<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number: 0-18823
UNIVERSAL INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0776502
--------- ----------
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5000 Winnetka Avenue North, New Hope, Minnesota 55428
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612) 533-1169
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
--------- ---------
On November 10, 1997 there were 4,893,328 shares of the registrant's $.05 par
value Common Stock outstanding.
1
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
INDEX
PART I FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations
for the three and nine months ended
September 30, 1997 and 1996................................. 3
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996.................... 4
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1997 and 1996............................................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition............... 7
PART II OTHER INFORMATION................................................ 13
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $15,208 $20,842 $56,646 $55,908
Cost of goods sold 8,886 12,655 36,342 35,311
------ ------ ------ ------
Gross margin 6,322 8,187 20,304 20,597
Selling, general and
administrative expenses 10,669 8,790 29,673 23,940
------ ------ ------ ------
Operating loss (4,347) (603) (9,369) (3,343)
Other income (expense):
Miscellaneous income
(expense), net (22) 18 (37) 20
Interest expense (332) (390) (965) (875)
------ ------ ------ ------
(354) (372) (1,002) (855)
------ ------ ------ ------
Loss before non-controlling
interest in subsidiary
and equity in net loss
of joint venture (4,701) (975) (10,371) (4,198)
Non-controlling interest in
subsidiary's net loss - - - 496
------ ------ ------ ------
Loss before equity in net
loss of joint venture (4,701) (975) (10,371) (3,702)
Equity in net loss of
joint venture (600) - (600) -
------ ------ ------ ------
Net loss $(5,301) $ (975) $(10,971) $(3,702)
------ ------ ------ ------
------ ------ ------ ------
Net loss per common share $ (1.08) $ (.20) $ (2.24) $ (.76)
------ ------ ------ ------
------ ------ ------ ------
Weighted average number of
common shares outstanding 4,893 4,893 4,893 4,893
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
See accompanying notes to unaudited
consolidated financial statements
3
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash $ 347 $ 521
Accounts receivable, less
allowance for doubtful
accounts of $621 for 1997
and $200 for 1996 811 3,707
Inventories 22,866 26,458
Other current assets 1,244 1,313
Deferred income taxes 666 666
------- -------
Total current assets 25,934 32,665
Equipment and improvements, net 8,933 10,056
Other assets, net 142 152
------- -------
Total assets $35,009 $42,873
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit
agreement $11,421 $ 7,791
Current portion of long-term debt 637 556
Accounts payable 12,919 12,606
Accrued expenses 2,208 3,008
------- -------
Total current liabilities 27,185 23,961
Deferred income taxes 693 693
Long-term debt, less current portion 1,614 1,731
------- -------
Total liabilities 29,492 26,385
------- -------
Shareholders' equity:
Common stock, $.05 par value,
75,000 shares authorized;
4,893 shares issued and
outstanding 245 245
Additional paid-in capital 22,917 22,917
Accumulated deficit (17,645) (6,674)
------- -------
Total shareholders'equity 5,517 16,488
------- -------
Total liabilities and
shareholders' equity $35,009 $42,873
------- -------
------- -------
</TABLE>
See accompanying notes to unaudited
consolidated financial statements
4
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (In thousands)
Nine months ended
September 30,
---------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net loss $(10,971) $(3,702)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation and amortization 1,175 825
Provision for losses on accounts
receivable 575 108
Provision for inventory obsolescence
and shrinkage 784 830
Reserve for store closings 218 -
Non-controlling interest in
subsidiary's net loss - (496)
Changes in operating assets and
liabilities:
Accounts receivable 2,321 (2,253)
Inventories 2,808 (5,736)
Other current assets 69 (545)
Accounts payable 313 975
Other current liabilities (1,018) (1,022)
------ -------
Net cash used by operating
activities (3,726) (11,016)
------ -------
Cash flows from investing activities:
Additions to equipment and
improvements (42) (3,482)
------ -------
Net cash used by investing
activities (42) (3,482)
------ -------
Cash flows from financing activities:
Net change in borrowings under
revolving credit agreements 3,630 13,812
Proceeds from long-term debt 1,872 635
Payments of long-term debt (1,908) (422)
------ -------
Net cash provided by financing
activities 3,594 14,025
------ -------
Net decrease in cash (174) (473)
Cash, beginning of period 521 811
------ -------
Cash, end of period $ 347 $ 338
------ -------
------ -------
See accompanying notes to unaudited
consolidated financial statements
5
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements included in this Form 10-Q have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial
statements and related notes included in the Company's 1996 Form 10-K.
The financial statements presented herein as of September 30, 1997 and for
the three and nine months then ended reflect, in the opinion of
management, all adjustments necessary, consisting of normal recurring
items, for a fair presentation of financial position and the results of
operations for the periods presented. The results of operations for any
interim period are not necessarily indicative of results for the full
year.
2. Revolving Credit Agreement
During the third quarter of 1997, the Company obtained a seasonal increase
in its revolving credit agreement from $14 million to $16.75 million
through December 31, 1997. In addition, the lender waived compliance by
the Company of its consolidated tangible net worth covenant through
December 31, 1997.
3. Subsequent Events:
Subsequent to September 30, 1997, Only Deals acquired 8 stores in Texas
from Perry Brothers, Inc. These stores were opened in October 1997. The
Company does not intend to open any new Only Deals stores during the
remainder of 1997.
On November 11, 1997, the Company entered into a definitive stock purchase
agreement with 99 Cents Only Stores, subject to customary closing
conditions. 99 Cents Only Stores agreed to acquire 4.5 million newly
issued shares of the Company's common stock for $4 million, $2 million in
cash and $2 million in merchandise credits. The closing is scheduled for
November 17, 1997.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Universal International, Inc. ("Universal" or the "Company") buys and sells
quality "close-out" merchandise at the wholesale level (see "Liquidity and
Capital Resources" with respect to downsizing of wholesale operations). The
Company, through its wholly owned subsidiary, Only Deals, Inc. ("Only Deals"),
owns and operates 49 retail stores offering close-out merchandise in 8 states
in the Upper Midwest. In addition, the Company opened 8 Only Deals stores in
Texas during October 1997. The Company has decided to close 5 Only Deals
stores and has reserved $218,000 related primarily to the net book value of
leasehold improvements for these store closings. The Company, through its
40.5% ownership of Odd's-N-End's, Inc. ("Odd's-N-End's"), also operates 22
close-out retail stores in New York State. The Company's wholesale and retail
operations sell consumer goods in a variety of categories including toys, food,
health and beauty aids, housewares, and many others. In addition, the
Company's 95% owned subsidiary, Universal Asset-Based Services, Inc. ("Asset-
Based Services"), which commenced operations in April 1996, provides inventory
valuation and liquidation services to a wide range of financial institutions,
retailers and manufacturers.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as
"may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology. There
are certain important factors that could cause results to differ materially
from those anticipated by some of these forward-looking statements. Investors
are cautioned that all forward-looking statements involve risks and
uncertainty. The factors, among others, that could cause actual results to
differ materially include: the Company's ability to execute its business plans,
continuity of a relationship with or purchases from major vendors, competitive
pressures on sales and pricing, increases in other costs which cannot be
recovered through improved pricing of merchandise, and the adverse effect of
weather conditions on retail sales.
7
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's statement of operations expressed as a percentage of net sales.
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
Net sales.................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......... 58.4 60.7 64.2 63.2
----- ----- ----- -----
Gross margin............... 41.6 39.3 35.8 36.8
Selling, general and
administrative expenses... 70.2 42.2 52.3 42.8
----- ----- ----- -----
Loss from operations... (28.6)% (2.9)% (16.5)% (6.0)%
----- ----- ----- -----
----- ----- ----- -----
The following table sets forth, for the periods indicated, certain
information relating to the Company's operations.
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- Increase --------------------- Increase
1997 1996 (Decrease) Percent 1997 1996 (Decrease) Percent
---------------------- ---------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales:
Wholesale $ 375 $7,016 $(6,641) (94.7%) $14,100 $19,982 $(5,882) (29.4%)
Retail:
Only Deals 9,331 8,585 746 8.7% 27,166 20,980 6,186 29.5%
Odd's-N-End's 5,237 4,876 361 7.4% 14,594 14,402 192 1.3%
Gross Margin:
Wholesale (4) 1,876 (1,880) (100.2%) 1,034 4,635 (3,601) (77.7%)
Retail:
Only Deals 3,868 3,784 84 2.2% 12,020 9,149 2,871 31.4%
Odd's-N-End's(1) 2,193 2,162 31 1.4% 6,464 6,269 195 3.1%
Selling, General and
Administrative Expenses:
Wholesale 1,225 1,719 (494) (28.7%) 5,176 5,257 (81) (1.5%)
Retail:
Only Deals 6,778 4,837 1,941 40.1% 17,171 11,979 5,192 43.3%
Odd's-N-End's 2,440 1,964 476 24.2% 6,559 6,249 310 5.0%
</TABLE>
(1) Excludes impact of intercompany profit under the supply agreement with
Universal, which has been eliminated in consolidation.
8
<PAGE>
NET SALES
Net sales for the third quarter and nine months ended September 30, 1997
decreased by $5,634,000 or 27.0% and increased by $738,000 or 1.3%,
respectively, from the corresponding periods last year. Wholesale sales
during the first nine months of 1997 decreased due to the downsizing of
wholesale operations (see "Liquidity and Capital Resources"). Wholesale
sales decreased significantly in the third quarter of 1997 as wholesale
inventory levels declined substantially. Management expects wholesale sales
will be insignificant during the fourth quarter of 1997 as the downsizing is
completed.
Net sales by Only Deals increased primarily due to the full year performance
from the addition of 20 new stores during the first nine months of 1996,
including 11 during the third quarter of 1996. At September 30, 1997, the
Company had 49 Only Deals retail stores in operation (including five stores
reserved for closing) compared to 49 (including one store reserved for
closing) at September 30, 1996. In addition, net sales by Only Deals and
Odd's-N-End's for the third quarter of 1997 increased due to aggressive
advertising and improvements in merchandise mix and inventory levels. Net
sales for Only Deals and Odd's-N-End's during the second quarter of 1997 were
negatively impacted by supply disruptions that occurred prior to the closing
of the new credit facility. Although sales increased during the third
quarter of 1997, the supply disruptions continued to negatively impact third
quarter sales.
Net sales for Asset-Based Services were $265,000 and $786,000 during the
quarter and nine months ended September 30, 1997, respectively, compared to
$365,000 and $544,000 during the quarter and nine months ended September 30,
1996. Asset-Based Services commenced operations during the second quarter of
1996.
GROSS MARGIN
Gross margin decreased $1,865,000 or 22.8% for the third quarter of 1997 and
decreased $293,000 or 1.4% for the nine months ended September 30, 1997.
Wholesale gross margin was -1.1% and 7.3% of sales for the quarter and nine
months ended September 30, 1997, respectively, compared to 26.7% and 23.2%
for the corresponding periods of 1996. The substantial decrease in wholesale
gross margin is directly related to selling merchandise at lower margins to
substantially reduce wholesale inventories due to the downsizing of wholesale
operations (see "Liquidity and Capital Resources").
Gross margin for Only Deals increased primarily due to increased sales. Gross
margin for Only Deals as a percent of sales was 41.5% and 44.2% for the quarter
and nine months ended September 30, 1997 compared to 44.1% and 43.6% for the
quarter and nine months ended September 30, 1996, respectively. Gross margin
for Odd's-N-End's for the third quarter of 1997 decreased as a percent of sales
from
9
<PAGE>
44.3% to 41.9%, excluding the impact of intercompany profit under the supply
agreement with Universal. Gross margin for Odd's-N-End's as a percent of
sales increased to 44.3% for the first nine months of 1997 compared to 43.5%
for the same period of the prior year. The decrease in retail gross margin
during the third quarter of 1997 was due to increased promotional pricing and
due to the lack of higher margin import merchandise as a result of supply
disruptions. The increase in retail gross margin for the first nine months
of 1997 was primarily due to reduced markdowns of seasonal merchandise in the
first quarter of 1997 compared to the first quarter of 1996. In addition,
the Company's change in merchandise mix has resulted in lower product costs
and improved margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter and nine months
ended September 30, 1997 increased by $1,879,000 or 21.4% and $5,733,000 or
23.9%, respectively, from the corresponding periods of 1996. This increase
primarily resulted from the significant increase in retail operations, which
incur much higher operating costs than wholesale operations. The increase in
selling, general and administrative expenses as a percent of sales in the
wholesale business from 26.3% to 36.7% for the first nine months was due to
increased costs incurred during downsizing of wholesale operations and costs
to transition out of the prior credit facility.
Selling, general and administrative expenses increased to 72.6% and 63.2% of
sales for Only Deals for the third quarter and first nine months of 1997,
respectively, as compared to 56.3% and 57.1% for the same periods last year.
The increases resulted primarily from increased advertising costs, increased
store closing reserve, and increased distribution costs related to the
buildup of retail inventories during the third quarter of 1997.
Selling, general and administrative expenses increased to 46.6% and 44.9% of
sales for Odd's-N-End's for the third quarter and first nine months of 1997,
respectively, as compared to 40.3% and 43.4% for the same periods last year.
The increases resulted primarily from increased advertising costs and from
higher hourly wages in 1997. These increases were partially offset by
decreases due to the elimination of certain corporate overhead costs
associated with the Buffalo, New York corporate offices and warehouse, which
was sold during the third quarter of 1996.
Selling, general and administrative expenses for Asset-Based Services were
$226,000 and $767,000 for the quarter and nine months ended September 30,
1997, respectively, compared to $270,000 and $455,000 for the same periods of
1996.
10
<PAGE>
EQUITY IN NET LOSS OF JOINT VENTURE
During 1996, Asset-Based Services entered into an agreement whereby it became
a 50% partner in a joint venture (the "Joint Venture") formed for the purpose
of liquidating the inventories from 110 stores of an unaffiliated retail
chain. During the third quarter of 1997, the Company recorded $600,000 of
equity in net loss of the Joint Venture, its proportionate share of the Joint
Venture's net loss. The additional losses were incurred as a result of the
Joint Venture's inability to liquidate its remaining inventory in an ordinary
fashion through the Perry Brothers, Inc. stores prior to Perry Brothers going
out of business during the third quarter of 1997. Management believes that
the equity in net income (loss) of the Joint Venture subsequent to September
30, 1997, will not be significant.
NET LOSS
The Company incurred a net loss of $5.3 million and $11.0 million during the
third quarter and first nine months of 1997, respectively, compared to a net
loss of $1.0 million and $3.7 million during the corresponding periods of
1996. The net loss in the third quarter and first nine months of 1997 was
primarily the result of reduced wholesale gross margins, costs incurred in
downsizing the wholesale business, costs incurred to transition out of the
prior credit facility, lower than anticipated net sales in the retail
business as a result of supply disruptions, the high cost of promotional
pricing to maintain sales levels despite the supply disruptions, and equity
in net loss of the Joint Venture.
LIQUIDITY AND CAPITAL RESOURCES
In June 1997 the Company entered into a borrowing arrangement with a new
lender which replaced the previous credit line and the then existing
Odd's-N-End's bank notes payable of $1.3 million. Under the new revolving
credit agreement, as amended, the Company may borrow up to $16.75 million
through December 31, 1997 and up to $14 million thereafter against a
borrowing base derived from the level of qualifying accounts receivable and
inventory. The agreement expires in June 1999, but may be automatically
renewed each year thereafter at the option of both the lender and the
Company. Borrowings under the agreement are collateralized by substantially
all assets of the Company, and outstanding borrowings bear interest at prime
plus 2% (the prime rate at September 30, 1997 was 8.5%). The Company also
obtained $1.9 million of term loan financing from the new lender, which is
included in the total line limit. The term note is payable in 48 equal
monthly installments plus interest at prime plus 2% and is collateralized by
the Company's equipment and fixtures. The amount available at September 30,
1997, based on the borrowing base, was $16.75 million, of which there were
outstanding borrowings of $11.4 million, outstanding borrowings on the
fixture loan of $1.8 million, and outstanding letters of credit of $2.65
million.
11
<PAGE>
The Company is in the process of substantially reducing the wholesale
inventories and restructuring and downsizing wholesale operations to focus
more Company resources on retail operations. Management anticipates that the
downsizing of wholesale operations will be completed by December 31, 1997.
Management expects that reduced sales from the downsizing of wholesale
operations will be substantially offset by increased sales from retail
operations for 1997 due to 21 Only Deals stores in operation for all of 1997
versus a partial year in 1996. Management believes that the new credit
facility and term loan, combined with the proceeds from the issuance of the
common stock discussed below, will be sufficient to satisfy the Company's
planned operating requirements for the foreseeable future.
Net cash used by operating activities was $3.7 million for the nine months
ended September 30, 1997 principally due to an $11.0 million net loss, a $2.8
million decrease in inventories, and a $2.3 million decrease in accounts
receivable. Payments of long-term debt totaling $1.9 million and the $3.7
million net cash used by operating activities were funded primarily by
proceeds from the $1.9 million term loan and by a $3.6 million increase in
borrowings under the revolving credit facility.
The Company has an agreement which, as amended, provides for advances of up
to $10.0 million to Odd's-N-End's, collateralized by substantially all assets
of Odd's-N-End's, with interest payable at prime plus 2.5%. There were
advances totaling $9.1 million under this agreement as of September 30, 1997
compared to $4.2 million at September 30, 1996.
Subsequent to September 30, 1997, Only Deals acquired 8 stores in Texas from
Perry Brothers, Inc. These stores were opened in October 1997. The Company
does not intend to open any new Only Deals stores during the remainder of
1997.
On November 11, 1997, the Company entered into a definitive stock purchase
agreement with 99 Cents Only Stores, subject to customary closing conditions.
99 Cents Only Stores agreed to acquire 4.5 million newly issued shares of
the Company's common stock for $4 million, $2 million in cash and $2 million
in merchandise credits. The closing is scheduled for November 17, 1997.
12
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On November 11, 1997, the Company entered into a definitive stock
purchase agreement with 99 Cents Only Stores, subject to customary
closing conditions. 99 Cents Only Stores agreed to acquire 4.5
million newly issued shares (the "Shares") of the Company's common
stock for $4 million, $2 million in cash and $2 million in
merchandise credits. The closing is scheduled for November 17,
1997.
These shares will represent 48% of the issued and outstanding
shares of the Company's common stock upon issuance. This sale was
made in reliance on Section 4(2) of the Securities Act of 1933, as
amended for transactions not involving a public offering. In
connection with this transaction, the Company entered into a
Registration Rights Agreement providing 99 Cents Only Stores with
demand and piggyback registration rights for the Shares. Further,
99 Cents Only Stores and Mark H. Ravich entered into a Shareholders
Agreement with respect to nomination and voting of members of the
Company's Board of Directors. Among other things, so long as 99
Cents Only Stores holds at least 20% of the Shares, 99 Cents Only
Stores shall have the right to designate such number of members to
the Company's board of directors as shall constitute one member
less than a majority of the directors.
Item 3. Defaults Upon Senior Securities.
None.
13
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting on July 22, 1997 in
Minneapolis, Minnesota. The Company solicited proxies and filed
definitive proxy statements with the Commission pursuant to
Regulation 14A. The matters voted upon at that meeting and the
votes cast were as follows:
Proposal Vote
-------- -------------------
Withhold
For Authority
--- ---------
(1) The election of the
following people to the
Board of Directors:
Norman J. Ravich 4,254,840 187,075
Mark H. Ravich 4,269,440 172,475
Wesley J. Laseski 4,268,140 173,775
Ernest M. Simon 4,280,140 161,775
Stanford A. Weiner 4,280,140 161,775
(2) Ratification of the
appointment of Coopers
& Lybrand L.L.P. as the
Company's independent
auditors for fiscal year
ending December 31, 1997
Vote
------------------------------------
For Against Abstain
--- ------- -------
4,392,285 31,850 0
Item 5. Other information.
In connection with the Stock Purchase Agreement (see Item 2), 99
Cents Only Stores has the right to nominate persons to the Company's
board of directors. Although no such persons have been nominated as
of the date hereof, the Company anticipates that such persons will be
identified shortly.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS
--------
Exhibit 10.14.2 First Amendment to Loan and Security
Agreement between the Company and Coast
Business Credit dated September 25, 1997.
(b) REPORTS ON FORM 8-K
-------------------
(i) The Company filed a Form 8-k dated September
9, 1997 relating to an organizational restructuring.
(ii) The Company filed a Form 8-k dated October 24, 1997 relating
to the proposed transaction with 99 Cents Only Stores.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL INTERNATIONAL, INC.
DATE: November 14, 1997 By: /s/ Mark H. Ravich
------------------------------
Mark H. Ravich
Chief Executive Officer
(principal financial
officer)
16
<PAGE>
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "AMENDMENT"),
dated as of September 25, 1997, is entered into between COAST BUSINESS CREDIT, a
division of Southern Pacific Thrift & Loan Association, a California corporation
("LENDER"), with a place of business at 12121 Wilshire Boulevard, Suite 1111,
Los Angeles, California 90025, and UNIVERSAL INTERNATIONAL, INC., a Minnesota
corporation ("UNIVERSAL"), ONLY DEALS, INC., a Minnesota corporation ("ODI"),
and UNIVERSAL ASSET-BASED SERVICES, INC., a Minnesota corporation ("UAS",
together with Universal and ODI, each, a "BORROWER" and collectively,
"BORROWERS"), each with its chief executive office located at 5000 Winnetka
Avenue North, New Hope, Minnesota 55428.
RECITAL
A. Borrowers and Lender have previously entered into that certain Loan
and Security Agreement dated as of June 6, 1997 (the "LOAN AGREEMENT"), and
pursuant to which Lender has made certain loans and financial accommodations
available to Borrowers. Terms used herein without definition shall have the
meanings ascribed to them in the Loan Agreement.
B. Borrowers have requested Lender to (i) amend the Loan Agreement to
temporarily increase the amount of the Total Facility under the Loan Agreement
to Sixteen Million Seven Hundred Fifty Thousand Dollars ($16,750,000) during the
period commencing September 25, 1997 and ending December 31, 1997 and (ii) waive
compliance with the financial covenant pertaining to the Consolidated Tangible
Net Worth of Borrowers and ONE during the period from July 1, 1997 through
December 31, 1997.
C. Lender is willing to make such amendment and waive such financial
covenant under the terms and conditions set forth in this Amendment. Borrowers
are entering into this Amendment with the understanding and agreement that,
except as specifically provided herein, none of Lender's rights or remedies as
set forth in the Loan Agreement is being waived or modified by the terms of this
Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
<PAGE>
1. AMENDMENT TO LOAN AGREEMENT.
(a) The first sentence of Section 1 of the Schedule to the Loan
Agreement is hereby amended to read in its entirety as follows:
"Loans in a total amount at any time outstanding not to exceed
FOURTEEN MILLION DOLLARS ($14,000,000) (the "Maximum Dollar Amount")
(except during the period commencing September 25, 1997 and ending
December 31, 1997, the Maximum Dollar Amount shall equal SIXTEEN
MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($16,750,000)),
consisting of Revolving Loans and the Fixed Asset Term Loan."
(b) The introductory provision of Section 1(A) of the Schedule to the
Loan Agreement is hereby amended to read in its entirety as follows:
"A revolving line of credit ("Revolving Loans") in a total amount at
any time outstanding not to exceed the lesser of (i) the Maximum
Dollar Amount less an amount equal to the then undrawn amounts of the
outstanding Letters of Credit issued to or on behalf of Universal and
the aggregate outstanding principal amount of the Fixed Asset Term
Loan, or (ii) the sum of (a) through (d) below, to be advanced to
Universal as provided in subsections (1), (2), (3) and (4) below:"
2. WAIVER OF FINANCIAL COVENANT. Borrowers hereby acknowledge that, as
of July 1, 1997, Borrowers were not in compliance with the financial covenant
relating to the Consolidated Tangible Net Worth of Borrowers and ONE set forth
in Item 6 under "Additional Covenants" in Section 7 of the Schedule and that
such non-compliance constitutes an Event of Default under the Loan Agreement.
Lender hereby waives compliance by Borrowers with such Tangible Net Worth
covenant for the period commencing July 1, 1997 and ending December 31, 1997,
and shall not exercise its rights and remedies under the Loan Agreement or
applicable law in respect of such Event of Default; PROVIDED, HOWEVER, that
Lender shall be free to exercise all of its rights and remedies under the Loan
Agreement in the event of Borrowers' violation or breach after December 31, 1997
of the Consolidated Tangible Net Worth covenant of Borrowers and ONE. The
foregoing waiver is not a continuing waiver, and Lender does not by this waiver
amend the terms and provisions of the Loan Agreement. Upon the occurrence of
any Event of Default after the date hereof, or in the event that Lender learns
of any Event of Default which occurred prior to the date hereof (other than a
breach of the covenant described above in this paragraph), Lender shall be free
to exercise any and all of its various rights and remedies under the Loan
Agreement.
3. EFFECTIVENESS OF THIS AMENDMENT. Lender must have received the
following items, in form and content acceptable to Lender, before this Amendment
is effective and before Lender is required to extend any credit to Borrowers as
provided for by this Amendment. The date on which all of the following
conditions have been satisfied is the "CLOSING DATE".
2
<PAGE>
(a) AMENDMENT. This Amendment fully executed in a sufficient number
of counterparts for distribution to Lender and each Borrower.
(b) AUTHORIZATIONS. Evidence that the execution, delivery and
performance by each Borrower and each guarantor or subordinating creditor
of this Amendment and any instrument or agreement required under this
Amendment have been duly authorized.
(c) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in the Loan Agreement must be true and correct.
(d) CONSENTS. Lender has received counterparts of the Consent
appended hereto (the "CONSENT") executed by ONE (ONE, together with the
Borrowers, each a "LOAN PARTY" and, collectively, the "LOAN PARTIES").
(e) OTHER REQUIRED DOCUMENTATION. All other documents and legal
matters in connection with the transactions contemplated by this Amendment
shall have been delivered or executed or recorded and shall be in form and
substance satisfactory to Lender.
(f) PAYMENT OF MODIFICATION FEE. Lender shall have received from
Borrowers a modification fee of Fifty Thousand Dollars ($50,000) for the
processing and approval of this Amendment.
4. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and
warrants as follows:
(a) AUTHORITY. Each Loan Party has the requisite corporate power and
authority to execute and deliver this Amendment or the Consent, as
applicable, and to perform its obligations hereunder and under the Loan
Agreement and any notes, guarantees, security agreements and other
agreements, documents and instruments executed and/or delivered by a Loan
Party in connection with the Loan Agreement (collectively with the Loan
Agreement, the "LOAN DOCUMENTS") (as amended or modified hereby) to which
it is a party. The execution, delivery and performance each Borrower of
this Amendment and by ONE of the Consent, and the performance by each Loan
Party of each Loan Document (as amended or modified hereby) to which it is
a party have been duly approved by all necessary corporate action of such
Loan Party and no other corporate proceedings on the part of such Loan
Party are necessary to consummate such transactions.
(b) ENFORCEABILITY. This Amendment has been duly executed and
delivered by each Borrower. The Consent has been duly executed and
delivered by ONE. This Amendment and each Loan Document (as amended or
modified hereby) is the legal, valid and binding obligation of each Loan
Party hereto or thereto, enforceable against such Loan Party in accordance
with its terms, and is in full force and effect.
3
<PAGE>
(c) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically made
as of a date other than the date hereof) are correct on and as of the date
hereof as though made on and as of the date hereof.
(d) NO DEFAULT. No event has occurred and is continuing that
constitutes an Event of Default.
5. CHOICE OF LAW. The validity of this Amendment, its construction,
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the internal
laws of the State of California governing contracts only to be performed in that
State.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment or the Consent by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Amendment or such Consent.
7. DUE EXECUTION. The execution, delivery and performance of this
Amendment are within the power of each Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on such Borrower.
8. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon and after the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof"
or words of like import referring to the Loan Agreement, and each reference
in the other Loan Documents to "the Loan Agreement", "thereof" or words of
like import referring to the Loan Agreement, shall mean and be a reference
to the Loan Agreement as modified and amended hereby.
(b) Except as specifically amended above, the Loan Agreement and all
other Loan Documents, are and shall continue to be in full force and effect
and are hereby in all respects ratified and confirmed and shall constitute
the legal, valid, binding and enforceable obligations of each Borrower to
Lender.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of Lender under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.
(d) To the extent that any terms and conditions in any of the Loan
Documents shall contradict or be in conflict with any terms or conditions
of the Loan Agreement, after giving effect to this Amendment, such terms
and conditions are
4
<PAGE>
hereby deemed modified or amended accordingly to reflect the terms and
conditions of the Loan Agreement as modified or amended hereby.
9. RATIFICATION. Each Borrower hereby restates, ratifies and reaffirms
each and every term and condition set forth in the Loan Agreement, as amended
hereby, and the Loan Documents effective as of the date hereof.
10. ESTOPPEL. To induce Lender to enter into this Amendment and to
continue to make advances to Borrowers under the Loan Agreement, each Borrower
hereby acknowledges and agrees that, after giving effect to this Amendment, as
of the date hereof, there exists no Event of Default and no right of offset,
defense, counterclaim or objection in favor of such Borrower as against Lender
with respect to the Obligations.
5
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.
"BORROWERS"
UNIVERSAL INTERNATIONAL, INC.,
a Minnesota corporation
By: /s/ Mark H. Ravich
------------------------------------
Title: CEO
---------------------------------
ONLY DEALS, INC.,
a Minnesota corporation
By: /s/ Mark H. Ravich
------------------------------------
Title: Chairman
---------------------------------
UNIVERSAL ASSET-BASED
SERVICES, INC.,
a Minnesota corporation
By: /s/ Mark H. Ravich
------------------------------------
Title: Chairman
---------------------------------
"LENDER"
COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan
Association, a California corporation
By: /s/ John Andrews
------------------------------------
Title: Vice President
---------------------------------
6
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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