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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_________________to___________________
Commission file number 0-18183
G-III APPAREL GROUP, LTD.
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(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 offices) (Zip Code)
Registrant's telephone number, including area code: (212) 629-8830
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value.
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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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 31, 1997, the aggregate market value of the registrant's
voting stock held by non-affiliates of the registrant (based on the last sale
price for such shares as quoted by the Nasdaq National Market) was $11,536,906.
The number of outstanding shares of the registrant's Common Stock as of
March 31, 1997 was 6,477,656.
Documents incorporated by reference: Certain portions of the
registrant's definitive Proxy Statement relating to the registrant's Annual
Meeting of Stockholders to be held on or about June 19, 1997, to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 with the
Securities and Exchange Commission, are incorporated by reference into Part III
of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
G-III Apparel Group, Ltd. (the "Company") designs, manufactures,
imports and markets an extensive range of leather and non-leather apparel
including coats, jackets, pants, skirts and other sportswear items under its
"G-III"'tm', "Siena"'tm', "Siena Studio"'tm' and "Colebrook and Co."'tm' labels,
under private retail and licensed labels. The Company commenced operations in
1974, initially selling moderately priced women's leather coats and jackets
under its G-III label. The Company has continuously expanded its product lines
and began selling higher priced, more fashion oriented women's leather apparel
under its Siena and "Cayenne"'tm' (now called Siena Studio) labels in 1981
and 1988, respectively. In 1988, the Company introduced a line of men's leather
apparel, presently consisting primarily of jackets and coats sold under the
G-III label. In 1990, the Company formed a textile division, which designs,
imports and markets a moderately priced line of women's textile outerwear and
sportswear under the J.L. Colebrook label. The Company replaced the Cayenne
label with the Siena Studio label for its mid-priced line of women's leather
apparel during 1991 and introduced a men's textile apparel line in the fall of
1992.
The Company believes that the sale of licensed products will help
it to expand its business. In 1993, the Company entered into a licensing
agreement with NFL Properties to market a line of outerwear apparel with NFL
team logos. In 1995, the Company entered into a licensing agreement with Kenneth
Cole Productions to design and market a line of women's leather and woven
outerwear under the Kenneth Cole label. In 1996, the Company entered into an
agreement with the National Hockey League to market a line of outerwear apparel
with the NHL team logos. In February 1997, the Company formed a joint venture
with Black Entertainment Television, Inc.
to produce a BET-branded clothing and accessory line.
Sales of moderately priced women's leather apparel accounted for
approximately 34% of the Company's net sales in the fiscal year ended January
31, 1997, compared to 44% in the fiscal year ended January 31, 1996. The Company
sells to approximately 2,300 customers, including nationwide chains of
department and specialty retail stores, price clubs and individual specialty
boutiques.
During 1996, the Company continued the implementation of its
restructuring program started in 1994 which was intended to strengthen the
Company's core product lines, improve long-term profitability and enhance
shareholder value. In 1996, the Company consolidated merchandise divisions,
reduced inventory, decreased borrowing levels and sub-leased one of its
warehouses to a third party, thereby consolidating its warehouse operations into
one location and reducing its warehouse and distribution costs.
In the fiscal year ended January 31, 1997, substantially all the
Company's products were manufactured for the Company by foreign independent
contractors, located principally in South Korea, China and Indonesia and, to a
lesser extent, in India, Philippines and Hong Kong. The Company manufactures
certain products at its wholly-owned factory in Indonesia and its
partially-owned factory in Northern China.
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A select number of garments were also manufactured for the Company by
independent contractors located in the New York City area.
References to the Company include the operations of all the
Company's subsidiaries.
PRODUCTS - DEVELOPMENT AND DESIGN
The Company manufactures and markets a full line of women's
leather apparel in "junior," "missy," and "half sizes" and an outerwear line of
men's leather apparel at a wide range of retail sales prices. The Company's
product offerings also include textile outerwear, woolen coats, raincoats and
sportswear.
The G-III line of women's apparel consists of moderately priced
women's leather apparel, which typically sells at retail prices from $30 for
sportswear items to $400 for coats. The Siena Collection, which caters to the
higher priced, designer market, typically has retail prices from $300 for
sportswear items to $1,000 for coats. Siena Studio, the Company's bridge-priced
line of women's leather apparel, primarily consists of jackets and skirts with
retail prices from $100 for skirts to $600 for outerwear. Products in the men's
line of leather outerwear, sold under the G-III label, typically have retail
prices between $40 and $400. The moderately priced line of women's textile
outerwear and sportswear, sold under the Colebrook & Co. label, has retail
prices in the range of $50 to $130. The men's textile apparel line, consisting
of moderately priced outerwear, has retail prices ranging from $25 to $175. The
moderately priced line of women's coats, sold under the Vision label, has retail
prices in the range of $100 to $200.
The Company works with retail chains in developing product lines
sold under private retail labels. With regard to private label sales, the
Company meets frequently with buyers who custom order products by color, fabric
and style. These buyers may provide samples to the Company or may select styles
already available in the Company's showrooms. The Company has established a
reputation among such buyers for the ability to arrange for manufacture of
apparel on a reliable, expeditious and cost-effective basis.
The Company's in-house designers are responsible for the design
and look of the Company's products. The Company responds to style changes in the
apparel industry by maintaining a continuous program of style, color and type of
leather and fabric selection. In designing new products and styles, the Company
attempts to incorporate current trends and consumer preferences in the Company's
traditional product offerings. The Company seeks to design products in response
to anticipated trends in consumer preferences, rather than to attempt to
establish market trends and styles.
Design personnel meet regularly with the Company's sales and
merchandising departments to review market trends, sales results and the
popularity of the Company's latest products. In addition, representatives of the
Company regularly attend trade and fashion shows and shop at fashion forward
stores in the United States, Europe and the Far East, and present sample items
to the Company along with their evaluation of the styles expected to be in
demand in the United States. The Company also seeks input from selected
customers with respect to product design. The
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Company believes that its sensitivity to the needs of its retail customers,
coupled with the flexibility of its production capabilities and its continual
monitoring of the retail market, enables the Company to modify designs and order
specifications in a timely fashion.
The Company's arrangements with selected overseas factories for
textile apparel enables it to conduct test-marketing, in cooperation with
specialty retailers and department stores, prior to full manufacturing and
marketplace introduction of certain styles and products. Testmarketing typically
involves introducing a new style into approximately 20 to 30 store locations in
certain major markets. If the Company finds acceptance of the product on a
consumer level, the Company proceeds with full-scale manufacturing and market
introduction.
LEATHER APPAREL
MANUFACTURING
Substantially all the Company's products are imported from
independent manufacturers located primarily in South Korea, Indonesia and China
and, to a lesser extent, in India, the Philippines and Hong Kong. The Company
manufacturers certain products at its wholly-owned factory in Indonesia and its
partially-owned factory in Northern China. A selected number of garments are
also manufactured for the Company by independent contractors located in the New
York City area.
The Company has a branch office in Seoul, South Korea, which acts
as a liaison between the Company and the various manufacturers located
throughout South Korea, Indonesia and China used to produce the Company's
leather and woven garments. Upon receipt from the Company's headquarters of
production orders stating the number, quality and types of garments needed to be
produced, this liaison office negotiates and places orders with one or more
South Korean, Indonesian and Chinese manufacturers. In allocating production
among independent suppliers, the Company considers a number of criteria,
including quality, availability of production capacity, pricing and ability to
meet changing production requirements. At January 31, 1997, the South Korean
office employed 15 persons.
In connection with the foreign manufacture of the Company's
leather apparel, manufacturers purchase skins and necessary "submaterials" (such
as linings, zippers, buttons and trimmings) according to parameters specified by
the Company. Prior to commencing the manufacture of garments, samples of the
skins and submaterials are sent to the South Korean liaison office and the
Company's New York offices for approval. Employees of the liaison office
regularly inspect and supervise the manufacture of the products for the Company
in order to ensure timely delivery, maintain quality control, monitor compliance
with Company manufacturing specifications and inspect finished apparel.
Because of the nature of leather skins, the manufacture of
leather apparel is performed manually. A pattern is used in cutting hides to
panels which are assembled in the factory. All submaterials are also added at
this time. Products are inspected throughout this process to insure that design
and quality specifications of the order, as provided by the Company, are being
maintained as the garment is assembled. After pressing, cleaning and final
inspection, the garment is labeled and hung awaiting
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shipment. A final random inspection occurs when the garments are packed for
shipment.
The Company arranges for the production of apparel on a purchase
order basis, with each order to a foreign manufacturer generally backed by an
irrevocable international letter of credit. Substantially all letters of credit
arranged by the Company require as a condition of release of funds to the
manufacturer, among others, that an inspection certificate be signed by a
representative of the Company. Accordingly, if an order is not filled by a
foreign manufacturer, the letter of credit is not paid and the Company does not
bear the risk of liability for the goods being manufactured. The Company assumes
the risk of loss on an F.O.B. basis when goods are delivered to a shipper and is
insured against casualty losses arising during shipping.
As is customary in the leather industry, the Company has not
entered into any long-term contractual arrangement with any contractor or
manufacturer. In order to provide for more efficient communications and
operations with certain of the larger leather apparel manufacturers, in addition
to utilizing its South Korean branch office, the Company has historically placed
orders for leather apparel with two of its largest manufacturers through an
established buying agent located in New York City. The buying agent, under the
supervision of Company personnel located in the United States and South Korea,
is responsible for procuring sufficient contract production capacity from these
manufacturers to meet the forecasted demand for the Company's products. For the
fiscal years ended January 31, 1995, 1996 and 1997, approximately 16%, 13% and
11%, respectively, of the Company's products were produced by manufacturers
working through the Company's buying agent. The Company believes that the
production capacity of foreign manufacturers with which it has developed or is
developing a relationship is adequate to meet the Company's leather apparel
production requirements for the foreseeable future. The Company believes that
alternative foreign leather apparel manufacturers are readily available and that
the loss of any manufacturer or the buying agent would not materially adversely
affect the Company's operations.
The Company's arrangements with foreign manufacturers of its
apparel are subject to the usual risks of doing business abroad, including
currency fluctuations, political instability and potential import restrictions.
Although the Company's operations have not been materially affected by any of
such factors to date, due to the significant portion of the Company's garments
which are produced abroad, any substantial disruption of its relationships with
foreign manufacturers could adversely affect the Company's operations. In
addition, since the Company negotiates its purchase orders with its foreign
manufacturers in United States dollars, if the value of the United States dollar
against local currencies was to go down, these manufacturers might increase the
United States dollar prices charged to the Company for products. Virtually all
the Company's imported leather products and raw materials are subject to United
States Customs duties of approximately 6%.
A majority of all finished goods manufactured abroad are shipped
to the Company's New Jersey warehouse and distribution facility for final
inspection and allocation and reshipment to customers. The goods are delivered
to the Company and its customers by independent shippers, choosing the form of
shipment (principally ship, truck or air) based upon a customer's needs and cost
and time considerations.
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MARKETING AND DISTRIBUTION
The Company's products are sold primarily to department,
specialty and mass merchant retail stores in the United States. The Company
sells to approximately 2,300 customers, ranging from national and regional
chains of specialty retail and department stores, whose annual purchases from
the Company exceed $1,000,000, to small specialty stores whose annual purchases
from the Company are less than $1,000. In the fiscal year ended January 31,
1997, the Sam's Club and Wal-Mart divisions of Wal-Mart Stores, Inc. accounted
for an aggregate of 12.8% of the Company's net sales. No customer accounted for
more than 10% of the Company's net sales in the fiscal years ended January 31,
1995 or 1996.
Almost all of the Company's sales to date have been made in the
United States. The Company has also marketed its products in Canada and Mexico.
Retail sales of outerwear apparel have traditionally been
seasonal in nature. Although the Company sells its apparel products throughout
the year, net sales in the months of July through November accounted for
approximately 68% and 78% of Company net sales during the fiscal years ended
January 31, 1996 and 1997, respectively. The July through November time frame is
expected to continue to provide a disproportionate amount of the Company's net
sales.
Along with the Company's foreign offices, the Company's trading
company subsidiary, Global International Trading Company, located in Seoul,
Korea, assists in providing services to the Company's customers. As of January
31, 1997, Global International Trading Company employed 22 persons.
The Company's products are sold primarily through a direct
employee sales force which consisted of 25 employees as of January 31, 1997. The
Company's principal executives are also actively involved in sales of its
products. A limited amount of the Company's products are also sold by various
retail buying offices located throughout the country. Final authorization of all
sales of products is solely through the Company's New York showroom, enabling
the Company's management to deal directly with, and be readily accessible to,
major customers, as well as to control more effectively the Company's selling
operations.
The Company primarily relies on its reputation and relationships
in the industry to generate business. The Company believes it has developed a
significant customer following and positive reputation in the industry, as a
result of, among other things, standards of quality control, on-time delivery,
competitive pricing and willingness and ability to assist customers in their
merchandising of the Company's products. In addition, the Company has, to a
limited extent, advertised its products and engaged in cooperative ad programs
with retailers. The Company believes it has developed brand awareness, despite
the absence of general advertising, primarily through its reputation, consumer
acceptance and the fashion press.
The Company opened its first retail outlet store in Secaucus, New
Jersey in December 1990 and opened six additional outlet stores in fiscal 1994
and 1995. The outlet stores were intended to assist the Company in determining
sales trends of various styles, colors and skin and fabric types and enable the
Company to sell damaged merchandise which could not be resold at regular prices.
The Company decided to
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discontinue operations at certain locations and closed three stores during
fiscal 1997. No additional stores are planned to be opened during fiscal 1998.
There was no material affect on the financial statements or operations of the
Company as a result of implementing these actions.
RAW MATERIALS
Most products manufactured for the Company are purchased by the
Company on a finished goods basis. Raw materials used in the production of the
Company's leather apparel are available from numerous sources and are in
adequate supply. The Company is not aware of any manufacturer of the Company's
apparel not being able to satisfy its requirements for any such raw materials
due to an inadequacy of supply.
The leather apparel industry competes with manufacturers of other
leather products for the supply of leather. Leather skins are a byproduct.
Accordingly, raw material costs are impacted by changes in meat consumption
worldwide as well as by the popularity of leather products.
TEXTILE APPAREL
The Company also produces outerwear from a variety of textiles
such as wools, cottons and synthetic blends, suitable for leisure and active
wear. The Company designs, imports and markets a moderately priced line of
women's textile outerwear and sportswear under the Colebrook & Co. label. The
Coat Division markets moderately priced women's woolen coats and raincoats, sold
under the Vision label. The men's textile apparel line consists of moderately
priced outerwear.
The Company's development and design process as well as its
marketing and distribution strategies for textile apparel are similar to those
employed for its leather apparel. See "Products-Development and Design" and
"Leather Apparel -- Marketing and Distribution" of this Item 1 above. Textile
outerwear is manufactured for the Company by several independent contractors
located primarily in the Far East and, to a lesser extent, domestically.
Manufacturers produce finished garments in accordance with production samples
approved by the Company and obtain necessary quota allocations and other
requisite customs clearances.
To facilitate better service for the Company's textile and
leather apparel customers and accommodate and control the volume of
manufacturing in the Far East, the Company has an office in Hong Kong. Similar
to the Seoul office, the Hong Kong office acts as a liaison between the Company
and the various manufacturers of textile and leather apparel located in Hong
Kong and China. The Company utilizes its domestic and Hong Kong office employees
to monitor production at each manufacturer's facility to ensure quality control,
compliance with the Company's specifications and timely delivery of finished
garments to the Company's distribution facilities or customers. The Hong Kong
office employed 12 persons as of January 31, 1997.
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The Company's arrangements with its textile manufacturers and
suppliers are subject to the risks attendant to doing business abroad, including
the availability of quota and other requisite customs clearances for textile
apparel, the imposition of export duties, political and social instability and
currency fluctuations. United States customs duties on the Company's textile
apparel presently range from 5% to 30%, depending upon the type of fabric used
and how the garment is constructed. The Company monitors duty, tariff and
quota-related developments and seeks to minimize its potential exposure to
quota-related risks through, among other measures, geographical diversification
of its manufacturing sources and shifts of production among countries and
manufacturers.
LICENSING
The Company believes that the sale of licensed products will help
it to expand its business. The Company presently has license agreements with
Kenneth Cole Productions, National Football League Properties, National Hockey
League Properties Inc., NASCAR and several universities located in the United
States. The Company plans to seek other opportunities to enter into trademark
license agreements in order to expand its product offerings under nationally
recognized labels.
In February 1997, the Company formed a joint venture with Black
Entertainment Television, Inc. to produce a BET-branded clothing and accessory
line. BET Holdings Inc. has granted a ten year exclusive license to the joint
venture for the manufacture and distribution of women's, men's and children,
apparel and accessories utilizing "BET," "Black Entertainment Television" and
other BET-related marks. The product line will be targated to the
African-American and urban consumer market.
BACKLOG
A significant portion of the Company's orders are short-term
purchase orders from customers who place orders on an as-needed basis. The
amount of unfilled orders at any time has not been indicative of future sales.
Information relative to open purchase orders at any date may also be materially
affected by, among other things, the timing of the initial showing of apparel to
the trade, as well as by the timing of recording of orders and shipments. As a
result, the Company does not believe that the amount of its unfilled customer
orders at any time is meaningful.
TRADEMARKS
Several trademarks have been granted federal trademark protection
through registration with the U.S. Patent and Trademark Office, including for
G-III, Avalanche, J.L. Colebrook, Laura Renee, Laura Jeffries, Colebrook Kids,
Urban Cowboy, Cayenne, G-III Outerwear Company Store, JLC (& design), JLC
Outerwear (& design), J.L.C. (& design), and Last Resort. The Company has
applications for several additional registrations pending before the U.S. Patent
and Trademark Office.
The Company has been granted trademark protection for G-III in
France, Canada and Mexico and for J.L. Colebrook in Germany, Canada, Mexico,
France, Great
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Britain and Benelux. The Company also has several additional registrations
pending in the European Community and Canada.
Although the Company regards its trademarks as valuable assets
and intends to vigorously enforce its trademark rights, the Company does not
believe that any failure to obtain federal trademark registrations for which it
has applied would have a material adverse effect on the Company.
COMPETITION
The apparel business is highly competitive. The Company has
numerous competitors with respect to the sale of leather and textile apparel,
including distributors that import leather apparel from abroad and domestic
retailers with established foreign manufacturing capabilities. Sales of the
Company's products are affected by style, price, quality and general fashion
trends. The Company may also be deemed to compete with vertically-integrated
apparel manufacturers that also own retail stores. In addition, the Company
competes for supplies of raw materials and manufacturing and tanning capacity.
EMPLOYEES
As of January 31, 1997, the Company had 239 full-time employees,
of whom 73 worked in executive, administrative or clerical capacities, 79 worked
in design and manufacturing, 47 worked in warehouse facilities, 25 worked in
sales and 15 worked in the retail outlet division. The Company employs both
union and non-union personnel and believes that the Company's relations with its
employees are good. The Company has not experienced any interruption of any of
its operations due to a labor disagreement with its employees.
The Company is a party to an agreement with the Amalgamated
Clothing and Textile Workers Union (the "Union"), covering approximately 39
full-time employees as of January 31, 1997. This agreement, which is currently
in effect through October 30, 1999, automatically renews on an annual basis
thereafter unless terminated by the Company or the Union prior to August 30 of
that year.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect
to the executive officers and significant employees of the Company.
<TABLE>
<CAPTION>
Executive
Officer or
Significant
Employee
Name Age Position Since
---- --- -------- -----
<S> <C> <C>
Morris Goldfarb 46 Chief Executive Officer, 1974
Director
Aron Goldfarb 74 Chairman of the Board, Director 1974
Jeanette Nostra-Katz 45 President 1981
Alan Feller 54 Executive Vice President, Chief 1990
Operating Officer, Treasurer
and Secretary, Director
Carl Katz 56 Executive Vice President of 1981
Siena, Director
Frances Boller-Krakauer 31 Vice President - Men's Division 1993
of G-III
Deborah Gaertner 42 Vice President - Women's Sales 1989
of G-III
Keith Sutton Jones 48 Vice President - Foreign 1989
Manufacturing of G-III
Michael Laskau 41 Vice President - Women's Non- 1994
Branded Division of G-III
Karen Wells 32 Vice President - Fashion Design 1990
and Imports of G-III
</TABLE>
Morris Goldfarb is the Chief Executive Officer of the Company, as
well as one of its directors. Until April, 1997, Mr. Goldfarb also served as
President of the Company. He has served as either President or Vice President of
G-III Leather Fashions, Inc. ("G-III") since its formation in 1974. Mr. Goldfarb
is responsible for the foreign manufacture, marketing, merchandising and
financing of the G-III line of apparel. He also has overall responsibility for
developing selling programs, customer relations and administration of the
Company. Mr. Goldfarb is also a director of Grand Casinos, Inc.
Aron Goldfarb is Chairman of the Board of the Company, and its
founder. Mr. Goldfarb served as either President or Vice President of G-III and
as a Vice
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President of Siena from their respective formations until 1994 and, since
January 1995, has served as a consultant to the Company.
Jeanette Nostra-Katz became President of the Company in April
1997. She had been the Executive Vice President of the Company since March 1992.
Ms. Nostra-Katz's responsibilities for the Company include sales for the Women's
Branded Division, marketing, public relations, and operations as they relate to
sales. Since August 1989, she has served as an Executive Vice President of
Siena. Ms. Nostra-Katz has been employed by the Company since 1981 in various
capacities.
Alan Feller has been employed by the Company as its Chief
Financial Officer since January 1990 and was elected the Vice President of
Administration and Finance, Treasurer and Secretary of the Company in March 1990
and Executive Vice President and Chief Operating Officer in June 1995. Mr.
Feller was elected a Director of the Company in April 1995.
Carl Katz has been employed as an Executive Vice President of
Siena since August 1989 and, prior thereto, as a Vice President of Siena since
1981. Mr. Katz supervises the merchandising and designs, as well as production
and pattern and sample making, for the Siena and Licensing divisions. Mr. Katz
is also a director of the Company.
Frances Boller-Krakauer is Vice President -- Men's Division of
G-III and has held the position since February 1993. Prior to February 1993, she
held various sales positions in the Men's Division. Ms. Krakauer joined the
Company in March 1989.
Deborah Gaertner is the Vice President -- Women's Non-Branded
Sales of G-III. Ms. Gaertner is responsible for sales and marketing of the
women's non- branded apparel line. She served previously as Vice President,
Imports since June 1989, coordinating production and merchandising.
Keith Sutton Jones is the Vice President -- Foreign Manufacturing
of G-III and has been employed in such capacity since January 1989. His
responsibilities include coordinating and controlling all aspects of the
Company's Far Eastern sourcing and production.
Michael Laskau is a Vice President -- Women's Non-Branded
Division of G-III and has been employed in such capacity since July 1994. His
responsibilities include coordinating the production and merchandising of the
Company's textile apparel. For the 18 years prior to joining the Company, Mr.
Laskau was in charge of production and sourcing at Junior Gallery, an importer
of apparel.
Karen Wells is the Vice President -- Fashion Design and Imports
[of G-III] and has been employed in such capacity since March 1992. Her
responsibilities include the sourcing of factories, coordination of production
and merchandising and design supervision for the Women's Division. Ms. Wells
also manages the Company's private label and special order programs. For the
four years prior to March 1992, Ms. Wells was the Fashion Designer of women's
apparel for G-III.
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Aron Goldfarb and Morris Goldfarb are father and son,
respectively. Carl Katz and Jeanette Nostra Katz are married to each other.
ITEM 2. PROPERTIES
The Company's executive offices and office support departments
are located in a five story 32,000 square foot building at 345 West 37th Street
in New York City. This property is leased pursuant to a sublease from a
corporation owned by Morris Goldfarb and Aron Goldfarb, the Company's President
and Chairman of the Board, respectively, for which the Company pays rent
monthly, plus real estate taxes. For the fiscal years ended January 31, 1996 and
1997, the total payments for the premises were approximately $327,000 and
$325,000, respectively.
The Company's sales showrooms and support staff are located at
512 Seventh Avenue, which is one of the leading outerwear apparel buildings in
New York City. The Company leases an aggregate of approximately 31,800 square
feet in this building through January 31, 2003 at a current aggregate annual
rental of approximately $486,000.
The Company's warehouse and distribution facility, located in
Secaucus, New Jersey, contains approximately 107,000 square feet, plus a 3,000
square foot retail outlet store. This facility is leased through March, 2000 at
an annual rent of approximately $482,000. The lease provides for two option
renewal terms of five years each with rental for the renewal term based on
market rates. A majority of the Company's finished goods are shipped to the New
Jersey distribution facilities for final reshipment to customers.
In March 1996, the Company subleased its other warehouse and
distribution facility in Secaucus, New Jersey to an unaffiliated third party and
consolidated all of its warehouse and distribution operations at one location.
The sublease is co-extensive with the lease term, which extends through March
2000, although the sub-lessee has the right to terminate the sub-lease at any
time on six months notice. The sub-lease, provides for the sub-lessee to pay
rent of approximately $700,000 per year to the Company and for the Company to
pay all operating costs of the facility except for utilities and internal
maintenance. The Company's annual rent obligation to the lessor of this facility
increases from approximately $750,000 to $937,000 during the term of the
sub-lease.
The Company leases three retail outlet stores in addition to the
store at its distribution facility. These leases terminate between August 1998
and March 2000 and generally require payment of either fixed rent plus a
percentage of sales above a pre-determined level or rent based solely on a
percentage of sales. Aggregate rental expense for the three retail outlet stores
during the fiscal year ended January 31, 1997 was approximately $153,000.
Leases with provisions for increasing rents have been expensed
and accrued on a straight-line basis over the life of the lease.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-13-
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
The Common Stock is publicly traded in the over-the-counter
market and is quoted on the Nasdaq National Market System under the trading
symbol "G-III". The following table sets forth, for the fiscal periods shown,
the high and low last sales prices for the Common Stock, as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
Fiscal 1996 High Prices Low Prices
- ----------- ----------- ----------
<S> <C> <C>
Fiscal Quarter ended April 30, 1995 $2 15/16 $1 11/32
Fiscal Quarter ended July 31, 1995 2 9/16 1 1/4
Fiscal Quarter ended October 31, 1995 4 5/8 1 5/8
Fiscal Quarter ended January 31, 1996 3 7/8 2 1/4
Fiscal 1997
- -----------
Fiscal Quarter ended April 30, 1996 $3 3/4 $2 1/4
Fiscal Quarter ended July 31 ,1996 3 11/16 2 5/16
Fiscal Quarter ended October 31, 1996 3 1/8 2 1/4
Fiscal Quarter ended January 31, 1997 4 2 5/8
Fiscal 1998
- -----------
Fiscal Quarter ended April 30, 1997 $5 1/4 $3 7/16
(through March 31, 1997)
</TABLE>
The last sales price of the Common Stock as reported by the
Nasdaq National Market on March 31, 1997 was $3.875 per share.
On March 31, 1997, there were 86 holders of record and, the
Company believes, approximately 1,465 beneficial owners of the Common Stock.
DIVIDEND POLICY
The Board of Directors currently intends to follow a policy of
retaining any earnings to finance the continued growth and development of the
Company's business and does not anticipate paying cash dividends in the
foreseeable future. Any future determination as to the payment of cash dividends
will be dependent upon the Company's financial condition, results of operations
and other factors deemed relevant by the Board of Directors. Certain agreements
related to the financing of the building containing the Company's executive
offices prohibit the payment of cash dividends without consent. In addition, the
Company's loan agreement prohibits the payment of cash dividends without the
consent of the banks. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" in Item
7 below.
-14-
<PAGE>
<PAGE>
ITEM 6. SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
In January 1993, the Company and each of its subsidiaries changed
their fiscal year-end from July 31 to January 31. The selected consolidated and
combined financial data set forth below for the year ended July 31, 1992, for
the six-month transition period ended January 31, 1993 and the years ended
January 31, 1994, 1995, 1996 and 1997 have been derived from the audited
consolidated and combined financial statements of the Company. The audited
financial statements for the years ended July 31, 1992, the six months ended
January 31, 1993 and the year ended January 31, 1994 are not included in this
filing.
The information for the twelve month period ended January 31, 1993 is
unaudited and is included for comparative purposes only. The selected
consolidated and combined financial data set forth below for the twelve months
ended January 31, 1993 are unaudited and, in the opinion of the Company, reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation thereof. The selected consolidated and combined financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (Item 7 of this Report) and the
audited consolidated financial statements and related notes thereto included
elsewhere herein.
-15-
<PAGE>
<PAGE>
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Twelve
Months Months
Ended Ended
January 31, January 31, Year Ended January 31,
----------- ----------- ------------------------------------------------
1992 1993 1993 1994 1995 1996 1997
-------- ----------- ---------- ------------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales........................... $175,478 $116,208 $195,731 $208,877 $171,441 $121,663 $117,645
Cost of goods sold.................. 153,014 98,283 167,660 181,270 146,484 97,769 89,166
-------- -------- -------- -------- -------- ------- -------
Gross profit........................ 22,464 17,925 28,071 27,607 24,957 23,894 28,479
Selling, general &
administrative expenses........... 15,555 10,794 18,853 22,869 25,823 21,769 22,433
Unusual or non-
recurring charges................. -- -- -- -- 11,320 -- --
--------- --------- --------- --------- -------- --------- --------
Operating profit (loss)............. 6,909 7,131 9,218 4,738 (12,186) 2,125 6,046
Interest expense.................... 1,305 1,019 1,879 2,339 3,959 2,433 2,075
------- ------- ------- ------- ------- ------ ------
Income before
income taxes (loss)............... 5,604 6,112 7,339 2,399 (16,145) (308) 3,971
Income taxes (benefit).............. 2,283 2,619 3,081 1,064 (4,087) 89 885
------- ------- ------- ------- -------- ------ ------
Net income (loss)
before minority interest.......... 3,321 3,493 4,258 1,335 (12,058) (397) 3,086
Minority interest................... -- -- -- -- 324 -- --
-------- -------- -------- -------- -------- ------- --------
Net income (loss)................... $ 3,321 $ 3,493 $ 4,258 $ 1,335 $ (11,734) $ (397) $ 3,086
======== ======== ======== ======== ========= ======= ========
Primary:
Net income (loss)
per common share(2).............. $0.51 $0.53 $0.65 $0.20 $(1.82) $(0.06) $0.46
========= ========= ========= ========= ========== ======= =====
Weighted average
shares outstanding(2)............. 6,511,565 5,574,450 6,514,750 6,600,692 6,459,381 6,459,975 6,745,939
Fully Diluted:
Net income (loss)
per common share(2).............. $0.51 $0.53 $0.65 $0.20 $(1.82) $(0.06) $0.45
========= ========= ========= ========= ========== ======= =====
Weighted average
shares outstanding(2)............. 6,511,565 6,662,067 6,529,750 6,600,692 6,459,381 6,459,975 6,849,740
As of January 31,
---------------------------------------
1992 1993 1994 1995 1996 1997
------- ---------- --------- ---------- --------- -------
BALANCE SHEET DATA:
Working capital............... $31,882 $35,055 $31,494 $22,602 $22,224 $24,497
Total assets.................. 88,837 57,522 67,571 54,572 41,257 44,555
Short-term debt............... 43,874 10,078 13,179 13,480 3,551 3,835
Long-term debt,
excluding current portion... 1,073 988 794 1,479 919 554
Total stockholders' equity.... 36,972 40,465 41,835 30,101 29,716 32,825
</TABLE>
(1) Effective January 31, 1993, the Company and its subsidiaries adopted a
January 31 fiscal year-end.
(2) Net income per common share for the six and twelve months ended January 31,
1993, and for the year ended July 31, 1992, has been calculated based on a
weighted average number of outstanding common shares and common stock
equivalents, and gives effect to a 5% stock dividend paid in February 1993.
-16-
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this Annual Report on Form 10-K 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 matters, 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 Annual Report on form 10-K.
The following presentation of management's discussion and analysis of
the Company's financial condition and results of operations should be read in
conjunction with the Company's Financial Statements, accompanying notes thereto
and other financial information appearing elsewhere in this Report.
References to fiscal years refer to the year ended January 31 of
that year.
RESULTS OF OPERATIONS
The following table sets forth selected operating data of the
Company as a percentage of net sales for the periods indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0%
Cost of goods sold...................................... 85.4 80.4 75.8
------ ------ -------
Gross profit............................................ 14.6 19.6 24.2
Selling, general and administrative expenses............ 15.1 17.9 19.1
Unusual or nonrecurring charges......................... 6.6 -- --
------ ------ -------
Operating profit (loss)................................. (7.1) 1.7 5.1
Interest expense........................................ 2.3 2.0 1.8
------ ------ -------
Income (loss) before income taxes....................... (9.4) (0.3) 3.3
Income taxes (benefit).................................. (2.4) 0.0 0.7
Minority interest....................................... .2 -- --
------ ------ -------
Net income (loss)....................................... (6.8) (0.3) 2.6
------ ------ -------
------ ------ -------
</TABLE>
-17-
<PAGE>
<PAGE>
General
The Company's improved operating results during fiscal 1997 are
attributable to its strategic initiatives which have been implemented over the
past several years. While sales volume was slightly lower in fiscal 1997
compared to the prior year, gross profit as a percentage of net sales improved
as a result of the increase in sales of branded product. Margin improvements
were also realized in several of the Company's traditional product lines through
more aggressive pricing and more effective sourcing of product.
During fiscal 1996 and fiscal 1997, the Company continued
programs, begun in fiscal 1995, to control its expense levels. The Company also
carried lower levels of inventory in fiscal 1996 which not only reduced the
risks of being required to take markdowns on excess inventory, but also reduced
bank borrowings and related interest expense. The Company continued to carry
lower inventory levels and reduce its interest expense in fiscal 1997. The
ability to operate with lower inventory levels enabled the Company to sublet one
of its distribution facilities in March 1996, which reduced warehouse and
distribution expenses.
YEAR ENDED JANUARY 31, 1997 ("FISCAL 1997") COMPARED
TO YEAR ENDED JANUARY 31, 1996 ("FISCAL 1996")
Net sales were $117.6 million in fiscal 1997 compared to $121.7
million in fiscal 1996. An increase of approximately $20.5 million in the net
sales of the Company's branded product was more than offset by a decrease of
approximately $24.0 million in net sales of the Company's traditional leather
and woven product lines.
Gross profit was $28.5 million in fiscal 1997 compared to $23.9
million in fiscal 1996. As a percentage of net sales, gross profit was 24.2% in
fiscal 1997 compared to 19.6% in fiscal 1996. The increase in the gross profit
percentage was the result of increased sales of branded product, which generates
higher gross margins, as well as an improvement in the gross margin for several
of the Company's traditional product lines.
Selling, general and administrative expenses were $22.4 million
in fiscal 1997 compared to $21.8 million in fiscal 1996. As a percentage of net
sales, selling, general and administrative expenses were 19.1% in fiscal 1997
compared to 17.9% in fiscal 1996. The increase in selling, general and
administrative expenses is primarily attributable to costs incurred in
connection with the start-up of new divisions ($829,000), an increase in
compensation expense ($400,000), higher professional fees, primarily consultants
assisting the Company with strategic planning ($360,000) and higher overseas
travel costs ($279,000). These increases were offset in part by lower bad debt
expenses due to lower receivable write-offs and recoveries on certain
receivables previously written off ($700,000) and reduced distribution facility
costs as a result of subleasing one of the Company's distribution facilities in
March 1996 ($582,000).
-18-
<PAGE>
<PAGE>
Interest expenses was $2.1 million in fiscal 1997 compared to
$2.4 million in fiscal 1996. This decrease is attributable to lower bank debt
balances as the result of lower inventory levels maintained during fiscal 1997.
As a result of the foregoing, the Company realized income before
income taxes of $4.0 million in fiscal 1997 compared to a loss before income
taxes of $308,000 in fiscal 1996.
Income taxes for fiscal 1997 were $885,000 compared to income
taxes of $89,000 in fiscal 1996 due to foreign income taxes and the resolution
of a Federal tax examination. The Company's effective tax rate for fiscal 1997
was 22.3% as a result of tax benefits in the amount of $1,017,000 attributable
to the utilization of state net operating loss carryforwards and deferred
tax benefits. The Company expects that such tax benefits will be significantly
lower in fiscal 1998.
The Company had net income of $3.1 million, or $0.46 per share
on a primary basis, in fiscal 1997 compared to a net loss of $397,000, or $.06
per share, in fiscal 1996.
YEAR ENDED JANUARY 31, 1996 COMPARED
TO YEAR ENDED JANUARY 31, 1995 ("FISCAL 1995")
Net sales were $121.7 million in fiscal 1996 compared to $171.4
million in fiscal 1995. Approximately $31.3 million of the decrease in net sales
in fiscal 1996 was due to the continued weakness in the retail business
environment, primarily lower sales of leather outerwear (a decrease of $16.2
million) and non-leather outerwear (a decrease of $10.1 million). The balance of
the decrease (approximately $18.4 million) was the result of the Company
recognizing only commission income with respect to customer letter of credit
transactions, where the Company's customer provided a letter of credit which was
transferred by the Company directly to the overseas manufacturer or where the
Company's customer provided a letter of credit directly to the overseas
manufacturer. Prior to the middle of fiscal 1995, the customer usually provided
a letter of credit to the Company and the Company opened a letter of credit to
the manufacturer. Accounting rules require the Company to recognize only
commission income with respect to transactions where the Company does not open a
letter of credit. If the Company had recognized the full amount of sales from
customer letter of credit transactions in fiscal 1995 and 1996, net sales would
have been $163.6 million in fiscal 1996 compared to $195.0 million in fiscal
1995.
Gross profit was $23.9 million in fiscal 1996 compared to $25.0
million in fiscal 1995. As a percentage of net sales, gross profit was 19.6% in
fiscal 1996 compared to 14.6% in fiscal 1995. While the use of customer letter
of credit transactions does not impact gross profit dollars, it does affect
gross profit as a percentage of net sales since net revenues recognized from
such transactions are lower. Had the Company recognized the full amount of sales
from customer letter of credit transactions, gross profit as a percentage of net
sales in fiscal 1996 would have been 14.6% compared to 12.8% in fiscal 1995.
This increase in the gross profit percentage was a result of improved margins in
a majority of product lines, as well as cost
-19-
<PAGE>
<PAGE>
reductions resulting from closure of the Company's domestic manufacturing
facilities.
Selling, general and administrative expenses of $21.8 million in
fiscal 1996 were approximately $4.0 million lower than the $25.8 million in
fiscal 1995. As a percentage of net sales, selling, general and administrative
expenses were 17.9% in fiscal 1996 compared to 15.1% in fiscal 1995. This
increase as a percentage of net sales was attributable to the lower reported net
sales in fiscal 1996. The decrease in selling, general and administrative
expenses was the result of the implementation of a cost reduction program which
began in the second half of fiscal 1995. This program resulted in reduced
expenses from the implementation of a salary reduction for mid- level and senior
executives and a reduction in the number of employees ($1.6 million),
consolidating the operations of certain divisions ($783,000), lower advertising
and other marketing expenditures ($675,000) and lower shipping costs related to
lower warehouse volume ($535,000). The Company will continue to monitor its
levels of selling, general and administrative expenses and expects certain
increases in these expenses in fiscal 1997 primarily related to the increased
offering of licensed product.
The Company recognized $11.3 million of unusual or non-recurring
charges in fiscal 1995. As a result of the unusually warm fall of 1994, which
adversely affected the sales of outerwear apparel at the retail level, the
Company's receipt of reorders from its customers was below expectations in
fiscal 1995. The Company reviewed its inventory levels and salability as of
October 31, 1994 and determined that its markdown reserve should be increased by
$5.7 million as of that date. In addition, as the result of lower than expected
shipments during the fourth quarter of fiscal 1995, an additional reserve of
$476,000 was provided as of January 31, 1995. In addition, a restructuring
reserve of an aggregate of $5.1 million was established as of January 31, 1995
to provide for the potential loss of the Company's investment in a leather
garment factory ($2.5 million), the write-off of unamortized leasehold fixtures
due to the closing of the Company's domestic factory and relocation of its
showrooms ($1.7 million), certain other fixed asset write-offs ($581,000) and
the severance agreement with the Chairman of the Board who retired January 1,
1995 ($334,000).
Interest expense was $2.4 million in fiscal 1996 compared to $4.0
million in fiscal 1995. This decrease is attributable to lower direct bank debt
balances as the result of lower inventory levels maintained during fiscal 1996.
As a result of the foregoing, the Company incurred a loss before
income taxes of $308,000 in fiscal 1996 compared to $16.1 million in fiscal
1995. As discussed above, fiscal 1995 results included nonrecurring or unusual
charges of $11.3 million.
Despite incurring a loss in fiscal 1996, the Company had tax
expense of $89,000 due to foreign income taxes and resolution of a Federal tax
examination, compared to a tax benefit of $4.1 million in fiscal 1995.
The Company incurred a net loss of $397,000, or $.06 per share,
in fiscal 1996 compared to a net loss of $11.7 million, or $1.82 per share, in
fiscal 1995.
-20-
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has a loan agreement, which expires May 31, 1997,
providing the Company with a collateralized working capital line of credit with
three banks for a maximum amount of $48 million through October 30, 1996),
(reduced to $40 million after October 30, 1996, of which a maximum of $40
million (reduced to $32 million after October 30, 1996) is available for direct
borrowing and bankers' acceptances and the unused balance for letters of credit.
Amounts available for borrowing are subject to borrowing base formulas and over
advances specified in the agreement. Direct borrowings under the line of credit
bear interest at the agent bank's prime rate (8.5% as of April 15, 1997) plus
1.75%. The amount borrowed under the line of credit varies based on the
Company's seasonal requirements. The Company is in discussions with its banks to
extend the loan agreement to May 31, 1999 under terms similar to the existing
loan agreement. The maximum amount outstanding (i.e., open letters of credit,
bankers acceptances and direct borrowings) under the Company's loan agreement
was approximately $63.0 million, $46.7 million and $44.9 million during fiscal
1995, 1996 and 1997, respectively. As of January 31, 1997, there were no
outstanding direct borrowings, no bankers'acceptances and $4.8 million of
contingent liability under open letters of credit, as compared to no outstanding
direct borrowings, no bankers' acceptances and $4.1 million of contingent
liability under open letters of credit as of January 31, 1996. The Company
carried lower levels of inventory in fiscal 1997 and fiscal 1996 compared to
fiscal 1995 and, as a result, its borrowing requirements were lower in these
years.
In recognition of the highly seasonal nature of the Company's
business, the Company's loan agreement provides for certain loan overadvances in
excess of the borrowing base formulas. As a result of the Company's outstanding
borrowings exceeding the permitted overadvance levels, during fiscal 1995 and
1996, the Company's two principal stockholders jointly and severally guaranteed
up to $2.5 million of the Company's line of credit obligations. In addition, one
of the principal stockholders has pledged 250,000 shares of Common Stock as
additional security for the loan agreement. It is expected that the provisions
of the extended loan agreement will not require either the personal guaranty or
the pledge of stock by the principal stockholders.
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 domestic credit
facility. As of January 31, 1997, the borrowing by the Indonesian subsidiary
under its line of credit approximated $3.5 million.
Historically, the Company's business has not required significant
capital expenditures. The Company's capital expenditures were approximately
$902,000 and $507,000 for fiscal 1996 and 1997, respectively. Capital
expenditures were used primarily for additional computer upgrades, leasehold
improvements and furniture, fixtures and equipment in fiscal 1996 and 1997.
-21-
<PAGE>
<PAGE>
IMPACT OF INFLATION AND FOREIGN EXCHANGE
The results of operations of the Company for the periods
discussed have not been significantly affected by inflation or foreign currency
fluctuation. The Company negotiates its purchase orders with its foreign
manufacturers in United States dollars. Thus, notwithstanding any fluctuation in
foreign currencies, the Company's cost for any purchase order is not subject to
change after the time the order is placed. However, if the value of the United
States dollar against local currencies was to go down, certain manufacturers
might increase their United States dollar prices for products.
FUTURE EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statment of
Financial Accounting Standards No. 128, "Earnings Per Share," which is effective
for financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share together with disclosure of how the per share amounts were
computed. The effect of adopting this new standard has not been determined.
-22-
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required pursuant to
this Item begin on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-23-
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Proposal No. 1-
Election of Directors" in the Company's definitive Proxy Statement (the "Proxy
Statement") relating to the Company's Annual Meeting of Stockholders to be held
on or about June 19, 1997, to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 with the Securities and Exchange Commission is
incorporated herein by reference. For information concerning the executive
officers and other significant employees of the Company, see "Business-Executive
Officers of the Registrant" in Item 1 above of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive
Compensation" in the Company's Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained under the heading "Security Ownership
of Common Stock by Certain Stockholders and Management" in the Company's Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain
Relationships and Related Transactions" in the Company's Proxy Statement is
incorporated herein by reference.
-24-
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
<TABLE>
<C> <C> <S>
(a) 1. Financial Statements.
2. Financial Statement Schedules.
The Financial Statements and Financial Statement Schedules are
listed in the accompanying index to financial statements
beginning on page F-1 of this report.
3. Exhibits:
3.1 Certificate of Incorporation.(1)
3.2 By-Laws of G-III Apparel Group, Ltd. (the "Company").(1)
10.1 Employment Agreement, dated February 1, 1994, between
the Company and Morris Goldfarb.(5)
10.2 Agreement, dated December 19, 1994, between the Company
and Aron Goldfarb.(6)
10.3 Third Amended and Restated Loan Agreement, dated May
31, 1996, by and among G-III Leather Fashions, Inc. ("G-
III"), the banks signatories thereto (the "Banks"), and Fleet
Bank, N.A., as Agent, Collateral Monitoring Agent and
Issuing Bank for such Banks.(7)
10.4 Lease Agreement, dated as of October 20, 1987, between
3738 West Company and G-III.(2)
10.5 Lease Agreement, dated as of September 14, 1989, between
3738 West Company and G-III.(2)
10.6 Sublease Agreement, dated March 9, 1990, between GWC
Investments and the Company.(3)
10.7 Agreement of Sub-Sublease, dated December 27, 1995, and
First Amendment thereto, dated February 16, 1996, between
the Company and Europe Craft Imports, Inc.
10.8 Lease, dated September 21, 1993, between Hartz Mountain
Associates and the Company.(4)
10.9 Lease, dated June 1, 1993, between 512 Seventh Avenue
Associates ("512") and the Company.(5)
</TABLE>
-25-
<PAGE>
<PAGE>
<TABLE>
<C> <C> <S>
10.10 Lease, dated January 31, 1994, between 512 and the
Company.(6)
10.11 G-III Apparel Group, Ltd. 1989 Stock Option Plan, as
amended.(5)
10.12 G-III Apparel Group, Ltd. Stock Option Plan for Non-
Employee Directors.(3)
10.13 Limited Liability Company Agreement of BET STUDIO
LLC, dated April 11, 1997, between G-III Leather Fashions,
Inc. and Black Entertainment Television, Inc.
22 Subsidiaries of the Company.(5)
23 Consent of Grant Thornton LLP, dated April 14, 1997.
27 Financial Data Schedule Article 5.
(b) Reports on Form 8-K:
None.
</TABLE>
- ------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (no. 33-31906), which exhibit is incorporated herein by
reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended July 31, 1989, which exhibit is
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended July 31, 1991, which exhibit is
incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended July 31, 1992, which exhibit is
incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1994, which exhibit is
incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1995, which exhibit is
incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the Quarter ended July 31, 1996, which exhibit is incorporated
herein by reference.
Exhibits have been included in copies of this Report filed with
the Securities and Exchange Commission. The Company will provide, without
charge, a copy of these exhibits to each stockholder upon the written request of
any such stockholder therefor. All such requests should be directed to G-III
Apparel Group, Ltd., 345 West 37th Street, New York, New York 10018, Attention:
Mr. Alan Feller, Secretary.
-26-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ Morris Goldfarb
----------------------------------
(Morris Goldfarb),
Chief Executive Officer)
April 30, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Morris Goldfarb Director, Chief Executive Officer April 30, 1997
- --------------------------- (principal executive officer)
(Morris Goldfarb)
/s/ Alan Feller Director, Executive Vice President April 30, 1997
- --------------------------- and Chief Operating Officer
(Alan Feller) (principal financial and accounting
officer)
/s/ Aron Goldfarb Director and Chairman of the Board April 30, 1997
- ---------------------------
(Aron Goldfarb)
/s/ Lyle Berman Director April 30, 1997
- ---------------------------
(Lyle Berman)
- --------------------------- Director April , 1997
(Thomas J. Brosig)
/s/ Willem van Bokhorst Director April 30, 1997
- ---------------------------
(Willem van Bokhorst)
/s/ Sigmund Weiss Director April 30, 1997
- ---------------------------
(Sigmund Weiss)
/s/ George J. Winchell Director April 30, 1997
- ---------------------------
(George J. Winchell)
/s/ Carl Katz Director April 30, 1997
- ---------------------------
(Carl Katz)
</TABLE>
-27-
<PAGE>
<PAGE>
G-III APPAREL GROUP, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14(a))
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2
Financial Statements:
Consolidated Balance Sheets -
January 31, 1996 and 1997 F-3
Consolidated Statements of Income -
Years ended January 31, 1995, 1996 and 1997 F-5
Consolidated Statement of Stockholders' Equity -
Years ended January 31, 1995, 1996 and 1997 F-6
Consolidated Statements of Cash Flows -
Years ended January 31, 1995, 1996 and 1997 F-7
Notes to Consolidated Financial Statements F-9
Financial Statement Schedules:
II - Valuation and Qualifying Accounts S-1
</TABLE>
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, accordingly, are omitted.
-28-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
G-III APPAREL GROUP, LTD.
We have audited the accompanying consolidated balance sheets of G-III Apparel
Group, Ltd. and subsidiaries as of January 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of G-III Apparel
Group, Ltd. and subsidiaries as of January 31, 1996 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended January 31, 1997, in conformity with
generally accepted accounting principles.
We have also audited Schedule II of G-III Apparel Group, Ltd. and subsidiaries
for each of the three years in the period ended January 31, 1997, In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
New York, New York
April 14, 1997
F-2
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1996 1997
-------- ------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,617 $13,067
Accounts receivable 11,764 9,870
Allowance for doubtful accounts and
sales discounts (2,769) (2,694)
Inventories 14,207 13,986
Prepaid income taxes 502
Prepaid expenses and other current assets 968 969
------- -------
Total current assets 32,289 35,198
PROPERTY, PLANT AND EQUIPMENT, NET 6,324 5,030
DEFERRED INCOME TAXES 1,717 3,351
OTHER ASSETS 927 976
------- -------
$41,257 $44,555
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
-------- ------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 2,980 $ 3,459
Current maturities of obligations under capital
leases 571 376
Income taxes payable 447
Accounts payable 2,469 2,169
Accrued expenses 1,751 2,101
Accrued nonrecurring charges 2,294 2,149
------- -------
Total current liabilities 10,065 10,701
OBLIGATIONS UNDER CAPITAL LEASE 919 554
NONRECURRING CHARGES - LONG-TERM 557 475
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, 6,465,836 and 6,477,156 shares on January 31, 1996
and 1997, respectively 65 65
Additional paid-in capital 23,615 23,638
Retained earnings 6,036 9,122
------- -------
29,716 32,825
------- -------
$41,257 $44,555
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $171,441 $121,663 $117,645
Cost of goods sold 146,484 97,769 89,166
-------- -------- --------
Gross profit 24,957 23,894 28,479
Selling, general and administrative expenses 25,823 21,769 22,433
Nonrecurring or unusual charges 11,320
-------- -------- --------
Operating profit (loss) (12,186) 2,125 6,046
Interest and financing charges, net 3,959 2,433 2,075
-------- -------- --------
Income (loss) before income taxes and
minority interest (16,145) (308) 3,971
Income taxes (benefit) (4,087) 89 885
-------- -------- --------
Net income (loss) before minority interest (12,058) (397) 3,086
Minority interest 324
-------- -------- --------
NET INCOME (LOSS) $(11,734) $ (397) $ 3,086
======== ======== ========
Earnings (loss) per common share
Primary
Net income (loss) per common share $(1.82) $(.06) $.46
====== ===== ====
Weighted average number of shares outstanding 6,459 6,460 6,746
======== ======== ========
Fully diluted
Net income (loss) per common share $(1.82) $(.06) $.45
====== ===== ====
Weighted average number of shares outstanding 6,459 6,460 6,850
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended January 31, 1995, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
stock capital earnings Total
------ ---------- -------- -----
<S> <C> <C> <C> <C>
Balance as of January 31, 1994 65 23,603 18,167 41,835
Net loss for the year (11,734) (11,734)
--- ------- --------- --------
Balance as of January 31, 1995 65 23,603 6,433 30,101
Employee stock options
exercised 12 12
Net loss for the year (397) (397)
--- ------- --------- --------
Balance as of January 31, 1996 65 23,615 6,036 29,716
Employee stock options
exercised 23 23
Net income for the year 3,086 3,086
--- ------- --------- --------
BALANCE AS OF JANUARY 31, 1997 $65 $23,638 $ 9,122 $ 32,825
=== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------------
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(11,734) $ (397) $ 3,086
-------- ------- -------
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities
Nonrecurring or unusual charges 8,720
Depreciation and amortization 1,231 1,576 1,534
Deferred income tax benefit (214) (1,634)
Loss on disposition of fixed assets 179
Changes in operating assets and liabilities
Accounts receivable 1,831 4,419 1,819
Inventories 9,264 11,325 221
Prepaid income taxes (3,980) 3,702 502
Prepaid expenses and other current
assets 954 (502) (1)
Other assets 178 (48) (49)
Accounts payable and accrued
expenses (5,323) (2,441) (177)
Income taxes payable 447
-------- ------- -------
12,661 18,031 2,841
-------- ------- -------
Net cash provided by operating
activities 927 17,634 5,927
-------- ------- -------
Cash flows from investing activities
Capital expenditures (1,158) (902) (507)
Capital dispositions 81 17 88
Investment in foreign subsidiaries (249) (76)
-------- ------- -------
Net cash used in investing activities (1,326) (961) (419)
-------- --------- --------
</TABLE>
F-7
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------------
1995 1996 1997
------ -------- -------
<S> <C> <C> <C>
Cash flows from financing activities
Increase (decrease) in notes payable, net $ (93) $ (9,927) $ 479
Payments for capital lease obligations (468) (562) (560)
Proceeds from capital lease obligation 1,548
Proceeds from exercise of stock options 12 23
------ -------- -------
Net cash provided by (used in) financing
activities 987 (10,477) (58)
------ -------- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 588 6,196 5,450
Cash and cash equivalents at beginning of period 833 1,421 7,617
------ -------- -------
Cash and cash equivalents at end of period $1,421 $ 7,617 $13,067
====== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $3,037 $ 2,293 $ 2,047
Income taxes 57 227 1,836
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1995, 1996 and 1997
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
1. Business Activity and Principles of Consolidation
As used in these financial statements, the term "Company" refers to
G-III Apparel Group, Ltd. and its wholly-owned subsidiaries. The Company
designs, manufactures, imports and markets an extensive range of leather
and textile apparel which is sold to retailers throughout the United
States.
The Company consolidates the accounts of all its wholly-owned
subsidiaries. All material intercompany balances and transactions have
been eliminated.
2. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Joint Venture
In fiscal 1995, the Company entered into a joint venture agreement with
a Chinese entity principally to operate a factory located in the
People's Republic of China. The Company invested $542,000 to obtain a
39% interest in the joint venture company. The joint venture company has
an initial term of twenty years and proposes to distribute profits, if
any, annually. The Company accounts for joint venture operations, which
are not material, using the equity method of accounting.
F-9
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE A (CONTINUED)
4. Revenue Recognition
Sales are recognized when merchandise is shipped.
5. Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market.
6. Depreciation and Amortization
Depreciation and amortization are provided by straight-line methods in
amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives.
The following are the estimated live of the Company's fixed assets:
Machinery and equipment 5 to 7 years
Transportation equipment 5 years
Furniture and fixtures 5 years
Computer equipment 3 to 5 years
Building 20 years
Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever is shorter.
The Company annually evaluates the carrying value of its long-lived
assets to evaluate whether changes have occurred that would suggest that
the carrying amount of such assets may not be recoverable based on the
estimated future undiscounted cash flows of the businesses to which the
assets relate. Any impairment loss would be equal to the amount by which
the carrying value of the assets exceeded its fair value.
7. Income Taxes
Deferred income tax assets reflect the tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
F-10
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE A (CONTINUED)
8. Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
9. Net Income (Loss) Per Common Share
Net income (loss) per share of common stock is based on the weighted
average number of common shares outstanding during each of the periods,
adjusted for the dilutive effect of common stock equivalents, when
applicable.
10. Stock-Based Compensation
The Company grants stock options for a fixed number of shares to
employees and directors with an exercise price equal to or greater than
the fair value of the shares at the date of grant. The Company has
adopted the disclosure-only provision of SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits the Company to account for
stock option grants in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, the Company recognizes no
compensation expense for the stock option grants.
11. Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the Company's
short-term debt approximates the carrying value. Furthermore, the
carrying value of all other financial instruments potentially subject to
valuation risk (principally consisting of cash, accounts receivable and
accounts payable) also approximates fair value.
12. Foreign Currency Translation
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency.
Assets and liabilities are translated at the rates of exchange at the
balance sheet date. Income and expense items are translated at average
monthly rates of exchange. Gains and losses from foreign currency
transactions of these subsidiaries are included in net earnings.
F-11
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE B - NONRECURRING OR UNUSUAL CHARGES
During the fourth quarter of fiscal year 1995, the Company formulated plans
to close its domestic manufacturing facility, to sell or liquidate an Asian
factory, to reduce costs and to streamline and consolidate operations. Lost
revenues from these closings are not considered significant. In addition,
due to the unseasonably warm fall and winter in the United States, the
Company recorded significant write-downs of its inventory. These activities
resulted in nonrecurring or unusual charges of $11.3 million, of which $5.6
million was recorded in the fourth quarter of 1995. The Company has not
anticipated any recoveries through the sale or liquidation of its Asian
factory. Such recoveries could reduce the accrued charges in the future;
however, the Company cannot be assured that any such recoveries will occur.
Based on current estimates, management believes that existing accruals are
adequate to cover the items presented below.
The status of the components of the nonrecurring charge was:
<TABLE>
<CAPTION>
Balance at Current BALANCE AT
January 31, period JANUARY 31,
1996 activity 1997
------------ ------------ --------
---------------------(000's)-------------------
<S> <C> <C> <C>
Severance and related costs $ 161 $(161)
Closure of domestic and foreign facilities 2,690 (66) $2,624
------ ----- ------
$2,851 $(227) $2,624
====== ===== ======
</TABLE>
NOTE C - INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
January 31,
--------------------------
1996 1997
------- --------
----------(000's)---------
<S> <C> <C>
Finished goods $12,112 $10,382
Work-in-process 49 27
Raw materials 2,046 3,577
------- -------
$14,207 $13,986
======= =======
</TABLE>
F-12
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost consist of:
<TABLE>
<CAPTION>
January 31,
-------------------------
1996 1997
------- -------
----------(000's)--------
<S> <C> <C>
Machinery and equipment $ 1,259 $ 1,178
Leasehold improvements 3,110 2,844
Transportation equipment 252 187
Furniture and fixtures 1,293 1,325
Computer equipment 2,135 2,936
Land and building 1,821 1,803
Property under capital leases (Note F)
Land 55 55
Building 185 185
Computer equipment 465
Machinery and equipment 404 295
Leasehold improvement 1,791 1,833
------- -------
12,770 12,641
Less accumulated depreciation and amortization
(including $809,000 and $1,079,000 on property
under capital leases at January 31, 1996 and
1997, respectively) 6,446 7,611
------- -------
$ 6,324 $ 5,030
======= =======
</TABLE>
NOTE E - NOTES PAYABLE
Notes payable represent foreign notes payable by PT Balihides, the Company's
Indonesian subsidiary. These notes payable represent borrowings under a line
of credit of approximately $3.5 million with an Indonesian bank. This is
supported by a $2 million stand-by letter of credit issued under the
Company's domestic line of credit. Due to the history of operating losses
experienced by PT Balihides and the Company's evaluation of the economic
benefits to continue to operate this facility, the Company has provided for
the standby letter of credit as part of its accrued nonrecurring charges
(Note B).
F-13
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE E (CONTINUED)
The Company has a domestic loan agreement with three banks which expires on
May 31, 1997. The agreement provides for $48,000,000 in borrowings through
October 30, 1996, and $40,000,000 through May 31, 1997, of which $32,000,000
is available for direct borrowings and the unused balance for letters of
credit. All amounts available for borrowing are subject to borrowing base
formulas.
All borrowings under the agreement are payable on demand and bear interest
at the prevailing prime rate (8.5% at April 14, 1997), plus 1.75%, and are
collateralized by the assets of the Company. The principal stockholders of
the Company have issued a personal guarantee for a portion of the
borrowings. In addition, the President of the Company has pledged 250,000 of
his shares of the Company's common stock as collateral. 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.
The Company is currently in discussions with its banks to extend its
existing loan agreement through May 31, 1999 under terms similar to the
existing agreement.
The weighted average interest rates were 10.36% and 10.03% as of January 31,
1996 and 1997, respectively.
At January 31, 1996 and 1997, the Company was contingently liable under
letters of credit in the amount of approximately $4,100,000 and $4,800,000,
respectively.
NOTE F - CAPITAL LEASE OBLIGATIONS
In September 1986, the New York City Industrial Development Agency
("Agency") issued $1,442,000 of floating rate Industrial Development Revenue
Bonds to a commercial bank for the purpose of acquiring and renovating real
property located at 345 West 37th Street in New York. The bonds bear
interest at 92% of the bank's prime rate, which was of 8.25% at January 31,
1997 plus 1.48% per annum. Simultaneously, the Agency leased the property to
345 West 37th Corp. ("345 West"), a company under the management and control
of two principal stockholders, for 15 years. 345 West, in turn, subleased
the property to G-III Leather Fashions, Inc. ("G-III"), a subsidiary of
F-14
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE F (CONTINUED)
the Company, on the same terms. Concurrent with the execution of the lease
and sublease agreements, 345 West and G-III entered into lease guarantee
agreements whereby they jointly and severally guaranteed the payments and
obligations under the lease and the payment of principal and interest on the
bonds. In addition, the two principal stockholders of the Company have
personally guaranteed the debt. The accompanying financial statements
reflect the above lease between G-III and 345 West as a capitalized lease
(Note K).
In fiscal 1995, the Company entered into several agreements for the sale and
leaseback of the renovations of its showroom and warehouse and the computer
system installed for the retail stores. The assets were sold for $1,548,000
(the book value of the assets). The sales and leaseback transactions have
been accounted for as a capital lease, wherein the property remains on the
books and will continue to be depreciated. A financing obligation
representing the proceeds has been recorded. The Company has the option to
purchase these assets at the end of the leases.
In addition, certain equipment leases have been treated as capital leases.
The present values of minimum future obligations are calculated based on
interest rates at the inception of the leases. The following schedule sets
forth the future minimum lease payments under capital leases at January
1997:
<TABLE>
(000's)
<S> <C>
Year ending January 31,
1998 $ 438
1999 272
2000 168
2001 104
2002 and thereafter 75
------
Net minimum lease payments 1,057
Less amount representing interest 127
------
Present values of minimum lease payments $ 930
======
Current portion $ 376
Noncurrent portion 554
------
$ 930
======
</TABLE>
F-15
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE G - INCOME TAXES
Income taxes are provided for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
The income tax provision (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------------------
1995 1996 1997
--------- ------ -------
--------------------(000's)----------------
<S> <C> <C> <C>
Current
Federal $ (3,940) $(271) $ 2,370
State and city 18 164 73
Foreign 49 196 76
-------- ----- -------
(3,873) 89 2,519
Deferred (214) - (1,634)
--------- ----- -------
$ (4,087) $ 89 $ 885
======== ===== =======
Earnings (loss) before
income taxes
United States $(15,701) $(775) $ 4,912
Non-United States (444) 467 (941)
</TABLE>
F-16
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE G (CONTINUED)
The significant components of the Company's deferred tax asset at January
31, 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------- ------
----------(000's)--------
<S> <C> <C>
Provision for bad debts and sales allowances $ 626 $1,076
Depreciation 837 1,099
Inventory write-downs 319 271
Nonrecurring charges 1,005 1,083
Straight-line lease 247 223
Other (17) (13)
------- ------
3,107 3,739
Deferred tax asset valuation allowance (1,300) (388)
------- ------
$ 1,717 $3,351
======= ======
</TABLE>
During the year ended January 31, 1997, the valuation allowance decreased by
approximately $912,000. Due to changes in economic circumstances, the
Company has assessed its past earnings history and trends and has
evaluated its anticipated profitability over the period of years in which
the temporary differences are expected to become tax deductions. Management
has reduced the allowance to an amount at which it believes sufficient
taxable income will be generated to realize the net deferred tax assets. The
Company has state and local net operating loss carryforwards of $6,400,000,
which will be available to offset its earnings during the carryforward
period. If not used, these carryforwards begin to expire in 2010.
F-17
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE G (CONTINUED)
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
Year ended Year ended YEAR ENDED
January 31, 1995 January 31, 1996 JANUARY 31, 1997
-------------------- --------------------- ------------------
Percent Percent PERCENT
of of OF
Amount income Amount income AMOUNT INCOME
------- ------- ------ ------- ------ -------
(000's) (000's) (000'S)
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) for Federal income
taxes at the statutory rate $(5,489) (34.0)% $(105) (34.0)% $1,350 34.0%
State and city income taxes, net of
Federal income tax benefit 11 0.1 98 31.8 48 1.2
Effect of foreign taxable income (loss) 200 1.2 37 12.0 397 10.0
Valuation allowance for deferred taxes 1,390 8.6 (90) (29.2) (912) (22.9)
Effect of tax examination 154 50.0
Other, net (199) (1.2) (5) (1.7) 2
------- ----- ----- ----- ------ ----
Actual provision (benefit) for income
taxes $(4,087) (25.3)% $ 89 28.9% $ 885 22.3%
======= ===== ===== ===== ====== ====
</TABLE>
F-18
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company currently leases warehousing, executive and sales facilities,
and transportation equipment. Leases with provisions for increasing rents
have been expensed and accrued for on a straight-line basis over the life of
the lease. Future minimum rental payments for operating leases having
noncancellable lease periods in excess of one year as of January 31, 1997
are:
(000's)
Year ending January 31,
1998 $2,143
1999 2,022
2000 1,520
2001 570
2002 478
2003 and thereafter 478
------
$7,211
======
Rent expense (net of sublease income) on the above operating leases
(including amounts leased from 345 West - Note K) for the years ended
January 31, 1995, 1996 and 1997 was approximately $2,604,000, $2,060,000 and
$2,173,000, respectively.
In April 1988, 345 West received a loan from the New York Job Development
Authority ("Authority") to assist 345 West in its renovation of the 345 West
property. The loan is for a period of 15 years and is presently repayable in
monthly installments of $11,000, which includes interest at a variable rate
(8.25% at January 31, 1997). The loan is financed by long-term bonds issued
by the Authority. G-III and the two principal stockholders of the Company
have signed corporate and personal guarantees for this loan. The outstanding
principal of this debt was approximately $732,000 and $654,000 as of the
years ended January 31, 1996 and 1997, respectively. In conjunction with the
Company's intention to close this domestic facility (described in Note B),
the Company has reflected $605,000 and $541,000 of the balance of the loan
as an accrued nonrecurring charge at January 31, 1996 and 1997,
respectively.
F-19
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE H (CONTINUED)
The Company has an employment agreement with its chief executive officer
which expires on January 31, 1998. The agreement shall automatically be
renewed for successive one-year terms, unless either party shall give the
other not less than 90 days' prior written notice of intent not to renew.
The agreement provides for a base salary and bonus payments that vary
between 3% and 6% of pretax income in excess $2 million. If, after a change
in control of the Company, as defined in the agreement, the chief executive
officer's employment is terminated: (i) by the Company without cause, or
(ii) by him because of a material breach of the agreement by the Company,
then the chief executive officer has the right to receive an amount equal to
2.99 times his base salary and bonus. The agreement also provides for
supplemental pension payments of $50,000 per year provided that the Company
achieves net income, as defined, in excess of $1,500,000.
Subsequent to year end, the Company formed a joint venture with Black
Entertainment Television, Inc. ("BET") to produce 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 $1,000,000.
In addition the agreement provides for the Company and BET each to make an
additional capital contribution up to $1,000,000 as determined by the
Company. The Company will have a 50.1% ownership interest in the joint
venture.
NOTE I - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Certain agreements entered into by the Company in connection with loans by
the Agency and Authority relating to the building located at 345 West 37th
Street in New York City and the bank agreements, prohibit the payment of
cash dividends without consent.
Stock Options
The Company's stock plans authorize the granting of 1,130,000 options to
executives and key employees and 31,500 options to directors of the Company.
Stock options are granted at prices not less than the fair market value on
the date of the grant. Option terms, vesting and exercise periods vary,
except that the term of an option may not exceed ten years.
F-20
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE I (CONTINUED)
During the 1995 fiscal year, in connection with the chief executive
officer's employment agreement, the Company granted options to purchase
100,000 shares of common stock at $4.00 per share exercisable over a
ten-year period. The options vest over a five-year period beginning February
1, 1995. In December 1994, the Company repriced the outstanding options to
$2.00 per share, the current market value at the date of repricing.
In addition, during the 1995 fiscal year, the Company granted 50,000 options
to its principal stockholders in consideration for certain agreements made
by the principal stockholders with the Company's banks. At the time of
issuance, the options were exercisable at a higher price than the current
market price. Half of the options are exercisable at $5.50 per share; the
balance of the options are exercisable at $6.50 per share. In December 1994,
the Company repriced the outstanding options to $2.00 per share, the current
market value at the date of repricing.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Accordingly, no compensation cost
has been recognized for the stock options granted to employees and
directors. Had compensation cost been determined based on the fair value at
the grant date for stock option awards in 1996 and 1997 consistent with the
provisions of SFAS No. 123, the Company's net loss would have been increased
by approximately $19,000 and the net loss per share would remain unchanged
for the year ended January 31, 1996. Net income and earnings per share for
the year ended January 31, 1997 would have been decreased by approximately
$262,000 or $.04 per share, respectively. During the initial phase-in period
of SFAS No. 123, such compensation may not be representative of the future
effects of applying this statement.
F-21
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE I (CONTINUED)
The weighted average fair value at date of grant for options granted during
1997 and 1996 was $1.93 and $1.55 per option, respectively. The fair value
of each option at date of grant was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions for grants in
1997 and 1996, respectively:
1996 1997
------- ------
Expected stock price volatility 76.1% 70.92%
Expected lives of options
Directors and officers 7 years 7 years
Employees 6 years 6 years
Risk-free interest rate 6.6% 5.6%
Expected dividend yield 0% 0%
Information regarding these option plans for 1995, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- ---------------------
Weighted Weighted WEIGHTED
average average AVERAGE
exercise exercise EXERCISE
Shares price Shares price SHARES PRICE
-------- ------- -------- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 626,745 $2.00 810,125 $2.00 888,320 $2.05
Exercised (6,455) 2.00 (7,020) 2.00
Granted 262,675 2.00 100,000 2.53 137,000 2.64
Cancelled or forfeited (79,295) 2.00 (15,350) 2.00 (28,835) 2.00
-------- -------- -------
Options outstanding at
end of year 810,125 2.00 888,320 2.05 989,465 2.15
======= ======= =======
Exercisable 294,815 2.00 452,785 2.00 735,252 2.14
======= ======= =======
</TABLE>
F-22
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE I (CONTINUED)
The following table summarizes information about stock options outstanding:
<TABLE>
<CAPTION>
Weighted Number
Number out- average Weighted exercisable Weighted
standing as of remaining average as of average
Range of January 31, contractual exercise January 31, exercise
exercise prices 1997 life price 1997 price
--------------- ----------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
$1.625 to
$2.875 989,465 6.5 $2.15 735,252 $2.14
</TABLE>
NOTE J - MAJOR VENDORS AND CUSTOMERS
For the years ended January 31, 1995, 1996 and 1997, the Company purchased
16%, 13% and 11%, respectively, of total purchases through one buying agent.
The Company believes that alternative foreign leather apparel manufacturers
are readily available and that the loss of any manufacturer or the buying
agent would not materially adversely affect the Company's operations.
For the year ended January 31, 1997, one customer accounted for 12.8% of the
Company's net sales. For the years ended January 31, 1995 and 1996, no
customer accounted for more than 10% of the Company's net sales. The Company
estimates an allowance for doubtful accounts based on the creditworthiness
of its customers as well as general economic conditions. Consequently, an
adverse change in those factors could affect the Company's estimate.
NOTE K - RELATED PARTY TRANSACTIONS
During the years ended January 31, 1995, 1996 and 1997, G-III leased space
from 345 West (Notes F and H). Operating expenses paid by G-III to
345 West during the years ended January 31, 1995, 1996 and 1997, amounted
to approximately $181,000, $173,000 and $182,000, respectively.
An executive and an outside director of the Company own approximately
a 20% and 3% equity interest respectively, on a fully diluted basis in
Wilson the Leather Experts Inc. ("Wilsons"), a customer of the Company of
which both are directors. During the year ended January 31, 1997, Wilsons
accounted for approximately $6,741,000 of the Company's net sales. Accounts
receivable from Wilsons at January 31, 1997 were approximately $775,000.
F-23
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE L - PENSION PLANS
The Company maintains a 401(k) profit-sharing plan and trust for nonunion
employees. The Company matches 50% of employee contributions up to 3% of the
participant's compensation. The Company's matching contributions amounted
to approximately $113,000, $108,000 and $120,000 for the years ended
January 31, 1995, 1996 and 1997, respectively.
G-III contributed approximately $67,000, $39,000 and $37,000 for the years
ended January 31, 1995, 1996 and 1997, respectively, to a multi-employer
pension plan for employees covered by a collective bargaining agreement.
This plan is not administered by G-III and contributions are determined in
accordance with the provisions of a negotiated labor contract. Information
with respect to G-III's proportionate share of the excess, if any, of the
actuarial computed value by vested benefits over the total of the pension
plan's new assets is not available from the plan's administrator.
NOTE M - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data in thousands except per share numbers
for the fiscal years ended January 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------
April 30, July 31, October 31, January 31,
1995 1995 1995 1996
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
January 31, 1996
Net sales $ 9,275 $36,032 $57,695 $18,661
Gross margin 663 9,594 12,237 1,400
Net income (loss) (3,035) 1,719 3,353 (2,434)
Net income (loss) per common share
Primary
Net income (loss) per share $(0.47) $0.27 $0.50 $(.38)
Fully diluted
Net income (loss) per share $(0.47) $0.27 $0.50 $(.38)
</TABLE>
F-24
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1995, 1996 and 1997
NOTE M (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1996 1996 1996 1997
--------- -------- ---------- -----------
<S> <C> <C> <C> <C>
JANUARY 31, 1997
NET SALES $5,063 $26,209 $65,348 $21,025
GROSS MARGIN 152 9,204 16,349 2,774
NET INCOME (LOSS) (3,440) 1,994 5,552 (1,020)
NET INCOME (LOSS) PER COMMON SHARE
PRIMARY
NET INCOME (LOSS) PER SHARE $(0.53) $0.30 $0.83 $(0.16)
FULLY DILUTED
NET INCOME (LOSS) PER SHARE $(0.53) $0.30 $0.83 $(0.16)
</TABLE>
In the fourth quarter of 1997, the Company recorded a deferred tax benefit
and tax benefits attributable to the utilization of state net operating loss
carryforwards in the amount of $812,000. Other fluctuations are primarily
the result of the seasonality of the Company's business.
NOTE N - FUTURE EFFECTS OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which is effective for
financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share together with disclosure of how the per share amounts
were computed. The effect of adopting this new standard has not been
determined.
F-25
<PAGE>
<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- --------- -------- --------- ---------
Additions
---------------------------
(1) (2)
Balance at Charged to Charged Balance at
beginning costs and to other Deductions end of
Description of period expenses accounts (a) period
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended January 31, 1995
Deducted from asset accounts
Allowance for doubtful accounts $1,364 $ 676 $1,255 $ 785
Allowance for sales discounts 820 3,105 2,855 1,070
------ ------- ------ ------
$2,184 $3,781 $4,110 $1,855
====== ======= ====== ======
Year ended January 31, 1996
Deducted from asset accounts
Allowance for doubtful accounts $ 785 $1,644 $ 717 $1,712
Allowance for sales discounts 1,070 2,556 2,569 1,057
------ ------- ------ ------
$1,855 $4,200 $3,286 $2,769
====== ======= ====== ======
YEAR ENDED JANUARY 31, 1997
DEDUCTED FROM ASSET ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS $1,712 $ 216 $ 34 $1,894
ALLOWANCE FOR SALES DISCOUNTS 1,057 2,222 2,479 800
------ ------- ------ ------
$2,769 $2,438 $2,513 $2,694
====== ======= ====== ======
</TABLE>
(a) Accounts written off as uncollectible, net of recoveries.
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as ................................'tm'
The section symbol shall be expressed as ..................................'SS'
<PAGE>
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
BET STUDIO LLC
a Delaware Limited Liability Company
Adopted as of April 11, 1997
<PAGE>
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
BET STUDIO LLC
A DELAWARE LIMITED LIABILITY COMPANY
This Limited Liability Company Agreement of BET STUDIO LLC, a Delaware
limited liability company (the "Company"), dated as of April 11, 1997 (this
"Agreement"), is entered into, executed and agreed to, for good and valuable
consideration, by and among the Members (as defined below).
WHEREAS, G-III Leather Fashions, Inc. ("G-III"), a New York corporation,
and Black Entertainment Television, Inc. ("BET"), a Delaware corporation, (G-III
and BET being referred to collectively as the "Parties") desire to form a joint
venture in the form of a Delaware Limited Liability Company to produce
BET-branded apparel and accessories that will cater to the African-American and
urban consumer.
NOW, THEREFORE, in consideration of the mutual promises of the Parties,
and of good and valuable consideration, the receipt of which are hereby
acknowledged, it is mutually agreed by and among the Parties as follows:
ARTICLE I
CONSTRUCTION AND DEFINITIONS
1.1 CONSTRUCTION. Words used in this Agreement, regardless of the number
or gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context shall require.
1.2 REFERENCES. As used in this Agreement, unless expressly stated
otherwise, references to "including" mean "including, without limitation."
Unless otherwise specified, all references in this Agreement to Articles,
Sections, Exhibits, Schedules or paragraphs, are deemed references to the
corresponding Articles, Sections, Exhibits, Schedules or paragraphs in this
Agreement.
1.3 HEADINGS. The headings of the Articles, Sections, Schedules and
Exhibits of this Agreement are included for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the construction or
interpretation hereof.
1.4 DEFINITIONS. Terms used herein, but not otherwise defined herein,
shall have the following meanings:
"Affiliate" means any Person that directly or indirectly controls, is
controlled by, or is under common control with any other Person. For the
purposes of this definition, "control" means the power to direct the management
and affairs of a Person or to vote 20 percent or more of securities or other
equity interests having ordinary voting power of a Person;
-1-
<PAGE>
<PAGE>
"Act" means the Delaware Limited Liability Company Act, 6 Del. C. 'SS'
18-101, et seq., and any successor statute, as amended from time to time;
"Agreement" has the meaning given that term in the introductory
paragraph hereof;
"Board of Managers" shall mean those representatives of the Parties
selected to manage the business and affairs of the Company (also referred to as
the "Board");
"Business Affairs Services" shall have the meaning given that term in
Section 7.1;
"Business Day" means any day other than a Saturday, a Sunday or a
holiday on which national banking associations in the State of New York
generally will not send wire transfers;
"Capital Account" shall have the meaning given that term in Section 4.5;
"Capital Contribution" means, with respect to any Member, the aggregate
amount of cash and the agreed fair market value or other binding obligations to
contribute cash or property or perform services or any other valuable
consideration, if any, transferred to the Company by such Member in accordance
with Article IV hereof.;
"Certificate" shall have the meaning given that term in Section 2.1;
"Code" means the Internal Revenue Code of 1986 and any successor
statute, as amended from time to time;
"Company" means BET STUDIO LLC, a Delaware limited liability company;
"Covered Person" means any Member, Manager, Affiliate of a Member, or
any officers, directors, shareholders, partners, employees, representatives,
advisors or agents of a Member or their respective Affiliates or any officers,
employees, representatives, advisors or agents of the Company;
"Default Interest Rate" means a rate per annum equal to the lesser of
(a) a varying rate per annum that is equal to the interest rate published by the
WALL STREET JOURNAL in its "Money Rates" (or equivalent) section from time to
time as the prime rate, with adjustments in that varying rate to be made on the
same date as the publication date of any change in that rate plus 2 percent, and
(b) the maximum rate permitted by applicable law;
"Dispose," "Disposing" or "Disposition" means a sale, assignment,
transfer, lease, exchange, or other disposition (including dispositions by
operation of law), or the acts thereof;
"Fiscal Year" means the period commencing on the date hereof and ending
on January 31, 1998, and each 12-month period thereafter;
-2-
<PAGE>
<PAGE>
"General Interest Rate" means a rate per annum equal to the lesser of
(a) a varying rate per annum that is equal to the interest rate published by the
WALL STREET JOURNAL in its "Money Rates" (or equivalent) section from time to
time as the prime rate, with adjustments in that varying rate to be made on the
same date as the effective date of any change in that rate, and (b) the maximum
rate permitted by applicable law;
"Investment" means any share purchase, capital contribution or loan to,
or advance (other than advances in the ordinary course of business) to, any
Person other than a Controlled Affiliate of the Company;
"Lending Member" shall have the meaning given that term in Section 4.4;
"Licensed Marks" shall have the meaning given the term in Section 2.5;
"Manager" shall mean any member of the Board of Managers;
"Member" means any Person who has been admitted to the Company as a
member in accordance with this Agreement, but does not include any Person who
has ceased to be a Member in the Company, or, if other than an individual, been
dissolved;
"Membership Interest" means the interest of a Member in the Company,
including its Capital Account and its rights to a share of the profits and
losses of the Company, to receive distributions (liquidating or otherwise),
information and the right to consent to or approve actions by the Company;
"Person" means any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company,
or other legal entity or organization;
"Products" shall have meaning given the term at Section 2.5;
"Securities Act" means the Securities Act of 1933, as amended;
"Sharing Ratio" with respect to any Member means the fraction (expressed
as a percentage), as set forth on Exhibit A opposite such Member's name;
"Third Person" means a Person other than a Member, or any of their
Affiliates;
"Treas. Reg." refers to those regulations promulgated by the U.S.
Department of the Treasury pursuant to authority of the Code or any revenue law
of the United States; and
"Unanimous Approval" means the unanimous approval or consent of all
Members or Managers.
-3-
<PAGE>
<PAGE>
ARTICLE II
ORGANIZATION
2.1 FORMATION. If not already accomplished before the date hereof, the
Members shall promptly file the Certificate of Formation (the "Certificate") in
accordance with the Act. The Members hereby agree to continue the Company as a
limited liability company under and pursuant to the Act and agree that the
rights, duties and liabilities of the Members shall be as provided in the Act,
except as otherwise provided herein.
2.2 QUALIFICATION IN OTHER JURISDICTIONS. The Board of Managers shall
cause the Company to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Company transacts business in which such qualification, formation or
registration is required or desirable. The Board of Managers shall execute,
deliver and file, or cause the execution, delivery or filing of, any
certificates (and any amendments or restatements thereof) necessary for the
Company to qualify to do business in a jurisdiction in which the Company may
wish to conduct business.
2.3 NAME. The name of the Company is "BET STUDIO LLC," and all Company
business may be conducted in that name or any other name that complies with
applicable law as the Board of Managers may select from time to time.
2.4 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE IN THE UNITED
STATES; OTHER OFFICES. The registered office of the Company and the name and
address of the registered agent of the Company in the State of Delaware required
by the Act shall be at c/o The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, DE 19801 or any other office (which need
not be a place of business of the Company) as the Board of Managers may
designate from time to time in the manner provided by law. The principal office
of the Company in the United States shall be at 345 West 37th Street, New York,
New York, or any such other place as the Board of Managers may designate from
time to time, which need not be in the State of Delaware, and the Company shall
maintain records there as required by the Act. The Company may have such other
offices as the Board of Managers may designate from time to time.
2.5 PURPOSES. The purposes for which the Company is organized are to,
including without limitation, manufacture, distribute and sell men's, women's
and children's apparel and accessories (the "Products") bearing the marks "Black
Entertainment Television," "BET" and other marks utilized by BET or its
affiliates (the "Licensed Marks"), or other marks developed by the Company, and
to transact any or all lawful business for which limited liability companies may
be organized under the Act.
2.6 TERM. The initial term of the Company commenced on April 10, 1997,
the date the Certificate was filed with the Secretary of State of the State of
Delaware and shall continue until April 11, 2007, unless (i) such term shall be
extended by mutual agreement of the Parties or (ii) the Company shall be
dissolved before such date in accordance with the provisions of this Agreement.
-4-
<PAGE>
<PAGE>
ARTICLE III
MEMBERS; MEMBERSHIP INTERESTS;
DISPOSITIONS OF MEMBERSHIP INTERESTS
3.1 MEMBERS. The Members of the Company are the entities set forth on
Exhibit A, each of which has, as of the date hereof, the Sharing Ratio and
Capital Account balance stated thereon.
3.2 RESTRICTIONS ON THE DISPOSITION OF A MEMBERSHIP INTEREST. No
Membership Interest may be disposed or transferred, in whole or part, unless the
terms and conditions of this Section 3.2 have been satisfied. Any disposition or
transfer or reported disposition or transfer not made in accordance with this
Section 3.2 will be null and void. Anything in this Agreement to the contrary
notwithstanding, no Person who is an assignee or transferee of a Membership
Interest shall be admitted to the Company as a substitute Member absent the
Unanimous Approval of the Board of Managers. Anything in this Agreement to the
contrary notwithstanding, no Member may dispose of one or more Membership
Interests or interests in his Sharing Ratio without the unanimous prior written
consent of the Board of Managers, which consent will be given in its sole and
absolute discretion.
ARTICLE IV
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
4.1 INITIAL CONTRIBUTIONS OF MEMBERS. Contemporaneously with the
execution of this Agreement, the Members shall make an initial Capital
Contribution as set forth on Exhibit A, and the Sharing Ratios and initial
Capital Contribution of the Members shall be as provided in Exhibit A.
4.2 ADDITIONAL CONTEMPLATED CONTRIBUTIONS. The Members agree to provide
additional Capital Contributions in an amount up to $1,000,000 each, at such
time or times on a pari passu basis as shall be determined by G-III, in
consultation with BET, in connection with G-III's provision of Business Affairs
Services (as hereinafter defined). Exhibit A shall be amended from time to time
to reflect any additional Capital Contributions made by the Members. Except as
set forth in this Section 4.2, no Member shall be required or permitted to make
any additional Capital Contributions unless approved by the Board.
4.3 RETURN OF CONTRIBUTIONS. A Member is not entitled to the return of
any part of its Capital Contributions or to be paid interest in respect of
either its Capital Account or its Capital Contributions.
4.4 OTHER OBLIGATIONS OF MEMBERS. Each Member agrees that it will cause
to be issued one or more letters of credit in an aggregate amount equal to 50%
of the amount determined by the Board to be necessary to support the business of
the Company. If the Company does not have sufficient cash to pay its
obligations, a Member ("Lending Member") that may agree to do so, with the
Unanimous Approval
-5-
<PAGE>
<PAGE>
of the Board of Managers, may advance all or part of the needed funds to or on
behalf of the Company. An advance described in this Section 4.4 constitutes a
loan from the Member to the Company, which shall bear interest at the General
Interest Rate from the date of the advance until the date of payment, shall
contain such other terms and conditions as approved by the Board and shall not
be deemed a Capital Contribution.
4.5 CAPITAL ACCOUNTS. A separate "Capital Account" (herein so called)
shall be maintained for each Member for the full term of the Agreement in
accordance with the capital accounting rules of Treas. Reg. 'SS'
1.704-1(b)(2)(iv). Each Member shall have only one Capital Account, regardless
of the number or classes of Membership Interests in the Company owned by such
Member and regardless of the time or manner in which such interests were
acquired by such Member. Pursuant to the basic rules of Treas. Reg. 'SS'
1.704-1(b)(2)(iv), the balance of each Member's Capital Account shall be:
(a) Increased by the amount of money contributed by such Member
(or such Member's predecessor-in-interest) to the capital of the Company
and decreased by the amount of money distributed to such Member (or such
Member's predecessor-in-interest);
(b) Increased by the fair market value (determined without regard
to Section 7701(g) of the Code) of each property contributed by such
Member (or such Member's predecessor-in-interest) to the capital of the
Company (net of liabilities secured by such property that the Company is
considered to assume or take subject to under Section 752 of the Code)
and decreased by the fair market value (determined without regard to
Section 7701(g) of the Code) of each property distributed to such Member
(or such Member's predecessor-in-interest) by the Company (net of
liabilities secured by such property that such Member is considered to
assume or take subject to under Section 752 of the Code);
(c) Increased by the amount of each item of Company profit
allocated to such Member (or such Member's predecessor-in-interest);
(d) Decreased by the amount of each item of Company loss
allocated to such Member (or such Member's predecessor-in-interest); and
(e) Otherwise adjusted in accordance with the other capital
account maintenance rules of Treas. Reg. 'SS' 1.704-1(b)(2)(iv).
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 ALLOCATIONS. (a) Except as otherwise provided herein or unless
another allocation is required by Section 704(b) of the Code and Treas. Reg. ss.
1.704-1(b) (including, but not limited to, minimum gain chargebacks, qualified
income offsets, and nonrecourse deductions), for purposes of determining the
Members' Capital Accounts, all items of income, gain, loss, deduction and credit
shall be allocated among the
-6-
<PAGE>
<PAGE>
Members pro rata in accordance with their Sharing Ratios in effect for the
period during which such items accrue. For purposes of computing the amount of
each item of income, gain, deduction or loss, the determination, recognition and
classification of such item shall be the same as its determination, recognition
and classification for federal income tax purposes, unless otherwise required by
Section 704(b) of the Code.
(b) Except to the extent such item is subject to allocation under
Section 704(c) of the Code or Section 704(c) principles as contemplated under
Section 704(b) of the Code, each item of income, gain, loss, deduction and
credit, as determined for federal and other income tax purposes, shall be
allocated in the same manner as such item was allocated under Section 5.1(a),
above.
(c) All items of income, gain, loss, deduction and credit allocable to
any Membership Interest that may have been transferred shall be allocated
between the transferor and the transferee based on the portion of the calendar
year during which each was recognized as owning that Membership Interest,
without regard to the results of Company operations during any particular
portion of that calendar year and without regard to whether cash distributions
were made to the transferor or the transferee during that calendar year;
provided, however, that this allocation must be made in accordance with a method
permissible under Section 706 of the Code and the regulations thereunder.
5.2 DISTRIBUTIONS. From time to time (but at least once each Fiscal
Year) the Board of Managers shall determine in its reasonable judgment to what
extent (if any) the Company's cash on hand exceeds its current and anticipated
needs, including for operating expenses, debt service, acquisitions and a
reasonable contingency reserve. If the Board of Managers determines that an
excess exists, the Board of Managers shall direct the Company to make a
distribution to the Members, in accordance with their Sharing Ratios, in an
amount in cash equal to that excess.
ARTICLE VI
MANAGEMENT
6.1. BOARD OF MANAGERS. (a) Except as provided in Article VII hereof,
the business and affairs of the Company shall be managed under the direction of
the Board of Managers (the "Board"), and the Board shall have all power and
authority to manage, and direct the management and the business and affairs of,
the Company. Any power not delegated pursuant to a policy of delegation adopted
by the Board shall remain with the Board. Approval by or action taken by the
Board in accordance with this Agreement shall constitute approval or action by
the Company and shall be binding on the Members.
(b) The Board shall at all times consist of six members
(individually referred to as a "Manager"), three of whom shall be appointed by
G-III and three of whom shall be appointed by BET. Each Manager shall serve
until the earlier of his replacement by election, resignation, removal, death,
or inability to serve. Any Manager may resign at any time upon written notice to
the Company. Vacancies on the Board
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shall be filled by the Member that appointed the Manager previously holding the
position which is then vacant. Appointment of a Manager by a Member shall be
effective upon receipt of notice by the Company.
(c) The Board shall be headed by two co-chairpersons, one
appointed by G-III and one appointed by BET. The initial co-chairpersons shall
be Morris Goldfarb and Robert L. Johnson.
6.2. NOTICE OF BOARD OF MANAGERS MEETINGS; LOCATION; WAIVER OF NOTICE.
Regular meetings of the Board shall be held at such times and places as may be
fixed by the Board. Special meetings of the Board may be called by the Company
upon seven days' prior written notice, which notice shall identify the purpose
of the special meeting and the business to be transacted; provided that the
failure to identify specifically an action to be taken or business to be
transacted shall not invalidate any action taken or any business transacted at a
special meeting. Notice of meetings may be waived before or after a meeting by a
written waiver of notice signed by the Manager entitled to notice. A Manager's
attendance at a meeting shall constitute waiver of notice unless the Manager
states at the beginning of the meeting his objection to the transaction of
business because the meeting was not lawfully called or convened. Meetings may
be held by telephone.
6.3. QUORUM; APPROVALS; PROXIES; WRITTEN ACTION. The presence in person
or by proxy of at least two Managers appointed by each Member shall constitute a
quorum for the transaction of business at a Board meeting. The unanimous vote of
all Managers present at a duly constituted meeting shall be required for the
Board to act and shall constitute approval by the Board. Each Member of the
Board may vote by delivering his proxy to another Manager. The Board may act
without a meeting if the action taken is approved in advance in writing by the
unanimous consent of all Managers. The Board shall cause written minutes to be
prepared of all action taken by the Board and shall cause a copy thereof to be
delivered to each Manager within 15 days thereafter.
6.4. AUTHORITY OF THE BOARD OF MANAGERS. Unless otherwise provided for
in this Agreement, the Board, by its own action or by action of a subcommittee
of the Board, but not by delegation to officers or other employees of the
Company, shall, in addition to any other power granted to it in this Agreement,
have the right, power and authority to take the following actions and no such
action will be taken without the Unanimous Approval of the Board:
(a) making overall policy decisions with respect to the business
and affairs of the Company;
(b) approving the annual budget and strategic plan for the
Company, and the annual marketing plan for the Company, and any material
amendments and supplements thereto;
(c) approving any contract, agreement and commitment with a value
in excess of $25,000 or a non-cancellable term longer than six (6)
months (or a
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group of related contracts, agreements and commitments with an aggregate
value in excess of $25,000);
(d) approving the choice of bank depositories, and approving
arrangements relating to signatories on bank accounts;
(e) approving the choice of the Company's attorneys, independent
accountants, and any other consultants, including but not limited to
market consultants, leasing agents, management agents, and advertising
and public relations agents, where it is contemplated that such
consultants will provide services with a value in excess of $25,000, or
for a period longer than six (6) months;
(f) approving all contracts that are proposed to be entered into
between the Company and any Member or affiliate of a Member, including
any lending arrangements between the Company and any Member;
(g) approving any change of the Company's fiscal year;
(h) approving all distributions to the Members;
(i) approving the conveyance, sale, transfer, assignment, pledge,
encumbrance, or disposal of, or the granting of a security interest in,
any assets of the Company;
(j) approving the conversion of the Company into another entity
or its merger or consolidation with another Person;
(k) approving the acquisition of any business or a business
division from any person whether by asset purchase, stock purchase,
merger or other business combination;
(l) approving the transfer of any assets of the Company, or any
interest therein, other than in the ordinary course of business, the
fair market value of which may reasonably be expected to exceed $10,000;
(m) the incurring of indebtedness by the Company or the loaning
of any sum or any other extension of credit, other than trade
receivables, by the Company to any Person in an amount in excess of
$10,000 or for a period in excess of six (6) months;
(n) the guarantee by the Company of any indebtedness of any other
person in any amount in excess of $10,000 or for a period in excess of
six (6) months, or the guarantee of any contractual obligations of any
other person with a value in excess of $10,000 or for a period in excess
of six (6) months;
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(o) the entrance by the Company into any real estate lease with a
value in excess of $10,000 or a term greater than six (6) months, or the
acquisition by the Company of any real estate with a value in excess of
$25,000;
(p) the authorization of any Member to act for or to assume any
obligation or responsibility on behalf of the Company;
(q) the employment, appointment and removal of any senior manager
of the Company who will be involved in the day to day management of the
business of the Company, and who will receive compensation in excess of
$100,000 per year;
(r) any other disbursement or expense in excess of $10,000 not in
the ordinary course of the Company's business;
(s) any change in accounting principles used by the Company,
except to the extent required by generally accepted accounting
principles;
(t) approving any tax elections of the Company; and
(u) the conduct of litigation to which the Company is a party.
6.5. SUBCOMMITTEES. The Board may designate one or more subcommittees.
Each subcommittee shall be composed of such number of Managers as the Board may
determine, including at least one Manager appointed by each Member. Any
subcommittee, to the extent provided by the Board, shall have and may exercise
all the power and authority of the Board. The provisions of Sections 6.2 and 6.3
shall apply to any meeting of any subcommittee of the Board, except that a
quorum shall only require the presence of at least one Manager appointed by each
Member.
6.6. NO INDIVIDUAL AUTHORITY. Except as otherwise expressly provided in
this Agreement, no Member, acting alone, shall have any authority to act for, or
undertake or assume any obligation or responsibility on behalf of, the other
Member or the Company.
6.7. OFFICERS. (a) The Board shall appoint and or hire the officers of
the Company. The officers shall report to the Board, manage the day-to-day
affairs of the Company, carry out the directions of the Board and effectuate the
business plan as set forth in the annual budget and strategic plan of the
Company.
(b) Duties and Powers of President- The president shall be the chief
executive officer of the Company, shall have general and active management of
the business of the Company and shall see that all orders and resolutions of the
Members and Board are carried into effect. The president shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the Company,
except where required or permitted by law to be otherwise signed and executed,
and except where the signing
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and execution thereof shall be expressly delegated by the Board to some other
officer or agent of the Company.
(c) Duties and Powers of Vice-Presidents - The executive vice-president
and any vice-presidents shall, in the absence or disability of the president,
perform the duties and exercise the powers of the president and shall perform
such other duties and have such other powers as the Board may from time to time
prescribe.
(d) Duties and Powers of Secretary - The secretary shall attend all
meetings of the Board and Members, and shall record all the proceedings of the
meetings in a book to be kept for that purpose. The secretary shall give, or
cause to be given, notice of all meetings of the Board and Members and special
meetings of the Board and Members, and shall perform such other duties as may be
prescribed by the Board or president, under whose supervision the secretary
shall be. The secretary shall have custody of the seal and the secretary shall
have authority to affix the same to any instrument requiring it and, when so
affixed, it may be attested by his or her signature. The Board may give general
authority to any other officer to affix the seal of the Company and to attest
the affixing by his or her signature.
(e) Duties and Powers of Treasurer - The treasurer shall have the
custody of the funds and securities of the Company, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company, and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
President or Board. The treasurer shall disburse the funds of the Company as may
be ordered by the President or Board, taking proper vouchers for such
disbursements, and shall render to the president an account of all his or her
transactions as treasurer and of the financial condition of the Company.
(f) The Board shall unanimously approve of and appoint a president,
treasurer, a secretary, and a vice president with such duties as may be
established by the Board and established herein.
6.8. BANK ACCOUNTS. The Company shall maintain bank accounts in such
banks as the Board may designate exclusively for the deposit and disbursement of
all funds of the Company. All funds of the Company shall be promptly deposited
in such accounts. The Board from time to time shall authorize signatories for
such accounts.
ARTICLE VII
CERTAIN RESPONSIBILITIES OF THE PARTIES
7.1 MANAGEMENT SERVICES PROVIDED BY G-III. (a) G-III shall be
responsible for managing the business affairs of the Company. In managing the
business affairs of the Company, G-III shall be required to: (i) provide all
accounting, credit, collections, accounts payable, accounts receivable, cash
management, systems administration, management information systems, human
resources, import/export and other "back office" services (collectively, the
"Business Affairs Services") required by the Company;
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and (ii) make available such G-III personnel as shall be reasonably necessary to
provide the Business Affairs Services.
(b) G-III is entitled to receive a fee (the "Management Fee") from the
Company in an amount equal to six percent (6%) of the net sales (determined in
accordance with generally accepted accounting principles) of the Company for
providing the Business Affairs Services; provided, however, that if the
Allocable Expenses (as hereinafter defined) in connection with G-III's providing
the Business Affairs Services to the Company during any Annual Period (as
hereinafter defined) during the term of this Agreement shall be an amount less
than six percent (6%) of net sales during such Annual Period, G-III shall repay
such deficiency to the Company within thirty days of the determination of such
amount. For the purposes of this Section 7.1, (i) "Allocable Expenses" shall be
based on G-III's costs for providing Business Affairs Services to all of its
divisions, including the Company, and the Allocable Expenses to the Company
shall be determined in accordance with G-III's accounting and allocation
procedures utilized in preparing internal financial statements for G-III's
divisions and (ii) "Annual Period" shall mean the period from the date hereof
through January 31, 1999 and each twelve-month period thereafter; provided,
however, that if this Agreement terminates on a date other than January 31, the
final Annual Period shall end on such date of termination. The Company shall pay
the Management Fee to G-III on a quarterly basis within thirty (30) days after
the end of each fiscal quarter of the Company based on the net sales of the
Company for that quarter.
7.2 DISTRIBUTION SERVICES PROVIDED BY G-III. G-III shall be responsible
for distributing the Products of the Company.
7.3 LICENSE FROM BET. BET shall grant to the Company an exclusive
license to manufacture and distribute Products utilizing the Licensed Marks.
ARTICLE VIII
LIABILITY AND EXCULPATION
8.1 LIABILITY. Except as otherwise provided by the Act, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or
otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Covered Person shall be obligated personally for any such debt,
obligation or liability of the Company solely by reason of being a Covered
Person.
8.2 EXCULPATION.
(a) No Covered Person shall be liable to the Company or any other
Covered Person under any theory of law, including tort, contract or
otherwise, including a Covered Person's own negligence, for any loss,
damage or claim incurred by reason of any act or omission (including
decisions to vote for or against any matter) performed or omitted by
such Covered Person in good faith on behalf of the Company and in a
manner reasonably believed to be within the scope of authority conferred
on such Covered Person by this Agreement, except
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that a Covered Person shall be liable for any such loss, damage or claim
incurred by reason of such Covered Person's gross negligence or willful
misconduct.
(b) A Covered Person shall be fully protected in relying in good
faith upon the records of the Company and upon such information,
opinions, reports or statements presented to the Company by any Person
as to matters the Covered Person reasonably believes are within such
other Person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Company, including
information, opinions, reports or statements as to the value and amount
of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which distributions
to Members might properly be paid.
8.3 DUTIES AND LIABILITIES OF COVERED PERSONS.
(a) To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto to
the Company or to any other Covered Person arising under this Agreement,
a Covered Person acting under this Agreement shall not be liable to the
Company or to any other Covered Person for actions (including decisions
to vote for or against any matter) taken by it in good faith reliance on
the provisions of this Agreement. The provisions of this Agreement, to
the extent that they restrict the duties and liabilities of a Covered
Person otherwise existing at law or in equity, are agreed by the parties
hereto to replace such other duties and liabilities of such Covered
Person.
(b) Unless otherwise expressly provided herein, (i) whenever a
conflict of interest exists or arises between Covered Persons, or (ii)
whenever this Agreement or any other agreement contemplated herein or
therein provides that a Covered Person shall act in a manner that is, or
provides terms that are, fair and reasonable to the Company or any
Member, the Covered Person shall disclose such conflict or action to the
Board and shall resolve such conflict of interest (subject to any Member
or Board approvals required pursuant to this Agreement), taking such
action or providing such terms, considering in each case the relative
interest of each party (including its own interest) to such conflict,
agreement, transaction or situation and the benefits and burdens
relating to such interests, any customary or accepted industry
practices, and any applicable generally accepted accounting practices or
principles. In the absence of bad faith by the Covered Person, the
resolution, action or term so made, taken or provided by the Covered
Person shall not constitute a breach of this Agreement or any other
agreement contemplated herein or of any duty or obligation of the
Covered Person at law or in equity or otherwise.
(c) Whenever in this Agreement a Covered Person is permitted or
required to make a decision (i) in its "discretion" or under a grant of
similar authority or latitude, the Covered Person shall be entitled to
consider only such interests and factors as it desires, including its
own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting
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the Company or any other Person, or (ii) in its "good faith" or under
another express standard, the Covered Person shall act under such
express standard and shall not be subject to any other or different
standard imposed by this Agreement or other applicable law.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION. To the fullest extent permitted by applicable law,
a Covered Person shall be entitled to indemnification from the Company for any
loss, damage or claim incurred by such Covered Person (i) by reason of any act
or omission performed or omitted by such Covered Person in good faith on behalf
of the Company and in a manner reasonably believed to be within the scope of
authority conferred on such Covered Person by this Agreement or (ii) by reason
of being a Member, a Manager, an Affiliate of a Member, an officer, director,
shareholder, partner, employee, representative, advisor or agent of a Member or
its Affiliate, or an officer, employee, representative, advisor or agent of the
Company, except that no Covered Person shall be entitled to be indemnified in
respect of any loss, damage or claim incurred by such Covered Person by reason
of gross negligence, willful misconduct or breach of fiduciary duty with respect
to such acts or omissions; provided, however, that any indemnity under this
Section 9.1 shall be provided out of and to the extent of Company assets only,
and no Covered Person shall have any personal liability on account thereof.
9.2 EXPENSES. To the fullest extent permitted by applicable law,
expenses (including legal fees) incurred by a Covered Person in defending any
claim, demand, action, suit or proceeding for which indemnity is sought under
this Agreement shall, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Company of an undertaking by or on behalf of the Covered Person to repay
such amount if it shall be determined that the Covered Person is not entitled to
be indemnified as authorized in Section 9.1 hereof.
9.3 INSURANCE. The Company may purchase and maintain insurance, to the
extent and in such amounts as the Board shall deem reasonable, on behalf of
Covered Persons and such other Persons as the Board shall determine, against any
liability that may be asserted against or expenses that may be incurred by any
such Person in connection with the activities of the Company or such
indemnities, regardless of whether the Company would have the power to indemnify
such Person against such liability under the provisions of this Agreement. The
Company may enter into indemnity contracts with Covered Persons and adopt
written procedures pursuant to which arrangements are made for the advancement
of expenses and the funding of obligations under Section 9.2 hereof and
containing such other procedures regarding indemnification as are appropriate.
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ARTICLE X
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
10.1 BOOKS, RECORDS AND FINANCIAL STATEMENTS. At all times during the
continuance of the Company, the Company shall maintain, at its principal place
of business, or at some other location chosen by the Board, such records as are
required under the Act, under this Agreement or by the Board in its sole and
absolute discretion. Such records of the Company, together with a copy of this
Agreement and of the Certificate, shall at all times be maintained at the
principal place of business of the Company or some other location chosen by the
Board and shall be open to inspection and examination at reasonable times by
each Member and its duly authorized representative for any purpose reasonably
related to such Member's interest as a Member of the Company.
10.2 AUDITING AND DISCREPANCIES.
(a) From time to time, any Member may, at its own cost and
expense, audit, or employ certified public accountants to audit, the
books and records of the Company. In addition, BET shall have the right
to audit the determination of Allocable Expenses to the Company. Any
such audit shall be conducted on at least five (5) business days' notice
during normal business hours of the Company and shall be conducted to
minimize any interference with the Company's or G-III's business
operations.
(b) The auditors of the Company (the "Auditors") shall be chosen
by the Board.
10.3 ACCOUNTS. The Company shall establish and maintain one or more
separate bank and investment accounts and arrangements for Company funds in the
Company name with financial institutions and firms that the Board determines.
The Company's funds shall not be commingled with the funds of any Member;
however, Company funds may be invested in a manner the same as or similar to the
Members' investment of their own funds or investments by their Affiliates.
ARTICLE XI
EARLY TERMINATION OF THIS AGREEMENT
11.1 TERMINATION OF EITHER PARTY. If the Company shall report a net loss
(as determined by the Auditors in accordance with generally accepted accounting
principles consistently applied), with respect to its Fiscal Year ending January
31, 2001, either BET or G-III shall have the right to terminate this Agreement
and dissolve the Company on six months' notice given to the other Party no later
than July 31, 2001.
11.2 TERMINATION BY BET. BET shall have the right to terminate this
Agreement as of January 31, 2002 on at least six months' notice to G-III. If BET
shall so elect to terminate this Agreement, it shall pay to G-III no later than
April 30, 2002 an amount equal to the product of (a) .501, (b) ten (10) and (c)
the income before taxes
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of the Company for the fiscal year ending January 31, 2002 as determined by the
Auditors in accordance with generally accepted accounting principles
consistently applied.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 DISSOLUTION. The Company shall dissolve and its affairs shall be
wound up on the first to occur of the following:
(a) the expiration of the term of the Company, as provided in
Section 2.6 hereof;
(b) a termination of this Agreement pursuant to Article XI
hereof;
(c) entry of a decree of judicial dissolution of the Company
under Section 18-802 of the Act;
(d) complete liquidation or dissolution of any Member, but, in
the case of such complete liquidation or dissolution, such liquidated
and dissolved, Member shall remain fully and entirely liable to the
Company and any other Member for any and all of the liabilities of such
liquidated and dissolved Member; and
(e) an event requiring dissolution under the Act.
12.2 LIQUIDATION. On dissolution of the Company, the Members shall
designate a person to act as a liquidator. The liquidator shall proceed
diligently to wind up the affairs of the Company and make final distributions as
provided herein and in the Act. The costs of liquidation shall be borne as a
Company expense. Until final distribution, the liquidator shall continue to
operate and manage the Company properties with all of the power and authority of
the Board and the Members. The steps to be accomplished by the liquidator are as
follows:
(a) as promptly as possible after dissolution and again after
final liquidation, the liquidator shall cause a proper accounting to be
made by a recognized firm of certified public accountants of the
Company's assets, liabilities, and operations through the last day of
the calendar month in which the dissolution occurs or the final
liquidation is completed, as applicable;
(b) the liquidator shall cause any notice required by the Act to
be mailed to each known creditor of and claimant against the Company;
(c) the liquidator shall pay, satisfy or discharge from Company
funds all of the debts, liabilities and obligations of the Company
(including all expenses incurred in liquidation and any advances
described in Section 4.4 or otherwise make adequate provision for
payment and discharge thereof (including the
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establishment of a cash escrow fund for contingent liabilities in such
amount and for such term as the liquidator may reasonably determine);
and
(d) all remaining assets of the Company shall be distributed to
the Members as follows:
(i) the liquidator may sell any or all Company property,
including to Members, and any resulting gain or loss from each
sale shall be computed and allocated to the Capital Accounts of
the Members;
(ii) with respect to all Company property that has not
been sold, the fair market value of that property shall be
determined and the Capital Accounts of the Members shall be
adjusted to reflect the manner in which the unrealized income,
gain, loss and deduction inherent in property that has not been
reflected in the Capital Accounts previously would be allocated
among the Members if there were a taxable disposition of that
property for the fair market value of that property on the date
of distribution; and
(iii) Company property shall be distributed among the
Members in accordance with the positive Capital Account balances
of the Members, as determined after taking into account all
Capital Account adjustments for the Fiscal Year during which the
liquidation of the Company occurs (other than those made by
reason of this Section 12.2(d)(iii)); and those distributions
shall be made by the end of the Fiscal Year during which the
liquidation of the Company occurs (or, if later, 90 days after
the date of the liquidation).
All distributions in kind to the Members shall be made subject to the liability
of each distributee for costs, expenses and liabilities theretofore incurred or
for which the Company has committed prior to the date of termination and those
costs, expenses and liabilities shall be allocated to the distributee pursuant
to this Section 12.2.
12.3 DEFICIT CAPITAL ACCOUNTS. Notwithstanding anything to the contrary
contained in this Agreement, no Member shall be required to restore to the
Company or pay to any other Member any deficit that may exist in the Capital
Account of such Member upon dissolution and liquidation of the Company.
ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES.
(a) Any notice, request, instruction or other document to be
given hereunder by a Person to the another Person shall be in writing
and delivered personally, via facsimile transmission (with receipt
confirmed), by recognized courier service (with receipt confirmed), or
by registered or certified United
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States mail, postage prepaid to the addresses of the Members set forth
on Exhibit A or at the other address for the Person as shall be
specified by like notice. Any notice that is delivered personally in the
manner provided herein shall be deemed to have been duly given to the
party to whom it is directed upon actual receipt by the party (or its
agent for notices hereunder). Any notice that is addressed and mailed in
the manner herein provided shall be conclusively presumed to have been
duly given to the party to which it is addressed at the close of
business, local time of the recipient, on the tenth day after the day it
is so placed in the mail. Any notice that is sent by facsimile
transmission shall be deemed to have been duly given to the party to
which it is addressed upon telephonic confirmation of the same as
provided herein or upon confirmation of receipt by facsimile
retransmission of such notice, or a written statement acknowledging
receipt. Any notice that is sent by recognized courier service shall be
deemed to have been duly given to the party to which it is addressed
upon confirmation of delivery in writing by the delivery service.
[shorten this]
(b) Whenever any notice is required to be given by law or this
Agreement, a written waiver thereof, signed by the Person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
13.2 REPRESENTATIONS AND WARRANTIES OF THE MEMBERS. Each of the Members
hereby represents and warrants as follows:
(a) it is duly organized and validly existing in good standing
under the laws of its state of incorporation and it has taken all
required action to authorize the execution, delivery and performance of
this Agreement;
(b) it has the full right, power and authority to enter into this
Agreement and perform all its obligations hereunder; and
(c) upon execution and delivery, this Agreement will constitute
such Member's legal, valid and binding obligation enforceable against
such Member in accordance with its terms, except as the enforceability
of such terms may be limited by bankruptcy, insolvency, moratorium or
other laws relating to or affecting creditors' rights generally or by
the exercise of judicial discretion in accordance with general equitable
principles.
13.3 AMENDMENT OR MODIFICATION. This Agreement may be amended or
modified from time to time only by a written instrument executed by a Majority.
13.4 BINDING EFFECT. This Agreement is binding on and inures to the
benefit of the Members and their respective legal representatives, successors
and assigns.
13.5 GOVERNING LAW; SEVERABILITY. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE,
EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE
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GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER
JURISDICTION.
13.6 FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
13.7 WAIVER OF CERTAIN RIGHTS. Each Member irrevocably waives any right
it may have to maintain any action for dissolution of the Company or for
partition of the property of the Company.
13.8 CONFIDENTIALITY. Any dissemination of confidential information or
any disclosure or announcements public or private regarding the existence or
terms of this Agreement is subject to approval of both parties except that
either Party may disclose such information or make a public announcement (with
prior notice to the other party) if required by a valid, binding and
non-appealable court order or applicable securities laws.
13.9 NOTICE TO MEMBERS OF PROVISIONS OF THIS AGREEMENT. By executing
this Agreement, each Member acknowledges that it has actual notice of (a) all of
the provisions of this Agreement, including the restrictions on the transfer of
Membership Interests set forth in Article III, and (b) all of the provisions of
the Certificate. Each Member hereby agrees that this Agreement constitutes
adequate notice of all such provisions.
13.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all signing parties had signed the same
document. All counterparts shall be construed together and constitute the same
instrument.
13.11 ENTIRE AGREEMENT. Except for the Licensing Agreement, this
instrument contains all of the understandings and agreements of whatsoever kind
and nature existing between the parties hereto with respect to this Agreement
and the rights, interests, understandings, agreements and obligations of the
respective parties pertaining to the Company.
13.12 ARBITRATION. Any controversy, dispute or claim arising out of or
relating to any issue related to the provisions of this Agreement, which
include, but are not limited to, the determination of Allocable Expenses to the
Company and the determination of any amount payable to G-III pursuant to Section
11.2, shall be submitted to binding and final arbitration before a single
arbitrator of the American Arbitration Association ("AAA") in New York, New
York. Each party shall bear the fees and expenses of any counsel, accountant or
other experts or advisors which it retains, except that all fees and expenses of
the AAA and its arbitrator, and all fees and expenses incurred in the
arbitration proceeding at the direction of the arbitrator, shall be borne
equally by the parties.
-19-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Members have executed this Agreement as
of the date first set forth above.
MEMBERS:
G-III LEATHER FASHIONS, INC.
___________________________________
Morris Goldfarb
Chief Executive Officer
BLACK ENTERTAINMENT TELEVISION,
INC.
___________________________________
Robert L. Johnson
Chairman, Founder and
Chief Executive Officer
-20-
<PAGE>
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
CAPITAL SHARING
CONTRIBUTION RATIO
------------ -----
<S> <C> <C>
G-III Leather Fashions, Inc. $1,000,000 50.1%
512 Seventh Avenue
New York, New York 10018
Attention: Morris Goldfarb
Fax No.: 212-719-0971
Black Entertainment Television, Inc. $1,000,000 49.9%
One BET Plaza
1900 W. Place NE
Washington, DC 20018
Attention: Robert Johnson
Fax No.: 202-608-2504
Total $2,000,000 100%
========== ====
</TABLE>
-21-
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 14, 1997 accompanying the consolidated
financial statements included in the Annual Report of G-III Apparel Group, Ltd.
on Form 10-K for the year ended January 31, 1997. We hereby consent to the
incorporation by reference of said report in the Registration Statement of G-III
Apparel Group, Ltd. on Form S-8 (Registration Nos. 33-45460; 33-45461; 33-81066)
and to the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
New York, New York
April 14, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> JAN-31-1996 JAN-31-1997
<PERIOD-START> FEB-1-1995 FEB-1-1996
<PERIOD-END> JAN-31-1996 JAN-31-1997
<PERIOD-TYPE> 12-MOS 12-MOS
<CASH> 7,617 13,067
<SECURITIES> 0 0
<RECEIVABLES> 11,784 9,870
<ALLOWANCES> (2,769) (2,694)
<INVENTORY> 14,207 13,986
<CURRENT-ASSETS> 32,289 35,198
<PP&E> 12,770 12,641
<DEPRECIATION> 6,446 (7,611)
<TOTAL-ASSETS> 41,257 44,555
<CURRENT-LIABILITIES> 10,065 10,701
<BONDS> 0 0
<COMMON> 65 65
0 0
0 0
<OTHER-SE> 29,651 32,760
<TOTAL-LIABILITY-AND-EQUITY> 41,257 44,555
<SALES> 121,663 117,845
<TOTAL-REVENUES> 121,663 117,645
<CGS> 97,769 89,166
<TOTAL-COSTS> 97,769 89,166
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,433 2,075
<INCOME-PRETAX> (308) 3,971
<INCOME-TAX> 89 885
<INCOME-CONTINUING> (397) 3,088
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (397) 3,088
<EPS-PRIMARY> 0.06 0.46
<EPS-DILUTED> (0.08) 0.45
<PAGE>
