAL-ASSETS> 60,662,000
<CURRENT-LIABILITIES> 49,393,000
<BONDS> 0
0
0
<COMMON> 1,267,000
<OTHER-SE> 9,071,000
<TOTAL-LIABILITY-AND-EQUITY> 60,662,000
<SALES> 39,763,000
<TOTAL-REVENUES> 51,986,000
<CGS> 25,489,000
<TOTAL-COSTS> 56,512,000
<OTHER-EXPENSES> 388,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,147,000
<INCOME-PRETAX> (6,061,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,061,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,061,000)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
