<PAGE>
================================================================================
UNITED STATES
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 May 4, 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 1-11752
ST. JOHN KNITS, INC.
(Exact Name of Registrant as Specified in its Charter)
California 95-2245070
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification Number)
17422 Derian Avenue, Irvine, California 92614
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (714) 863-1171
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 [_]
The number of outstanding shares of registrant's Common Stock, no par value, was
16,611,730 shares as of June 4, 1997.
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ST. JOHN KNITS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 4, November 3,
1997 1996
------------ ------------
<S> <C> <C>
(unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents............................................. $ 12,423,104 $ 6,186,057
Investments........................................................... 4,351,914 4,222,516
Accounts receivable, net.............................................. 27,624,184 28,093,606
Inventories........................................................... 23,870,005 23,619,054
Deferred income tax benefit........................................... 5,493,961 5,493,961
Other................................................................. 1,641,641 1,269,382
------------ ------------
Total current assets............................................. 75,404,809 68,884,576
------------ ------------
Property and equipment:
Machinery and equipment............................................... 32,124,516 29,930,228
Leasehold improvements................................................ 23,139,029 22,636,537
Buildings............................................................. 11,590,350 --
Furniture and fixtures................................................ 5,111,037 4,427,249
Land.................................................................. 3,461,103 3,461,103
Construction in progress.............................................. 1,178,632 6,797,018
------------ ------------
76,604,667 67,252,135
Less--Accumulated depreciation and amortization....................... 25,106,638 23,351,904
------------ ------------
51,498,029 43,900,231
------------ ------------
Other assets............................................................ 3,084,320 3,709,316
------------ ------------
$129,987,158 $116,494,123
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable...................................................... $ 5,642,914 $ 5,404,401
Accrued expenses...................................................... 9,241,076 11,508,469
Income taxes payable.................................................. 2,153,645 2,344,000
------------ ------------
Total current liabilities.......................................... 17,037,635 19,256,870
------------ ------------
Deferred income tax liability......................................... 143,941 143,941
------------ ------------
Shareholders' equity:
Preferred Stock, no par value: Authorized--2,000,000 shares, issued
and outstanding--none............................................... -- --
Common Stock, no par value: Authorized--40,000,000 shares, issued
and outstanding--16,611,730 and 16,599,064 shares, respectively..... 502,799 502,799
Additional paid-in capital............................................ 18,370,759 18,085,151
Retained earnings..................................................... 93,932,024 78,505,362
------------ ------------
112,805,582 97,093,312
------------ ------------
$129,987,158 $116,494,123
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------- ---------------------------
May 4, April 28, May 4, April 28,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales...................................... $59,562,531 $50,028,466 $115,737,826 $95,287,195
Cost of sales.................................. 23,691,678 22,388,015 48,111,388 43,069,603
----------- ----------- ------------ -----------
Gross profit................................... 35,870,853 27,640,451 67,626,438 52,217,592
Selling, general and administrative expenses... 21,034,471 16,150,521 40,444,987 31,508,618
----------- ----------- ------------ -----------
Operating income............................... 14,836,382 11,489,930 27,181,451 20,708,974
Other income................................... 248,299 235,616 454,711 845,320
----------- ----------- ------------ -----------
Income before income taxes..................... 15,084,681 11,725,546 27,636,162 21,554,294
Income taxes................................... 6,211,119 4,941,554 11,379,189 9,083,731
----------- ----------- ------------ -----------
Net income..................................... $ 8,873,562 $ 6,783,992 $ 16,256,973 $12,470,563
=========== =========== ============ ===========
Net income per share........................... $ 0.52 $ 0.40 $ 0.95 $ 0.73
=========== =========== ============ ===========
Dividends per share............................ $ 0.025 $ 0.025 $ 0.05 $ 0.05
=========== =========== ============ ===========
Weighted average shares outstanding............ 17,129,632 17,052,284 17,132,697 17,050,624
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
3
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
------------------------------
May 4, 1997 April 28, 1996
------------ --------------
<S> <C> <C>
(unaudited)
Cash flows from operating activities:
Net income....................................................... $ 16,256,973 $ 12,470,563
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 4,351,630 3,274,492
Deferred income tax benefit..................................... -- --
(Gain) loss on sale of property and equipment................... (10,034) 17,820
Partnership losses.............................................. 176,093 54,897
(Increase) decrease in accounts receivable...................... 469,422 (11,362)
Increase in inventories......................................... (250,950) (1,138,114)
Increase in other current assets................................ (372,259) (197,390)
(Increase) decrease in other assets............................. 211,734 (233,048)
Increase (decrease) in accounts payable......................... 238,513 (620,038)
Increase (decrease) in accrued expenses......................... (1,852,417) 1,424,316
Decrease in income taxes payable................................ (190,355) (991,904)
------------ --------------
Net cash provided by operating activities.................... 19,028,350 14,050,232
------------ --------------
Cash flows from investing activities:
Proceeds from sale of property and equipment.................... 222,932 --
Purchase of property and equipment.............................. (11,964,158) (9,544,987)
Net purchase of short term investments.......................... (129,398) (102,492)
Net capital (contributions to) distributions from partnership... 39,000 (686,261)
------------ --------------
Net cash used in investing activities........................ (11,831,624) (10,333,740)
------------ --------------
Cash flows from financing activities:
Dividends paid.................................................. (1,245,287) (823,553)
Issuance of common stock........................................ 285,608 207,385
------------ --------------
Net cash used in financing activities........................ (959,679) (616,168)
------------ --------------
Net increase in cash and cash equivalents......................... 6,237,047 3,100,324
Beginning balance, cash and cash equivalents...................... 6,186,057 8,711,613
------------ --------------
Ending balance, cash and cash equivalents......................... $ 12,423,104 $ 11,811,937
============= ===============
Supplemental disclosures of cash flow information:
Cash received during the twenty-six weeks for interest
income...................................................... $ 408,795 $ 406,555
============= ===============
Cash paid during the twenty-six weeks for:
Interest expense............................................. $ 9,375 $ --
============= ===============
Income taxes................................................. $ 11,391,597 $ 9,983,750
============= ===============
</TABLE>
See accompanying notes.
4
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of St. John
Knits, Inc. and its subsidiaries (collectively referred to herein as "the
Company") reflect all adjustments (which include only normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods presented.
It is suggested that the accompanying unaudited consolidated financial
statements and footnotes thereto be read in conjunction with the financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended November 3, 1996 as filed with the Securities and Exchange
Commission on January 31, 1997.
The results of operations for the periods presented are not necessarily
indicative of the operating results that may be expected for the year ending
November 2, 1997.
2. Summary of Accounting Policies
a. Company Operations
The Company is a leading designer, manufacturer and marketer of women's
clothing and accessories. The Company's products are distributed primarily
through specialty retailers and Company owned retail boutiques. All
intercompany and interdivisional transactions and accounts have been eliminated.
b. Definition of Fiscal Year
The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends
on the Sunday nearest to October 31. The quarters also end on the Sunday
nearest the end of the quarter, which accordingly were May 4, 1997 and April 28,
1996.
3. Dividends
The Company declared a quarterly dividend of $0.025 per share on February
28, 1997 for all shareholders of record on March 26, 1997. The dividend was
paid on April 25, 1997. On June 2, 1997, the Company declared another quarterly
cash dividend of $0.025 per share to be paid on July 29, 1997 to shareholders of
record on June 30, 1997.
4. Earnings Per Share
Earnings per share for the thirteen and twenty-six week periods ended May
4, 1997 and April 28, 1996 were calculated based on the weighted average number
of common and equivalent shares outstanding during the periods. Equivalent
shares were determined by using the treasury stock method, which assumes that
all dilutive securities were exercised and that the proceeds received were
applied to repurchase outstanding shares at the average market price during the
period.
5
<PAGE>
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted by the Company on
November 1, 1998. At that time, the Company will be required to change the
method used to compute earnings per share and to restate all prior periods
presented. Under the new requirements, primary earnings per share will be
replaced with basic earnings per share. Basic earnings per share excludes the
dilutive effect of common stock equivalents, including stock options. Had
earnings per share been calculated under the provisions of the new standard,
basic earnings per share would have increased to $0.53 and $0.98 for the
thirteen and twenty-six week periods ended May 4, 1997, respectively, and to
$0.41 and $0.75 for the thirteen and twenty-six week periods ended April 28,
1996, respectively. Diluted earnings per share would remain the same as net
income per share as reflected in the accompanying Consolidated Statements of
Income.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table is derived from the Company's Consolidated Statements
of Income and sets forth, for the periods indicated, the results of operations
as a percentage of net sales:
<TABLE>
<CAPTION>
Percent of Net Sales Percent of Net Sales
Thirteen Weeks Ended Twenty-Six Weeks Ended
("Second Quarter") ("Six Months")
-------------------- -----------------------
May 4, April 28, May 4, April 28,
1997 1996 1997 1996
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 39.8 44.8 41.6 45.2
-------- -------- ---------- ----------
Gross profit................................... 60.2 55.2 58.4 54.8
Selling, general and administrative expenses... 35.3 32.3 34.9 33.1
-------- -------- ---------- ----------
Operating income............................... 24.9 22.9 23.5 21.7
Other income................................... 0.4 0.5 0.4 0.9
-------- -------- ---------- ----------
Income before income taxes..................... 25.3 23.4 23.9 22.6
Income taxes................................... 10.4 9.8 9.8 9.5
-------- -------- ---------- ----------
Net income..................................... 14.9% 13.6% 14.1% 13.1%
======== ======== ========== ==========
</TABLE>
7
<PAGE>
Second Quarter Fiscal 1997 Compared to Second Quarter Fiscal 1996
Net sales for the second quarter of fiscal 1997 increased by $9,534,000, or
19.1% over the second quarter of fiscal 1996. This increase was principally
attributable to (i) an increase in sales to existing domestic retail customers
of approximately $5,062,000, (ii) an increase in sales by Company owned retail
stores of approximately $3,892,000, due in part to the addition of one retail
boutique and two retail outlet stores since the beginning of the second quarter
of fiscal 1996 and (iii) an increase in sales to international retail customers
of $580,000. Net sales increased primarily as a result of increased unit sales
of various products lines.
Gross profit for the second quarter of fiscal 1997 increased by $8,230,000,
or 29.8% as compared with the second quarter of fiscal 1996, and increased as a
percentage of net sales to 60.2% from 55.2%. This increase in the gross profit
margin was due to an increase in the number of garments being produced and sold
without a corresponding increase in the production costs, due in part to the
fixed nature of some costs.
Selling, general and administrative expenses for the second quarter of
fiscal 1997 increased by $4,884,000, or 30.2% over the second quarter of fiscal
1996, and increased as a percentage of net sales to 35.3% from 32.3%. These
increases were primarily due to (i) an increase in corporate legal expense
related to the protection of the Company's trademarks, (ii) an increase in
salaries due to the Company's continued effort to build its sales and marketing
team, (iii) an increase in sample expenses incurred due to the extension of the
Company's product lines, (iv) an increase in costs associated with the lease of
the new airplane and (v) an increase in expenses for the Retail Division related
to the opening of the Beverly Hills boutique during the second quarter of fiscal
1996 and the expansion of the New York boutique which occurred after the second
quarter of fiscal 1996.
Operating income for the second quarter of fiscal 1997 increased by
$3,346,000, or 29.1% over the second quarter of fiscal 1996. Operating income as
percentage of net sales increased to 24.9% from 23.0% during the same period.
This increase in the operating income as a percentage of net sales was due to
the increase in the gross profit margin which was partially offset by the
increase in selling, general and administrative expenses as a percentage of net
sales.
First Six Months Fiscal 1997 Compared to First Six Months Fiscal 1996
Net sales for the first six months of fiscal 1997 increased by $20,451,000,
or 21.5% over the first six months of fiscal 1996. This increase was principally
attributable to (i) an increase in sales to existing domestic retail customers
of approximately $12,464,000, (ii) an increase in sales by Company owned retail
stores of approximately $6,996,000, due in part to the addition of one retail
boutique and two retail outlet stores since the beginning of fiscal 1996 and
(iii) an increase in sales to international retail customers of $991,000. Net
sales increased primarily as a result of increased unit sales of various product
lines.
Gross profit for the first six months of fiscal 1997 increased by
$15,409,000, or 29.5% as compared with the first six months of fiscal 1996, and
increased as a percentage of net sales to 58.4% from 54.8%. This increase in the
gross profit margin was due to an increase in the number of garments being
produced and sold without a corresponding increase in the production costs, due
in part to the fixed nature of some costs.
8
<PAGE>
Selling, general and administrative expenses for the first six months of
fiscal 1997 increased by $8,936,000, or 28.4% over the first six months of
fiscal 1996, and increased as a percentage of net sales to 34.9% from 33.1%.
These increases were primarily due to (i) an increase in sample expenses
incurred due to the extension of the Company's product lines, (ii) an increase
in corporate legal expense related to the protection of the Company's
trademarks, (iii) an increase in costs associated with the lease of the new
airplane, (iv) an increase in salaries due to the Company's continued effort to
build its sales and marketing team and (v) an increase in expenses for the
Retail Division related to the opening of the Beverly Hills boutique during the
second quarter of fiscal 1996 and the expansion of the New York boutique which
occurred after the second quarter of fiscal 1996.
Operating income for the first six months of fiscal 1997 increased by
$6,472,000, or 31.3% over the first six months of fiscal 1996. Operating income
as percentage of net sales increased to 23.5% from 21.7% during the same period.
This increase in the operating income as a percentage of net sales was due to
the increase in the gross profit margin which was partially offset by the
increase in selling, general and administrative expenses as a percentage of net
sales.
Other income for the first six months of fiscal 1997 decreased by $391,000
as compared with the first six months of fiscal 1996. This decrease was
primarily due to the receipt of a workers' compensation insurance dividend of
$316,000 during the first quarter of fiscal 1996, which related to the policy
period ended December 31, 1994.
Liquidity and Capital Resources
The Company's primary cash requirements are to fund the Company's working
capital needs, primarily inventory and accounts receivable, and for the purchase
of property and equipment. During the first six months of fiscal 1997, cash
provided by operating activities was $19,028,000. Cash provided by operating
activities was primarily generated by net income and depreciation and
amortization while cash used in operating activities was primarily used to fund
the decrease in accrued expenses. Cash used in investing activities was
$11,832,000 during the first six months of fiscal 1997. The principal use of
cash in investing activities was for the construction of the new design center,
the purchase of 15 computerized knitting machines and the construction of
improvements for the new manufacturing facility in Los Angeles.
The Company anticipates purchasing property and equipment of approximately
$5,000,000 during the remainder of fiscal 1997. The estimated $5,000,000 will be
used principally for upgrades to the Company's computer systems, construction of
a building and the related improvements for a new manufacturing facility in San
Diego, California and the construction of leasehold improvements for a new
boutique location in Dallas.
As of May 4, 1997, the Company had approximately $58,367,000 in working
capital and $16,775,000 in cash and marketable securities. The Company's
principal source of liquidity is internally generated funds. The Company also
has a $25,000,000 bank line of credit ("Line of Credit") which expires on March
1, 1999. The Line of Credit is unsecured and borrowings thereunder bear interest
at the Company's choice of the bank's reference rate or an offshore rate plus
1.5%. As of May 4, 1997, no amounts were outstanding under the Line of Credit.
The Company invests its excess funds primarily in a money market fund,
investment grade commercial paper, adjustable rate tax deferred municipal
obligations collateralized by letters of credit issued by financial institutions
and tax exempt municipal bonds.
9
<PAGE>
The Company believes it will be able to finance its working capital and
capital expenditure requirements on both a short-term and long-term basis with
internally generated funds.
The Company declared a quarterly cash dividend of $0.025 per share on
February 28, 1997 which was paid on April 25, 1997 to all shareholders of record
on March 26, 1997. On June 2, 1997, the Company declared another quarterly cash
dividend of $0.025 per outstanding share to be paid on July 29, 1997 to
shareholders of record on June 30, 1997. Future dividends by the Company remain
subject to limitations under applicable law and other factors the Board of
Directors deems relevant, including results of operations, financial condition
and capital requirements.
PART II. OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security-Holders.
(a) On March 19, 1997, an annual meeting of shareholders was held.
(b) The shareholders approved the election of all of the nominees
for the Board of Directors. The nominees elected were Robert E.
Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert,
Richard A. Gadbois, III and David A. Krinsky.
(c) The only matter voted upon at the annual meeting was the
election of directors. Robert E. Gray, Marie St. John Gray,
Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois, III and
David A. Krinsky each received 15,458,828 votes with 85,819
votes withheld for each.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
See "Exhibit Index."
(b) Reports on Form 8-K.
None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
June 10, 1997 ST. JOHN KNITS, INC.
By: /s/ Robert E. Gray
--------------------
Robert E. Gray
Chairman of the Board and
Chief Executive Officer
By: /s/ Roger G. Ruppert
----------------------
Roger G. Ruppert
Senior Vice President - Finance,
Chief Financial Officer
(Principal Financial Officer)
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
------ ---------------------- -------------
<C> <S> <C>
10.1 Aircraft Lease dated April 1, 1997 by and between the Company
and Ocean Air Charters, Inc. as Trustee of the SJA 1&2, Ltd.
Trust (Lease for Company airplane)
10.2 Second Amendment to Consulting Agreement dated April 11,
1997 between the Company and Robert C. Davis
10.3 Lease Amendment Agreement dated April 1, 1997 between the
Company and G.M. Properties (increasing the space of the
corporate headquarters, warehousing and manufacturing facility)
10.4 First Amendment to Employment Agreement dated May 2, 1997
between the Company and Robert E. Gray
27.1 Financial Data Schedule
</TABLE>
12
<PAGE>
EXHIBIT 10.1
AIRCRAFT LEASE
--------------
THIS LEASE is made as of April 1, 1997, between Ocean Air Charters, Inc., as
Trustee of the SJA 1&2, Ltd. Trust (the "Lessor"), and St. John Knits, Inc.,.
(the "Lessee").
1. LEASE. Lessor leases to the Lessee the following described
aircraft:
One Dassault-Brequet Falcon 50 Aircraft, Serial No. 080 and
Garrett Engines Serial No. P76381, P76376 & P76212 ("Aircraft")
2. TERM. The term of this lease shall be one year, commencing on April 1,
1997, and ending on March 31, 1998.
3. RENTAL. The Aircraft rental shall be at the rate of $70,000 per
month, plus any applicable state tax, payable to the Lessor on or before the
first day of each monthly period of the lease. All rental payments shall be
paid at the place where designated by the Lessor.
4. LESSEE COVENANTS AND AGREEMENTS.
(a) Conforming Use. Lessee covenants and agrees to use the Aircraft only
--------------
for the purposes and in the manner set forth in any application for insurance
executed in connection with the leased Aircraft, to abide by and conform to, and
cause others to abide by and to, all present and future federal, state,
municipal, and other laws, ordinances, orders, rules, and regulations,
controlling or in any way affecting the operation, use, or occupancy of the
Aircraft or the use of any airport premises by the Aircraft.
(b) No Lien or Assignment. Lessee agrees to keep safely, and use
---------------------
carefully, the Aircraft, and not to sell, or attempt to sell, or assign or
dispose of the Aircraft, or of any interest therein, or of any part thereof, or
equipment necessary thereto, or suffer or permit any charge, lien, or
encumbrance of any nature upon the Aircraft, or any part thereof, or lend or
rent the same, or remove or permit the Aircraft to be removed from its
designated home airport for periods in excess of 30 days, and not to remove
permanently the Aircraft from its designated home airport without the Lessor's
prior written consent.
(c) Sublease. Upon approval of the Lessor, the Lessee may sublease the
--------
Aircraft, provided, however, the Aircraft is maintained in conformance with all
applicable rules and regulations pertaining to the use to which the Aircraft
shall be subjected.
(d) Taxes. Lessee shall pay all taxes, assessments, and charges imposed by
-----
any national, state, municipal, or other public or airport authority on the
Aircraft or on its use during the term of this lease and until redelivery of the
Aircraft to the Lessor; and to save the Lessor free and harmless therefrom, and
reimburse the Lessor on a pro rata basis for any such taxes or charges payable
subsequent to the term of this lease.
<PAGE>
(e) Maintenance. Lessee shall maintain and keep the Aircraft and all its
-----------
components in good order and repair, in accordance with the requirements of the
manufacturer and the Federal Aviation Agency or any other governmental authority
having jurisdiction, and within a reasonable time replace in or on the Aircraft
any and all parts, equipment, appliances, instruments, or accessories which may
be worn out, lost, destroyed, confiscated, or otherwise rendered unsatisfactory
or unavailable for use in or on the Aircraft. Such replacement shall be (1) in
good operating condition and have a value, utility, and quality at least equal
to that which the property replaced originally had, and (2) at the time affixed
to the Aircraft and made subject to this lease, owned by the Lessee free and
clear of all liens and encumbrances, it being understood that the Lessee shall
have the same protection as the Lessor under the standard warranty clause of the
manufacturer of the Aircraft, the terms and provisions of said warranty being
incorporated herein; perform all major overhaul on the Aircraft, whenever deemed
necessary and as may be required by the manufacturer and/or the Federal Aviation
Agency or any other governmental authority during the term of this lease, and
all engine overhaul and inspection and maintenance service.
(f) Indemnification. Lessee shall be responsible and liable to the Lessor
---------------
for, and indemnify the Lessor against, any and all damage to the Aircraft which
occurs in any manner from any cause or causes during the term of this lease or
until redelivery of the Aircraft to the Lessor, and to indemnify and hold Lessor
harmless from and against all claims, cost, expenses, damages, and liabilities,
including personal injury, death, or property damage claims arising or in any
manner occasioned by the operation or use of the Aircraft, during the term of
this lease or until redelivery of the Aircraft to the Lessor.
(g) Insurance. Lessee shall, at its own expense, keep the Aircraft covered
---------
by insurance in accordance with the following:
(1) Risk of Loss or Damage: With respect to the Aircraft and its
equipment, the insurance policy obtained in connection herewith shall be in
the joint names of Lessor and Lessee and shall insure the Aircraft and its
equipment against all risk of loss or damage for not less than the full
market value thereof, and the premiums therefor shall be paid by Lessee
unless otherwise provided herein. With respect to all other equipment,
Lessee shall keep the equipment insured against all risk of loss or damage
from every cause whatever for not less than the full replacement value
thereof, except that in the case of oil or gas equipment, the insurance, at
the election of Lessor, need not include fire and extended coverage on
equipment situated beneath the ground. Any such insurance shall be in form
and amount with companies approved by Lessor and shall, at the election of
Lessor, either be in the joint names of Lessor and Lessee or be for the
beneficial interest of Lessor, and Lessee shall pay the premiums therefor
and at the request of Lessor deliver said policies or duplicates thereof to
Lessor. The proceeds of any such insurance at the option of Lessor, shall
be applied (i) toward the replacement, restoration, or repair of the
Aircraft and its equipment or (ii) toward payment of the obligations of
Lessee hereunder.
<PAGE>
(2) With respect to the Aircraft and its equipment, public liability
and property damage insurance shall be carried in the joint names of Lessor
and Lessee against any and all damages and liabilities arising out of,
connected with, or resulting from the possession, use, and operation of
such equipment, shall be in form and amount with companies approved by
Lessor and the premiums therefor shall be paid by Lessee unless otherwise
provided herein. With respect to all equipment other than the Aircraft,
Lessee at the election of Lessor shall carry public liability and property
damage insurance against any and all damages and liabilities arising out
of, connected with, or resulting from the possession, use, and operation of
such equipment. Any such insurance shall be in form and amount with
companies approved by Lessor and shall be in the joint names of Lessor and
Lessee, and Lessee shall pay the premiums therefor and at the request of
Lessor deliver said policies or duplicates thereof to Lessor.
With respect to all policies of insurance hereinabove required to be obtained by
Lessee that are not issued in the joint names of Lessor and Lessee, such
policies, at Lessor's election, shall effectively provide that the insurer in
such policies shall give Lessor 30 days' written notice before the policy in
question shall be altered or canceled. If within ten days following notice by
Lessor to Lessee, the Lessor has not received the insurance policies herein
required to be obtained by Lessee or has not received evidence of the payment by
Lessee of the premiums due on any of the policies of insurance required herein,
the Lessor may procure such insurance or pay such premiums and any sums so
expended by Lessor shall thereafter be reimbursed by Lessee to Lessor and shall
become additional rent under this lease and shall be payable in its entirety on
the next rental payment date or within 60 days, whichever event is sooner.
The Lessee hereby appoints Lessor as the Lessee's attorney-in-fact to make proof
of loss, and claim for, receive payment of, and execute or endorse all
documents, checks, or drafts for hull damage or return premium under the
insurance policies.
(h) Licensed pilotage. Lessee shall permit the Aircraft to be operated
-----------------
only by a currently certificated pilot having at least the minimum total pilot
hours required by the applicable insurance and regulations.
(i) Right of inspection. Lessee shall permit the Lessor, or Lessor's duly
-------------------
authorized agent or representative, to inspect the Aircraft at any reasonable
time, either on the land or aloft, and to furnish any information in respect to
the Aircraft and its use that the Lessor may reasonable request.
(j) Delivery upon termination. Lessee shall return, upon demand, at the
-------------------------
expiration of the lease term, the Aircraft to the Lessor, at such place as may
be designated by the Lessor, in the same operating order, repair, condition, and
appearance as when received, excepting only for reasonable wear and tear, and
damage by any cause covered by collectible insurance.
(k) Further assurances. Lessee shall execute and deliver to the Lessor all
------------------
additional or supplemental instruments or documents as the Lessor may request in
connection with the Aircraft or this lease.
<PAGE>
5. ASSIGNMENT OF WARRANTY. The Lessor hereby assigns to the Lessee, for
and during the lease term, any warranty of the manufacturer, express or implied,
issued on or relating to the Aircraft, and hereby authorizes the Lessee to
obtain the customary service furnished by the manufacturer in connection with
any warranty, at Lessee's expenses. The Lessee acknowledges and agrees that the
Aircraft is of a size, design, capacity, and a manufacturer selected by the
Lessee and suitable for its purposes.
6. NO IMPLIED REPRESENTATIONS OR WARRANTIES. The parties acknowledge that
the Lessor is not a manufacturer or engaged in the sale or distribution of the
Aircraft. Lessor makes no representations, promises, statements, or warranties,
expressed or implied, with respect to the merchantability, suitability, or
fitness for purpose of the Aircraft or otherwise. Lessor shall not be liable to
the Lessee for any loss, claim, demand, liability, cost, damage, or expense of
any kind, caused, or alleged to be caused, directly, or indirectly, by the
Aircraft, or by any inadequacy thereof for any purpose, or by any defect
therein; or in the use of maintenance thereof, or any repairs, servicing, or
adjustments thereto, or any delay in providing, or failure to provide the same,
or any interruption or loss of service or use thereof, or any loss of business,
or any damage whatsoever and howsoever caused.
7. RISK OF LOSS. All risks of loss or damage of the Aircraft leased, from
whatever cause, are hereby assumed by the Lessee during the entire lease term of
the Aircraft, and if the Aircraft is damaged, and is capable of being repaired,
the Lessee shall have the option of either repairing same or replacing same, at
the Lessee's cost.
8. IRREVOCABILITY. This lease is irrevocable for its full term and until
the aggregate rentals have been paid by the Lessee. Rent shall not abate during
the lease term because the Lessee's right to possession of the Aircraft has
terminated, or for any other reason whatsoever.
9. LESSOR'S ASSUMPTION OF LESSEE'S OBLIGATIONS. If Lessee shall fail to
use, preserve, and maintain the Aircraft, discharge all taxes, liens, or
charges, pay all costs and expenses, or procure and maintain insurance, in the
manner above provided, the Lessor, at its option, may do so, and all such
advances by the Lessor shall be added to the unpaid balance of the rentals due
under this lease and shall be repayable by the Lessee to Lessor on demand,
together with interest thereon at the rate of 10 percent per annum, until the
unpaid balance shall have been repaid in full. The Lessor may enter upon any
premises where the Aircraft is located, for the purpose of inspection, and may
remove the Aircraft forthwith, without notice to Lessee, if, in the opinion of
the Lessor, the Aircraft is being improperly used or maintained.
10. REPOSSESSION UPON DEFAULT. If the Lessee shall fail to pay any
rental or any other amounts payable pursuant to this lease, when the same is due
and payable, or if the Lessee shall breach any other provision of this lease, or
if the Lessee becomes insolvent, or files a voluntary, or has filed against him
an involuntary, proceeding in bankruptcy for either discharge of indebtedness or
other protection from creditors or if a receiver is appointed for the Lessees's
property or an arrangement is made with or committee is formed for the Lessee's
creditors, then the Lessor, at its option, and in addition to and without
prejudice to any other remedies, may take possession of and remove, the
Aircraft, and all equipment, instruments, accessories, and repairs thereon,
which shall be
<PAGE>
considered a component part of the Aircraft, and in removing the Aircraft, the
Lessor may, if permitted by law, use any of the Lessee's licenses in respect to
the Aircraft, and/or the Lessor may terminate this lease. The retaking of such
possession, however, shall not constitute a termination of this lease unless the
Lessor, so notifies Lessee in writing. The Lessor, at its option, may (a) lease
the repossessed Aircraft, or any part thereof to any third party upon such terms
and conditions as Lessor may determine, or (b) sell the Aircraft, or any part
thereof, at public or private sale. The total proceeds, less the Lessor's
expenses incurred in connection therewith, including attorneys' fees, of such
sale or sales, shall be applied to the total unpaid rental. Any deficiency
thereafter shall be paid by the Lessee.
11. TIME OF ESSENCE. Time is of the essence of this lease.
12. NO PASSAGE OF TITLE. This agreement is a lease, and the Lessee does
not acquire hereby any right, title, or interest whatsoever, legal or equitable,
in the Aircraft or to the proceeds of the sale of the Aircraft except its
interests as the Lessee under this lease.
13. MISCELLANEOUS.
(a) The Lessor warrants that, if Lessee performs its obligations under
this lease, the Lessee shall peaceable and quietly hold, possess and use the
Aircraft during the entire lease term, free of any interference or hindrance.
(b) The relationship between the Lessor and Lessee is only that of Lessor
and Lessee. The Lessee shall never at any time during the term of this lease
for any purpose whatsoever be or become the agent of the Lessor, and the Lessor
shall not be responsible for the acts or omissions of the Lessee or its agents.
(c) The Lessor's rights and remedies with respect to any of the terms and
conditions of this lease shall be cumulative and not exclusive, and shall be in
addition to all other rights and remedies available to Lessor.
(d) The Lessor's failure to strictly enforce any provisions of this lease
shall not be construed as a waiver thereof or as excusing the Lessee from future
performance.
14. SEVERABILITY. The invalidity of any portion of this lease shall not
affect the remaining valid portions thereof.
15. ENTIRE AGREEMENT. This lease constitutes the entire agreement between
the parties hereto, and any change or modification to this lease must be in
writing and signed by the parties hereto.
16. NOTICES. All notices or other documents under this lease shall be in
writing and delivered personally or mailed by certified mail, postage prepaid,
addressed to the parties at their last known addresses.
<PAGE>
17. NON-WAIVER. No delay or failure by either party to exercise any right
under this lease, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
provided herein.
18. HEADINGS. Headings in this lease are for convenience only and shall
not be used to interpret or construe its provisions.
19. GOVERNING LAW. This lease shall be construed in accordance with and
governed by the laws of the State of California.
20. COUNTERPARTS. This lease may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
21. BINDING EFFECT. The provisions of this lease shall be binding upon
and inure to the benefit of both parties and their respective legal
representatives, successors, and assigns.
IN WITNESS WHEREOF the Lessee and Lessor have duly executed this lease on
LESSOR: LESSEE:
The SJA 1&2, Ltd. Trust St. John Knits, Inc.
By: Ocean Air Charters, Trustee By: /s/ ROGER G. RUPPERT
-------------------------------------------
Roger G. Ruppert, Senior Vice President/CFO
By: /s/ ROBERT E. GRAY
-------------------------
Robert E. Gray, President
<PAGE>
EXHIBIT 10.2
SECOND AMENDMENT TO CONSULTING AGREEMENT
This Agreement shall constitute the Second Amendment to Consulting Agreement
originally dated as of April 24, 1996 by and between St. John Knits, Inc., a
California corporation (the "Company") and Robert C. Davis (the "Consultant").
AMENDMENT
The Company and Consultant hereby agree to extend the Term of the original
Consulting Agreement for an additional period of six months, from May 20, 1997
through November 19, 1997. The Company and Consultant hereby agree that all
other terms of the Consulting Agreement shall remain in full force and effect,
including but not limited to, the Consultant's rate of compensation of $100,000
in the aggregate, payable in six substantially equal amounts at the end of each
month during the Term; the first payment payable on June 30, 1997 and the last
payment payable on November 30, 1997.
EXECUTED as of April 11, 1997 at Orange County, California.
ST. JOHN KNITS, INC.
a California corporation
By: /s/ ROBERT E. GRAY
---------------------------
Name: Robert E. Gray
Title: Chief Executive Officer
/s/ ROBERT C. DAVIS
---------------------------
Robert C. Davis
<PAGE>
EXHIBIT 10.3
LEASE AMENDMENT AGREEMENT
This Lease Amendment Agreement ("Agreement") is entered into as of April 1,
1997 by and between St. John Knits, Inc., a California corporation as Tenant and
G.M. Properties, a California general partnership as Landlord under that certain
Industrial Real Estate Lease dated June 1, 1986 ("Lease") between Landlord and
Tenant.
R E C I T A L S
A. Tenant has requested that Landlord construct additional facilities at the
property currently leased by Tenant to allow Tenant to expand its operations at
the Property
B. Landlord has agreed to construct approximately 13,596 additional square feet
of space to accommodate Tenant's expanding operations provided Tenant agrees to
pay the additional rent provided herein.
C. Landlord and Tenant desire to enter into this Lease Amendment Agreement to
set forth the terms and conditions under which (i) Landlord agrees to expand the
rentable square footage of the Property and (ii) Tenant shall continue to occupy
the Property.
In consideration of the foregoing recitals and the covenants and conditions
hereinafter contained, the parties agree as follows:
1. ADDITIONAL FACILITIES. Landlord agrees to provide an additional 13,596
----------------------
square feet of space for lease by Tenant in accordance with the plans and
specifications prepared for Tenant by C.C.S. Architects and under the
contract with Snyder Langston, both of which have been approved by Landlord
(the "Expansion Space"). Landlord shall, subject to the conditions set
forth below, proceed with all due diligence to prepare the Expansion Space
at Landlord's sole cost and expense, substantially in accordance with
plans, outlines, and specifications which have been approved by the
parties. All labor and materials required to prepare the Expansion Space
for Tenant's use shall be furnished by Landlord at Landlord's sole cost and
expense up to a maximum cost of Six Hundred Ten Thousand Dollars
($610,000.00). All such work shall be accomplished in compliance with all
applicable laws, ordinances, regulations, and restrictions.
Landlord shall not be held liable or responsible for delays in construction
or Landlord's work arising out of or occasioned by strikes, accidents, acts
of God,
1
<PAGE>
weather conditions, inability to secure labor or materials, fire
regulations or other restrictions imposed by any government or any
governmental agency, or other delays beyond Landlord's control. Subject to
the foregoing provisions Landlord agrees to deliver the premises to Tenant
for commencement of Tenant's work therein, or commencement of Tenant's
business if no such work is required of Tenant, not later than June 1,
1997.
2. BASE RENT. Base Rent for the Expansion Space shall be computed at the rate
----------
of $0.676 per square foot per month or a total of $9,190.00 per month and
shall be added to the Base Rent under the Lease. Base Rent for the
Expansion Space shall be adjusted at the same time and in the same manner
as Base Rent for the Property under the Lease.
3. EXCESS TOTAL COSTS. In the event that the cost of the construction of the
-------------------
Expansion Space exceeds $610,000.00, Tenant agrees to promptly pay all
costs in excess of such amount.
4. FULL FORCE AND EFFECT. Except as modified in the manner set forth in this
----------------------
Agreement, the Lease shall remain in full force and effect.
5. FURTHER ASSURANCES. Each party agrees to perform any further acts and to
-------------------
execute and deliver any further documents which may be reasonably necessary
to carry out the provisions of this Agreement.
Executed as of the 1st day of April 1997 at Irvine, California.
TENANT:
St. John Knits, Inc., a California corporation
By: /s/ DAN DEMILLE
---------------------------------
LANDLORD:
G.M. Properties, a California general partnership
By: /s/ BOB GRAY
------------------------------------
Bob Gray, Managing General Partner
2
<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Agreement shall constitute the First Amendment to Employment
Agreement originally dated as of June 1, 1995 by and between St. John Knits,
Inc., a California corporation (the "Company") and Robert E. Gray (the
"Executive").
AMENDMENT
The Company and Executive hereby agree to extend the Term of the
original Employment Agreement for an additional period of one year, so that the
Employment Agreement shall now terminate as of May 31, 1999. The Company and
Executive hereby agree that all other terms of the Employment Agreement shall
remain in full force and effect without modification.
EXECUTED as of May 2, 1997 at Orange County, California.
"COMPANY"
ST. JOHN KNITS, INC.,
a California corporation
By: /s/ ROGER G. RUPPERT
---------------------
Roger G. Ruppert
"EXECUTIVE"
/s/ ROBERT E. GRAY
-------------------
Robert E. Gray
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-START> NOV-04-1996
<PERIOD-END> MAY-04-1997
<CASH> 12,423
<SECURITIES> 4,352
<RECEIVABLES> 27,624
<ALLOWANCES> 0
<INVENTORY> 23,870
<CURRENT-ASSETS> 75,405
<PP&E> 76,605
<DEPRECIATION> 25,107
<TOTAL-ASSETS> 129,987
<CURRENT-LIABILITIES> 17,038
<BONDS> 0
0
0
<COMMON> 503
<OTHER-SE> 112,303
<TOTAL-LIABILITY-AND-EQUITY> 129,987
<SALES> 115,738
<TOTAL-REVENUES> 115,738
<CGS> 48,111
<TOTAL-COSTS> 48,111
<OTHER-EXPENSES> 40,445
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<INCOME-PRETAX> 27,636
<INCOME-TAX> 11,379
<INCOME-CONTINUING> 16,257
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<NET-INCOME> 16,257
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