<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22480
THE J. JILL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2973769
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
25 RECREATION PARK DRIVE 02043
HINGHAM, MA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 740-2718
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 / /
Shares outstanding of the Registrant's common stock (par value $0.01)
at August 2, 1999: 9,964,222
<PAGE>
THE J. JILL GROUP, INC.
(FORMERLY DM MANAGEMENT COMPANY)
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 26, 1999
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements...........................................................................3-7
Consolidated Balance Sheets at June 26, 1999, June 27, 1998 and December 26, 1998.............................3
Consolidated Statements of Operations for the three months and the six months
ended June 26, 1999 and June 27, 1998.....................................................................4
Consolidated Statements of Cash Flows for the six months ended June 26, 1999
and June 27, 1998.........................................................................................5
Notes to Consolidated Financial Statements..................................................................6-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................8-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..........................................................13
Item 6. Exhibits and Reports on Form 8-K.............................................................................14
Signatures..................................................................................................................15
</TABLE>
2
<PAGE>
THE J. JILL GROUP, INC.
(FORMERLY DM MANAGEMENT COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 26, June 27, December 26,
1999 1998 1998
--------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 12,276 $ 19,300 $ 19,996
Marketable securities, net of unrealized loss............................... - 3,898 -
Inventory................................................................... 22,058 20,036 26,847
Prepaid catalog expenses.................................................... 4,311 5,257 5,254
Deferred income taxes....................................................... 6,934 5,295 6,934
Other current assets........................................................ 4,443 3,758 3,156
------------- -------------- ----------------
Total current assets.................................................... 50,022 57,544 62,187
Property and equipment, net...................................................... 49,369 32,579 47,485
Deferred income taxes............................................................ 4,520 4,479 4,520
Other non-current assets......................................................... 1,723 - 1,300
------------- -------------- ----------------
Total assets............................................................ $105,634 $ 94,602 $115,492
------------- -------------- ----------------
------------- -------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 8,565 $ 17,279 $ 12,057
Accrued expenses............................................................ 5,387 6,166 8,571
Accrued customer returns.................................................... 8,565 5,134 8,333
Short-term borrowings....................................................... - 13,316 21,300
Current portion of long-term debt........................................... 1,911 837 1,735
------------- -------------- ----------------
Total current liabilities............................................... 24,428 42,732 51,996
Long-term debt, less current portion............................................. 21,344 3,627 9,900
Commitments
Stockholders' equity:
Special preferred stock (par value $0.01) 1,000,000 shares
authorized............................................................... - - -
Common stock (par value $0.01) 15,000,000 shares authorized,
9,919,221, 9,505,802, and 9,631,401 shares issued and outstanding as of
June 26, 1999, June 27, 1998 and
December 26, 1998, respectively.......................................... 99 95 96
Additional paid-in capital.................................................. 61,128 58,983 59,953
Unrealized loss on marketable securities.................................... - (96) -
Accumulated deficit......................................................... (1,365) (10,739) (6,453)
------------- -------------- ----------------
Total stockholders' equity.............................................. 59,862 48,243 53,596
------------- -------------- ----------------
Total liabilities and stockholders' equity.............................. $105,634 $ 94,602 $115,492
------------- -------------- ----------------
------------- -------------- ----------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
THE J. JILL GROUP, INC.
(FORMERLY DM MANAGEMENT COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ----------------------------
JUNE 26, JUNE 27, JUNE 26, JUNE 27,
1999 1998 1999 1998
--------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Net sales......................................................... $78,041 $59,359 $142,760 $104,151
Costs and expenses:
Product..................................................... 33,944 27,009 62,542 47,450
Operations.................................................. 15,831 11,121 31,217 19,828
Selling..................................................... 17,310 12,361 31,114 22,725
General and administrative.................................. 4,306 4,215 8,641 7,752
Interest, net............................................... 354 (220) 766 (404)
------------ ------------- ------------- ------------
Income before income taxes........................................ 6,296 4,873 8,480 6,800
Provision for income taxes........................................ 2,518 1,900 3,392 2,652
------------ ------------- ------------- ------------
Net income........................................................ $ 3,778 $ 2,973 $ 5,088 $ 4,148
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
EARNINGS PER SHARE:
Basic....................................................... $ 0.38 $ 0.31 $ 0.52 $ 0.44
Diluted..................................................... $ 0.36 $ 0.28 $ 0.48 $ 0.40
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic....................................................... 9,881 9,465 9,785 9,376
Diluted..................................................... 10,628 10,455 10,550 10,379
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
THE J. JILL GROUP, INC.
(FORMERLY DM MANAGEMENT COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
JUNE 26, JUNE 27,
1999 1998
---------------- ------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income.................................................................................... $ 5,088 $ 4,148
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation.................................................................................. 2,244 1,270
Changes in assets and liabilities:
Decrease in inventory......................................................................... 4,789 543
Decrease in prepaid catalog expenses.......................................................... 943 1,218
Increase in other current assets.............................................................. (1,287) (2,529)
Increase (decrease) in accounts payable and accrued expenses.................................. (5,983) 5,168
Increase in accrued customer returns.......................................................... 232 355
------------ --------------
Net cash provided by operating activities.......................................................... 6,026 10,173
Cash flows used in investing activities:
Investment in cash surrender value............................................................ (423) -
Additions to property and equipment........................................................... (4,821) (19,675)
----------- ------------
Net cash used in investing activities.............................................................. (5,244) (19,675)
Cash flows provided by (used in) financing activities:
Borrowings under debt agreements.............................................................. 17,021 28,616
Payments of debt borrowings................................................................... (26,701) (20,019)
Proceeds from stock transactions.............................................................. 1,178 945
----------- --------------
Net cash provided by (used in) financing activities................................................ (8,502) 9,542
Net increase (decrease) in cash and cash equivalents............................................... (7,720) 40
Cash and cash equivalents at:
Beginning of period........................................................................... 19,996 19,260
----------- ------------
End of period................................................................................. $ 12,276 $ 19,300
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
THE J. JILL GROUP, INC.
(FORMERLY DM MANAGEMENT COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The consolidated financial statements included herein have been
prepared by The J. Jill Group, Inc. (the "Company" or the "J. Jill Group"),
formerly known as DM Management Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission, and in the opinion of
management contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such
rules and regulations. Accordingly, although the Company believes that the
disclosures are adequate to make the information presented not misleading, these
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report to Stockholders for the fiscal year ended December 26,
1998.
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Intercompany balances and transactions have
been eliminated.
B. DEBT:
The Company's credit facilities at June 26, 1999 consisted of (i) a
$12,000,000 real estate loan (the "Tilton Facility Loan"); (ii) a $9,500,000
equipment loan (the "Equipment Loan"); (iii) a $980,000 furniture loan (the
"Furniture Loan"); (iv) a $1,650,000 real estate loan (the "Meredith Facility
Loan"); and (v) a $30,000,000 revolving line of credit (the "Revolver").
The Tilton Facility Loan is collateralized by a mortgage lien on the
new operations and fulfillment center in Tilton, New Hampshire (the "Tilton
facility"). The Tilton facility is owned by the J. Jill Group's wholly owned
subsidiary, Birch Pond Realty Corporation ("Birch Pond") and leased to the J.
Jill Group. During the first quarter of 1999, Birch Pond entered into the Tilton
Facility Loan with a third party financial institution. The Equipment Loan is
collateralized by substantially all of the Company's materials handling
equipment. The Furniture Loan is collateralized by certain workstations and
office furniture. The remaining credit facilities are collateralized by
substantially all of the Company's remaining assets. All of these credit
facilities contain various lending conditions and covenants including
restrictions on permitted liens and certain credit facilities also require
compliance with certain debt coverage ratios.
Payments of principal and interest on the Tilton Facility Loan are due
monthly through its maturity on March 1, 2009 with the interest rate fixed at
7.30% per annum. The Equipment Loan requires monthly payments of principal and
interest through its maturity on December 1, 2005 and has two components with
different fixed interest rates, with a weighted average interest rate of 7.62%
per annum. Interest on the Furniture Loan is fixed at 6.25% per annum and
requires monthly payments of principal and interest through its maturity on
March 30, 2002. Payments of principal and interest on the Meredith Facility Loan
are due monthly, based on a 15-year amortization, with the remaining balance
payable on July 30, 2002. Interest on the Meredith Facility Loan is fixed at
6.81% per annum until August 31, 1999, at which time the Company may select from
several interest rate options including a prime rate option. The Revolver is
available for borrowings and for letters of credit and matures on June 1, 2001.
At June 26, 1999 there were no borrowings and $10,880,000 in letters of credit
outstanding under the Revolver. At June 26, 1999 the Revolver bore interest at
7.75% per annum. The outstanding letters of credit do not bear interest.
6
<PAGE>
THE J. JILL GROUP, INC.
(FORMERLY DM MANAGEMENT COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A summary of the Company's outstanding long-term debt follows (in thousands):
<TABLE>
<CAPTION>
JUNE 26, JUNE 27, DECEMBER 26,
1999 1998 1998
----------------- --------------- ----------------
<S> <C> <C> <C>
Real estate loans...................................................... $13,403 $1,558 $ 1,503
Term loans............................................................. - 2,880 2,520
Equipment loans........................................................ 8,905 - 7,590
Furniture loans........................................................ 930 - -
Capitalized lease obligations.......................................... 17 26 22
-------------- ----------------- ---------------
Total long-term debt............................................ 23,255 4,464 11,635
Less current maturities................................................ 1,911 837 1,735
-------------- ----------------- ---------------
Long-term debt, less current portion............................ $21,344 $3,627 $ 9,900
-------------- ----------------- ---------------
-------------- ----------------- ---------------
</TABLE>
C. STOCK SPLIT:
On May 29, 1998, the Company announced a three-for-two stock split
effected in the form of a stock dividend payable on June 30, 1998 to
shareholders of record on June 12, 1998. All historical earnings per share
information includes the effects of the stock split. The consolidated balance
sheets at June 26, 1999, June 27, 1998 and December 26, 1998 include the effects
of the stock split.
D. EARNINGS PER SHARE:
The Company calculates earnings per share ("EPS") in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "EARNINGS PER
SHARE." A reconciliation of the numerators and denominators of the basic and
diluted EPS calculation follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- -------------------------------
JUNE 26, JUNE 27, JUNE 26, JUNE 27,
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net income.............................................. $ 3,778 $ 2,973 $ 5,088 $ 4,148
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Denominator (shares):
Basic weighted average shares outstanding............... 9,881 9,465 9,785 9,376
Assumed exercise of stock options....................... 747 990 765 1,003
-------------- ------------- ------------- -------------
Diluted weighted average shares outstanding............. 10,628 10,455 10,550 10,379
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Earnings per share:
Basic................................................... $ 0.38 $ 0.31 $ 0.52 $ 0.44
Diluted................................................. $ 0.36 $ 0.28 $ 0.48 $ 0.40
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH
INVOLVE RISKS AND UNCERTAINTIES. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED
HEREIN OR INCORPORATED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, THE WORDS "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT
CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO THE FOLLOWING: THE
SUCCESS OR FAILURE OF THE J. JILL RETAIL STORE AND E-COMMERCE INITIATIVES; THE
SUCCESS OR FAILURE OF THE REPOSITIONING OF THE NICOLE SUMMERS CONCEPT; THE
SUCCESS OR FAILURE OF NEW CUSTOMER ACQUISITION EFFORTS; FAILURE OF THE COMPANY
OR ITS SIGNIFICANT VENDORS OR SUPPLIERS TO BECOME YEAR 2000 COMPLIANT;
SIGNIFICANT CHANGES IN CUSTOMER RESPONSE RATES; CHANGES IN COMPETITION IN THE
APPAREL INDUSTRY; GENERAL ECONOMIC AND BUSINESS CONDITIONS; SUCCESS OR FAILURE
OF OPERATING INITIATIVES; THE ABILITY OF THE COMPANY TO EFFECTIVELY LIQUIDATE
ITS OVERSTOCKED MERCHANDISE; CHANGES IN CONSUMER SPENDING AND CONSUMER
PREFERENCES; CHANGES IN BUSINESS STRATEGY; POSSIBLE FUTURE INCREASES IN
EXPENSES; THE EXISTENCE OR ABSENCE OF BRAND AWARENESS; THE EXISTENCE OR ABSENCE
OF PUBLICITY, ADVERTISING AND PROMOTIONAL EFFORTS; AVAILABILITY, TERMS AND
DEPLOYMENT OF CAPITAL; QUALITY OF MANAGEMENT; BUSINESS ABILITIES AND JUDGMENT OF
PERSONNEL; AVAILABILITY OF QUALIFIED PERSONNEL; LABOR AND EMPLOYEE BENEFIT
COSTS; CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT REGULATIONS, AND
OTHER FACTORS.
RESULTS OF OPERATIONS
The following table sets forth the consolidated statements of
operations for The J. Jill Group, Inc. (the "Company" or the "J. Jill Group"),
formerly known as DM Management Company, expressed as a percentage of net sales
and certain selected operating data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- -------------------------------
JUNE 26, JUNE 27, JUNE 26, JUNE 27,
1999 1998 1999 1998
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Net sales...................................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Product................................................... 43.5 45.5 43.8 45.6
Operations................................................ 20.3 18.8 21.9 19.1
Selling................................................... 22.2 20.8 21.7 21.8
General and administrative................................ 5.5 7.1 6.1 7.4
Interest, net............................................. 0.5 (0.4) 0.5 (0.4)
------- -------- -------- --------
Income before income taxes..................................... 8.0 8.2 6.0 6.5
Provision for income taxes..................................... 3.2 3.2 2.4 2.5
------- -------- -------- --------
Net income..................................................... 4.8% 5.0% 3.6% 4.0%
------- -------- -------- --------
------- -------- -------- --------
SELECTED OPERATING DATA (IN THOUSANDS):
Catalog circulation (1)........................................ 30,400 18,600 51,800 33,400
Twelve-month buyers (2)........................................ 1,233 834 1,233 834
</TABLE>
(1) In order to more closely match net sales to catalog circulation, the
Company calculates catalog circulation on a percentage of completion basis.
This calculation takes into account the total number of catalogs mailed
during all periods and the Company's estimate of the expected sales life of
each catalog edition. As used throughout this Form 10-Q, the term "catalog
circulation" refers to circulation of the Company's catalogs calculated in
such fashion.
(2) As used throughout this Form 10-Q, the term "twelve-month buyers" means
customers who have made a purchase from the Company within the previous 12
months.
8
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 26, 1999 WITH THE THREE MONTHS ENDED
JUNE 27, 1998
NET SALES
During the three months ended June 26, 1999 ("second quarter 1999") net
sales increased by 31.5% to $78.0 million from $59.4 million during the three
months ended June 27, 1998 ("second quarter 1998"). This net sales increase
was primarily attributable to significant sales volume increases from J.
JILL. J. JILL net sales comprised 83.7% of the Company's total net sales
during second quarter 1999 as compared to 72.4% during second quarter 1998.
During second quarter 1999 J. JILL net sales and circulation increased by
52.0% and 94.6%, respectively, as compared to second quarter 1998. J. JILL
net sales growth was primarily attributable to the aforementioned circulation
growth as well as an increase in fulfillment rates and a decrease in return
rates. During second quarter 1999 net sales and circulation for NICOLE
SUMMERS decreased by 22.3% and 15.8%, respectively, as compared to second
quarter 1998. The Company is in the process of refocusing its NICOLE SUMMERS
concept. The first new NICOLE catalog will debut in mid-August, 1999, and
will target younger, more career conscious women (see Future Considerations).
Total Company catalog circulation increased by 63.4% to 30.4 million during
second quarter 1999 from 18.6 million during second quarter 1998. The number
of total Company twelve-month buyers grew to 1,233,000 at June 26, 1999 from
834,000 at June 27, 1998, an increase of 47.8%.
PRODUCT
Product costs consist primarily of merchandise acquisition costs,
including freight-in costs, and provisions for markdowns. During second
quarter 1999 product costs increased by 25.7% to $33.9 million from $27.0
million during second quarter 1998. As a percentage of net sales, product
costs decreased to 43.5% during second quarter 1999 from 45.5% during second
quarter 1998. This decrease in product costs as a percentage of net sales is
primarily attributable to higher markdown charges incurred during the second
quarter of 1998 as compared to second quarter 1999 associated with the
Company's NICOLE SUMMERS concept and lower markdown charges during second
quarter 1999 as compared to second quarter 1998 as the Company's off-price
liquidation vehicles began generating better than anticipated margins. In
addition, product margins improved during second quarter 1999 as compared to
second quarter 1998 as a result of the continued shift in the mix of the
business towards J. JILL. This improvement was offset by increased
promotional activity. The Company expects product costs as a percentage of
net sales to improve slightly during the remainder of 1999.
OPERATIONS
Operating expenses consist primarily of order processing costs, such as
order taking, customer service, fulfillment, shipping, warehousing and credit
card processing costs, and merchandising costs. During second quarter 1999
operating expenses increased by 42.4% to $15.8 million from $11.1 million during
second quarter 1998. As a percentage of net sales, operating expenses increased
to 20.3% during second quarter 1999 from 18.8% during second quarter 1998,
primarily as a result of higher costs associated with order taking and customer
service. Operating costs as a percentage of net sales trended favorably during
the six months ended June 26, 1999 decreasing from 23.8% during the first
quarter of 1999 to 20.3% during second quarter 1999 as the Company continued to
make progress adjusting to the new operations and fulfillment facility in
Tilton, New Hampshire (the "Tilton facility"). The Company expects operating
costs as a percentage of net sales to improve slightly during the fall 1999
season, with further improvement expected in 2000.
SELLING
Selling expenses consist primarily of the cost to produce, print and
distribute catalogs. During second quarter 1999 selling expenses increased by
40.0% to $17.3 million from $12.4 million during second quarter 1998. As a
percentage of net sales, selling expenses increased to 22.2% during second
quarter 1999 from 20.8% during second quarter 1998. Catalog productivity levels
achieved during second quarter 1998 were unusually high, resulting in relatively
low selling expenses as a percentage of net sales during second quarter 1998.
The Company expects selling expenses as a percentage of net sales to increase
slightly during the remainder of 1999.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of executive,
marketing, information systems and finance expenses. During second quarter 1999
general and administrative expenses increased by 2.2% to $4.3 million from $4.2
million during second quarter 1998. As a percentage of net sales, general and
administrative expenses decreased to 5.5% during second quarter 1999 from 7.1%
during second quarter 1998.
INTEREST, NET
Interest expense increased to $0.5 million during second quarter 1999 as
compared to $0.1 million during second quarter 1998 primarily as a result of
increased use of the Company's credit facilities. Interest income decreased to
$0.1 million during second quarter 1999 from $0.3 million during second quarter
1998 primarily due to lower cash and cash equivalent balances. The Company
expects an increase in net interest expense in 1999 as a result of lower
invested balances and higher debt levels associated with the financing of the
Tilton facility.
9
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED JUNE 26, 1999 WITH THE SIX MONTHS ENDED JUNE
27, 1998
NET SALES
During the six months ended June 26, 1999 net sales increased by 37.1%
to $142.8 million from $104.2 million during the six months ended June 27,
1998. This net sales increase was primarily attributable to significant sales
volume increases from J. JILL. J. JILL net sales comprised 82.6% of the
Company's total net sales during the six months ended June 26, 1999 as
compared to 70.0% during the six months ended June 27, 1998. During the six
months ended June 26, 1999 J. JILL net sales and circulation increased by
61.7% and 85.2%, respectively, as compared to the six months ended June 27,
1998. J. JILL net sales growth was primarily attributable to the
aforementioned circulation growth as well as an increase in fulfillment rates
and a decrease in returns rates. During the six months ended June 26, 1999
net sales and circulation for NICOLE SUMMERS decreased by 20.3% and 6.7%,
respectively, as compared to the six months ended June 27, 1998. As mentioned
above, the Company is in the process of refocusing its NICOLE SUMMERS
concept. The first new NICOLE catalog will debut in mid-August 1999 and will
target younger, more career conscious women (see Future Considerations).
Total Company catalog circulation increased by 55.1% to 51.8 million during
the six months ended June 26, 1999 from 33.4 million during the six months
ended June 27, 1998.
PRODUCT
During the six months ended June 26, 1999 product costs increased by
31.8% to $62.5 million from $47.5 million during the six months ended June
27, 1998. As a percentage of net sales, product costs decreased to 43.8%
during the six months ended June 26, 1999 from 45.6% during the six months
ended June 27, 1998. This decrease in product costs as a percentage of net
sales is primarily attributable to the factors discussed above in the
quarterly comparison of product costs as well as the impact of a strategic
merchandising initiative implemented during the first quarter 1998 aimed at
minimizing future potential markdowns.
OPERATIONS
During the six months ended June 26, 1999 operating expenses increased by
57.4% to $31.2 million from $19.8 million during the six months ended June 27,
1998. As a percentage of net sales, operating expenses increased to 21.9% during
the six months ended June 26, 1999 from 19.1% during the six months ended June
27, 1998. This increase was primarily attributable to the increased order taking
and customer service costs discussed above in the quarterly comparison of
operating expenses and to inefficiencies and reduced employee productivity
associated with the transition and consolidation of the Company's operations
from three distribution facilities into the Tilton facility.
SELLING
During the six months ended June 26, 1999 selling expenses increased by
36.9% to $31.1 million from $22.7 million during the six months ended June 27,
1998. As a percentage of net sales, selling expenses decreased to 21.7% during
the six months ended June 26, 1999 from 21.8% during the six months ended June
27, 1998.
GENERAL AND ADMINISTRATIVE
During the six months ended June 26, 1999 general and administrative
expenses increased by 11.5% to $8.6 million from $7.8 million during the six
months ended June 27, 1998. This increase was primarily attributable to
increased salaries and increased professional fees. As a percentage of net
sales, general and administrative expenses decreased to 6.1% during the six
months ended June 26, 1999 from 7.4% during the six months ended June 27, 1998.
INTEREST, NET
Interest expense increased to $1.0 million during the six months ended June
26, 1999 as compared to $0.3 million during the six months ended June 27, 1998,
primarily as a result of increased use of the Company's credit facilities.
Interest income decreased to $0.3 million during the six months ended June 26,
1999 from $0.7 million during the six months ended June 27, 1998, primarily due
to lower cash and cash equivalent balances.
INCOME TAXES
The Company provides for income taxes at an effective tax rate that
includes the full federal and state statutory tax rates. The Company's
effective tax rate for the six months ended June 26, 1999 and the six months
ended June 27, 1998 was 40.0% and 39.0%, respectively. The increased
effective tax rate during the six months ended June 26, 1999 reflects the
effect of an increased federal statutory tax rate due to expected annual
taxable income levels.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The J. Jill Group's principal working capital needs arise from the
need to support costs incurred in advance of revenue generation, primarily
inventory acquisition and catalog development, production and mailing costs
incurred prior to the beginning of each selling season. The Company has two
selling seasons which correspond to the fashion seasons. The Fall season
begins in July and ends in January. The Spring season begins in January and
ends in July. Capital needs arise from capital expenditures related to
expansions and improvements to the Company's operating infrastructure. During
the six months ended June 26, 1999 these capital expenditures included costs
related to the construction of the Tilton facility. During the six months
ended June 26, 1999 the Company funded its operating and capital needs
through its new and existing credit facilities, cash generated from
operations and proceeds from its 1997 public offering.
The Company's operating activities provided net cash of $6.0 million
during the six months ended June 26, 1999 primarily from net income before
depreciation and decreases in inventory, which were partially offset by
decreases in accounts payable and accrued expenses. The decrease in inventory
levels at June 26, 1999 as compared to December 26, 1998 was primarily a result
of decreases in NICOLE SUMMERS inventory consistent with the continued negative
growth of NICOLE SUMMERS and the timing of the new NICOLE debut (see Future
Considerations). The Company's operating activities provided net cash of $10.2
million during the six months ended June 27, 1998 as a result of net income
before depreciation and an increase in accounts payable and accrued expenses.
The Company's investing activities used net cash of $5.2 million and
$19.7 million during the six months ended June 26, 1999 and the six months ended
June 27, 1998, respectively, primarily for property and equipment additions
related to the construction of the Tilton facility. Construction of the
Tilton facility began in 1997 and was completed as of December 26, 1998.
The Company's financing activities used net cash of $8.5 million during
the six months ended June 26, 1999. This usage was primarily the net result of a
$23.6 million paydown of short-term borrowings and long-term debt and a $14.8
million increase in long-term debt in connection with the refinancing of the
Tilton facility, equipment and furniture on a long-term basis. During the six
months ended June 27, 1998, net cash of $9.5 million was provided by financing
activities, primarily as a result of borrowings used to finance the Tilton
facility construction.
The Company's credit facilities at June 26, 1999 consisted of (i) a
$12.0 million real estate loan (the "Tilton Facility Loan"); (ii) a $9.5
million equipment loan (the "Equipment Loan"); (iii) a $1.0 million furniture
loan (the "Furniture Loan"); (iv) a $1.7 million real estate loan; and (v) a
$30.0 million revolving line of credit. The weighted average interest rate
for amounts outstanding under the Company's credit facilities during the six
months ended June 26, 1999 was 7.08%. The Tilton Facility Loan is
collateralized by a mortgage lien on the Tilton facility. The Tilton facility
is owned by the J. Jill Group's wholly owned subsidiary, Birch Pond Realty
Corporation ("Birch Pond") and leased to the J. Jill Group. During the first
quarter of 1999, Birch Pond entered into the Tilton Facility Loan with a
third party financial institution. The Equipment Loan is collateralized by
substantially all of the Company's materials handling equipment. The
Furniture Loan is collateralized by certain workstations and office
furniture. The remaining credit facilities are collateralized by
substantially all of the Company's remaining assets. All of these credit
facilities contain various lending conditions and covenants including
restrictions on permitted liens and certain credit facilities also require
compliance with certain debt coverage ratios.
The Company expects that its cash and cash equivalents, existing credit
facilities and cash flows from operations will be sufficient to provide the
capital resources necessary to support the Company's capital and operating needs
for the foreseeable future.
FUTURE CONSIDERATIONS
In an effort to continue to capitalize on the strength of the J. JILL
brand, the Company is expanding its channels of distribution to include retail
stores and the Internet. Currently, the Company plans to open two new retail
stores in November, 1999. One of these stores will be located in Natick,
Massachusetts and one in Providence, Rhode Island. The Company currently plans
to have a total of 10 to 12 retail stores open by the end of fiscal year 2000
and an additional 50 stores open in 2001. The Company also plans to have a
fully-transactional website in operation by the end of August, 1999. The Company
expects to incur costs in excess of revenues generated by these new
opportunities during the initial phases of their development. There can be no
assurance that these new opportunities will be successful.
NICOLE SUMMERS operates in a mature marketplace and is currently
experiencing negative growth. In an effort to respond to this negative growth
and focus on potential opportunities for NICOLE SUMMERS, the Company hired a
new Vice President of Merchandising for NICOLE SUMMERS with experience in
product development, planning and women's apparel merchandising and is
currently refocusing the NICOLE SUMMERS concept. The new NICOLE merchandising
assortment is targeted to younger, fashion conscious career women and offers
a very focused trend-relevant assortment of contemporary apparel. The first
new NICOLE catalog will
11
<PAGE>
debut in mid-August, 1999. The Company expects this refocusing of its NICOLE
SUMMERS concept to result in additional declines in response rates and net
sales that the Company expects to be temporary and not material to its
consolidated results of operations.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue affects most companies that rely on computer
systems and involves the computer software and hardware changes necessary to
handle the transition from the Year 1999 to the Year 2000. During 1997, the
Company formulated a plan to address the Year 2000 issue. The Company has
assessed its status regarding its Year 2000 compliance in three components:
internal information technology (IT) systems, internal non-information
technology (non-IT) systems, and external Year 2000 issues related to the
Company's vendors, suppliers and service providers ("third party providers").
As part of the Company's strategic business plan, all of the
Company's internal IT and non-IT systems have been replaced or upgraded. The
Company has received assurances from the vendors of all of the Company's
internal IT and non-IT systems indicating the new systems and upgrades are
designed to be Year 2000 compliant. Because these system improvements were
primarily motivated by the Company's growth and technology needs or were part
of the Company's continuing maintenance plans, they are not considered to be
costs directly attributable to the Year 2000 issue. The Company is continuing
its validation process focused on verifying the assurances given by the
vendors of its internal IT and non-IT systems. At this time there can be no
assurance that all of the Company's internal IT and non-IT systems will be
Year 2000 compliant. The total historical and estimated future costs to
address the Year 2000 issue with respect to internal IT and non-IT systems is
currently estimated to be less than $500,000.
As part of the Company's plan to address the Year 2000 issue, the
Company has continued to contact and receive letters from its significant third
party providers either certifying that they are currently Year 2000 compliant or
indicating a date that a compliance certificate is expected. The Company is
updating its contingency plans to deal with possible non-compliance by the
Company's significant third party providers. These plans include the possible
replacement of the non-complying third party providers. The current estimated
impact to the Company for these replacements is approximately $200,000. At this
time, there can be no assurance that all of the Company's third party providers
will be Year 2000 compliant. The Company intends to further refine its
contingency plans during the remainder of 1999.
The estimates mentioned above may change materially in the future as
further information is obtained. Any failure of the Company or its significant
third party providers to become Year 2000 compliant could have a material
adverse effect on the Company's financial condition, results of operations, or
cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's objective in managing its exposure to interest rate
changes and foreign currency rate changes is to limit the material impact of the
changes on cash flows and earnings and to lower its overall borrowing costs. To
achieve its objectives, the Company identifies these risks and manages them
through its regular operating and financing activities, including periodic
refinancing of debt obligations to lower financing costs and adjust fixed and
variable rate debt positions. The Company does not currently use derivative
financial instruments or enter into foreign currency denominated contracts.
Management has calculated the effect of a 10% change in interest rates over a
month and determined the effect to be immaterial. Management does not foresee or
expect any significant changes in the management of foreign currency or interest
rate exposures or in the strategies it employs to manage such exposures in the
near future.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Annual Meeting of Stockholders on May 25, 1999. At
the Annual Meeting, the stockholders of the Company voted to approve the
following actions by the following votes:
1. To fix the number of directors that shall constitute the whole Board of
Directors of the Company at six.
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------
<S> <C>
For.................................................................................... 8,728,229
Against................................................................................ 15,437
Abstain................................................................................ 1,105
</TABLE>
2. To elect the following nominees as Class C Directors of the Company:
<TABLE>
<CAPTION>
WITHHOLDING
FOR AUTHORITY
------------------- ------------------------
<S> <C> <C>
Gordon R. Cooke................................................. 8,744,310 461
Thomas J. Litle................................................. 8,742,479 2,292
</TABLE>
3. To amend the Company's Certificate of Incorporation to change the name of the
Company to "The J. Jill Group, Inc."
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------
<S> <C>
For.................................................................................... 8,677,367
Against................................................................................ 64,838
Abstain................................................................................ 2,566
</TABLE>
13
<PAGE>
EXHIBIT INDEX
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) EXHIBITS
CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1 Restated Certificate of Incorporation of the Company (included
as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 25, 1993, File No.
0-22480, and incorporated herein by reference)
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Company, dated June 1, 1999
3.3 By-Laws of the Company, as amended (included as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated January 14,
1997, File No. 0-22480, and incorporated herein by reference)
MATERIAL CONTRACTS
10.1 First Amendment to Lease Agreement, dated June 10, 1999,
between the Company and National Fire Protection Association
10.2 Subordination of Mortgage, dated June 28, 1999, between Birch
Pond Realty Corporation and John Hancock Real Estate Finance,
Inc.
10.3 First Modification of Mortgage, Assignment of Leases and Rents
and Security Agreement, dated June 28, 1999, between Birch
Pond Realty Corporation and John Hancock Real Estate Finance,
Inc.
10.4 Partial Release, dated June 28, 1999, between Birch Pond
Realty Corporation and John Hancock Real Estate Finance, Inc.
10.5 Reaffirmation of Guaranty and Indemnity Agreements, dated June
28, 1999, between the Company and Birch Pond Realty
Corporation in favor of John Hancock Real Estate Finance, Inc.
FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
(2) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K dated May 25, 1999 in connection
with the change of the name of the Company from DM Management Company
to The J. Jill Group, Inc. The Company filed no other reports on Form
8-K during the quarter ended June 26, 1999.
14
<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.
THE J. JILL GROUP, INC.
Dated: August 9, 1999 By: /S/ OLGA L. CONLEY
---------------------------------
Olga L. Conley
Authorized Officer
Senior Vice President -
Finance,
Chief Financial Officer and
Treasurer
(PRINCIPAL FINANCIAL OFFICER)
Dated: August 9, 1999 By: /S/ PETER J. TULP
----------------------------------
Peter J. Tulp
Authorized Officer
Vice President - Finance
and Corporate Controller
(PRINCIPAL ACCOUNTING OFFICER)
15
<PAGE>
THE J. JILL GROUP, INC.
(FORMERLY DM MANAGEMENT COMPANY)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 26, 1999
EXHIBIT INDEX
DESCRIPTION
EXHIBIT NO.
CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1 Restated Certificate of Incorporation of the Company (included
as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 25, 1993, File No. 0-22480,
and incorporated herein by reference)
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Company, dated June 1, 1999
3.3 By-Laws of the Company, as amended (included as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated January 14,
1997, File No. 0-22480, and incorporated herein by reference)
MATERIAL CONTRACTS
10.1 First Amendment to Lease Agreement, dated June 10, 1999,
between the Company and National Fire Protection Association
10.2 Subordination of Mortgage, dated June 28, 1999, between Birch
Pond Realty Corporation and John Hancock Real Estate Finance,
Inc.
10.3 First Modification of Mortgage, Assignment of Leases and Rents
and Security Agreement, dated June 28, 1999, between Birch
Pond Realty Corporation and John Hancock Real Estate Finance,
Inc.
10.4 Partial Release, dated June 28, 1999, between Birch Pond
Realty Corporation and John Hancock Real Estate Finance, Inc.
10.5 Reaffirmation of Guaranty and Indemnity Agreements, dated June
28, 1999, between the Company and Birch Pond Realty
Corporation in favor of John Hancock Real Estate Finance, Inc.
FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
16
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF DM MANAGEMENT COMPANY
DM Management Company, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That by vote of the Board of Directors of said corporation at a
meeting duly called and held resolutions were duly adopted proposing
and declaring advisable that the Restated Certificate of Incorporation
of said corporation be amended and that such amendment be submitted to
the stockholders of the Corporation for their consideration, as
follows:
RESOLVED: That the Board of Directors of this Corporation recommends
and deems it advisable that the Restated Certificate of
Incorporation of this Corporation be amended by deleting Article
FIRST thereof in its entirety and substituting for said Article
FIRST the new Article FIRST as follows:
"FIRST: The name of the Corporation shall be The J.
Jill Group, Inc."
RESOLVED: That the aforesaid proposed amendment be submitted to the
stockholders of the Corporation for their consideration; and
RESOLVED: That following the approval by the stockholders of the
aforesaid amendment as required by law, the officers of this
Corporation be, and they hereby are, and each of them hereby is,
authorized and directed (i) to prepare, execute and file with the
Secretary of State of the State of Delaware a Certificate of
Amendment setting forth the aforesaid amendment in the form
approved by the stockholders and (ii) to take any and all other
actions necessary, desirable or convenient to give effect to the
aforesaid amendment or otherwise to carry out the purposes of the
foregoing Resolutions.
SECOND: That thereafter, a meeting of the stockholders of the Corporation
was duly called and held, upon notice in accordance with Section 222 of
the General Corporation Law of the State of Delaware, at which meeting
the necessary number of shares as required by statute and the Restated
Certificate of Incorporation of the Corporation were voted in favor of
the amendment.
<PAGE>
THIRD: That the aforesaid amendments were duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said DM Management Company has caused this
certificate to be signed by Gordon R. Cooke, its President, and attested by
David R. Pierson, its Secretary, this first day of June, 1999.
ATTEST:
DM MANAGEMENT COMPANY
By: /S/ DAVID R. PIERSON By: /S/ GORDON R. COOKE
--------------------------- ---------------------------
Its Secretary Its President
Gordon R. Cooke
<PAGE>
Exhibit 10.1
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") is entered
into as of the 10th day of June, 1999 by and between NATIONAL FIRE PROTECTION
ASSOCIATION ("Landlord"), and DM MANAGEMENT COMPANY, a Delaware corporation
("Tenant").
RECITALS
A. Landlord and Tenant previously entered into a lease agreement dated
September 21, 1998 (the "Lease") pursuant to which Tenant leased from Landlord
the real property located in the building known as 4 Batterymarch Park (the
"Building") in the City of Quincy, Commonwealth of Massachusetts, described as
the fourth and fifth floors of the Building, consisting of approximately 60,500
rentable square feet (the "Initial Premises").
A. Landlord and Tenant desire to amend the Lease (i) to add 3,000
rentable square feet of additional space ("Storage Space") to the Initial
Premises, and (ii) otherwise as more particularly set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for themselves
and their respective successors and assigns, hereby covenant and agree as
follows:
1. The above recitals are incorporated herein by this reference.
2. Capitalized terms used and not otherwise defined in this Amendment
shall have the meaning ascribed to said term by the Lease.
3. Pursuant to the provisions of Section 2.3 of the Lease, the parties
hereby agree as follows:
(a) That portion of the Premises Rentable Area comprised of the
"Office Space" (as defined below) is hereby agreed to contain 63,943
square feet and that portion of the Premises Rentable Area comprised of
the Storage Space is hereby agreed to contain 3,000 square feet; and
(a) Based upon the foregoing, Section 1.1 of the Lease is hereby
amended by deleting the same and substituting therefore the
following:
Years 1 and 2 of the Term: $1,724,489.50 annually; $143,707.46 monthly
(based upon the $26.50 per square foot of Office Space per
annum and $10.00
<PAGE>
per square foot of Storage Space per annum)
Years 3 and 4 of the Term: $1,788,432.50 annually; $149,036.04 monthly
(based upon $27.50 per square foot of Office Space per annum
and $10.00 per square foot of Storage Space per annum)
Years 5, 6 and 7 of the Term: $1,852,375.50 annually; $154,364.63
monthly (based upon $28.50 per square foot of Office Space per
annum and $10.00 per square foot of Storage Space per annum)
Years 8, 9 and 10 of the Term: $1,916,318.50 annually; $159,693.21
monthly (based upon $29.50 per square foot of Office Space per
annum and $10.00 per square foot of Storage Space per annum).
4. The parties hereby agree that the definition of "Building Rentable
Area" set forth in Section 1.3 (Additional Definitions) of the Lease, shall be
amended to mean 159,161 square feet.
5. Effective as of the date hereof (the "First Amendment Commencement
Date"), the Lease is hereby amended as follows:
5.1 The definition of "Premises Rentable Area" set forth in
Section 1.2 (Basic Data) of the Lease is hereby amended by inserting in
the second line of the definition immediately following the word
"Building" the following language:
"("Office Premises") and 3,000 rentable square feet located on the
ground floor ("Storage Space") (collectively, the "Premises"),"
5.2 The definition of "Permitted Uses" set forth in Section 1.2
(Basic Data) of the Lease is hereby amended by adding at the end
thereof the following language:
"The Storage Space shall be used for storage use only."
5.3 Exhibit FP attached to the Lease is hereby amended by adding
Exhibit FP-1 attached hereto and incorporated herein by this reference.
5.4 For the purpose of Article VIII (Real Estate Taxes) and
Article IX (Operating Expenses) of the Lease, the Premises shall be
deemed to include the Office Premises only and not the Storage Space.
6. Except as set forth in this Section 6, Tenant agrees to accept the
Storage Space in its "AS IS," broom clean condition as of the
Commencement Date without warranty of any kind. Prior to the
Commencement Date, Landlord shall deliver the Storage Space demised
with suspended strip lights, a sealed floor and heat.
<PAGE>
7. Notwithstanding anything to the contrary contained herein, Section
4.2 of the Lease shall not apply to the Storage Space, including
without limitation, the Tenant Improvements Allowance set forth
therein.
8. The Lease is hereby modified and confirmed by Landlord and Tenant
and shall remain in full force and effect except as expressly amended
by the terms of this Amendment.
9. The terms of this Amendment shall control over any conflicts
between the terms of the Lease and this Amendment.
IN WITNESS WHEREOF, this Amendment has been executed as of the day
and year first written above.
LANDLORD:
In the presence of: NATIONAL FIRE PROTECTION ASSOCIATION,
INC.
By: /S/ JAMES M. SHAMRON
---------------------------------
Name:
--------------------------------
/S/ NANCY PERKINS Title:
----------------- --------------------------------
Witness Date:
--------------------------------
TENANT:
In the presence of: DM MANAGEMENT COMPANY, a Delaware
Corporation
By: /S/ OLGA L. CONLEY
---------------------------------
/S/ ROBERT S. CONRAD Name:
-------------------- --------------------------------
Witness Title:
-------------------------------
Date:
-------------------------------
<PAGE>
EXHIBIT "FP-1"
Storage Space
<PAGE>
Exhibit 10.2
Recorded 6/30/99 with Belknap Registry in Book 1538, Page 715
SUBORDINATION OF MORTGAGE
FOR CONSIDERATION PAID, receipt whereof is hereby acknowledged, John
Hancock Real Estate Finance, Inc., holder of a Mortgage, Assignment of Leases
and Rents and Security Agreement (the "MORTGAGE") and an Assignment of Leases
and Rents (the "ASSIGNMENT") from Birch Pond Realty Corporation, dated March 1,
1999 and recorded, respectively, in the Belknap County (NH) Registry of Deeds
(the "REGISTRY") in Book 1518, Page 596, and in Book 1518, Page 680, hereby
subordinates the lien and interests of the Mortgage and the Assignment to the
easements, rights and interests of Birch Pond Realty Corporation at the Owner of
Lot 1, as shown on the Subdivision Plan recorded in the Registry in Drawer 31L,
Plan #99 and #100 (the "SUBDIVISION PLAN"), and as also shown on the Survey
recorded in the Registry in Drawer 32L, Plan #32 and #33 (the "SURVEY"),
declared and created by and set forth in that Declaration of Easements and
Restrictions (the "DECLARATION") made by Birch Pond Realty Corporation to be
recorded herewith and hereby ratifies and confirms that the Subordination of
Mortgage recorded in the Registry in Book 1518, Page 691, subordinates the
interest and lien of the Mortgage to the Lease referred to in that Memorandum of
Lease recorded in the Registry in Book 1518, Page 591, as said Lease has been
amended, which Lease as amended, is evidenced by that Amended and Restated
Memorandum of Lease between Birch Pond Realty Corporation as Landlord and The
J. Jill Group, Inc., as Tenant, dated June 28, 1999, and recorded herewith, and
hereby subordinates the interest and lien of the Mortgage to the Lease as so
amended.
This Subordination shall have the same effect upon the rights of the
undersigned under the Mortgage and the Assignment as if the Declaration shall
have been recorded in the Registry after the Subdivision Plan and the Survey,
but before the Mortgage and the Assignment. It is the intent of the undersigned
that the rights and interests declared and created in and by the Declaration
shall not be cut off, impaired or merged but shall survive any foreclosure or
deed-in-lieu of foreclosure of the Mortgage or the exercise of any right under
the Assignment.
In Witness Whereof, John Hancock Real Estate Finance, Inc. has caused
this Subordination to be duly executed as of June 28, 1999.
Witnessed: JOHN HANCOCK REAL ESTATE FINANCE, INC.
/s/ Noreen Scott By: /s/ William G. McPadden
- ------------------------- -----------------------------------
Print Name: Noreen Scott Name: Willliam G. McPadden
Title: Vice President
/s/ Roseann Carbone
- -----------------------------
Print Name: Roseann Carbone
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF SUFFOLK )
Personally appeared before me, the undersigned officer, on this 28th
day of June, 1999, the within named William G. McPadden, who acknowledged
himself to be the Vice President of JOHN HANCOCK REAL ESTATE FINANCE, INC., a
Delaware corporation, and that he, as such Vice President, being authorized to
do so, executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by himself as Vice President.
In witness whereof I hereunto set my hand and official seal.
/s/ Mary R. Steede
----------------------------------
Name: Mary R. Steede
Notary Public
My Commission Expires: 2/04/05
[NOTARY SEAL]
<PAGE>
Exhibit 10.3
Recorded 6/30/99 with the Belknap Registry in Book 1538, Page 717
FIRST MODIFICATION OF MORTGAGE,
ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT
THIS FIRST MODIFICATION OF MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND
SECURITY AGREEMENT (this "AGREEMENT") is entered into this 28 day of June,
1999, by and between BIRCH POND REALTY CORPORATION, a Delaware corporation
(doing business in the State of New Hampshire as BPRC), having its principal
place of business at 100 Birch Pond Drive, Tilton, New Hampshire 03289
("MORTGAGOR"), and JOHN HANCOCK REAL ESTATE FINANCE, INC., a Delaware
corporation having its principal place of business at John Hancock Place, T-53,
200 Clarendon Street, Boston, Massachusetts 02116 ("MORTGAGEE").
R E C I T A L S:
WHEREAS, Mortgagee has extended a Loan (the "LOAN") to Mortgagor in the
original principal amount of $12,000,000.00; and
WHEREAS, the Loan is evidenced by that certain Mortgage Note dated
March 1, 1999 in the said principal amount, by Mortgagor to Mortgagee (the
"NOTE"); and
WHEREAS, the indebtedness evidenced by the Note is secured by, inter
alia: (i) that certain Mortgage, Assignment of Leases and Rents and Security
Agreement dated March 1, 1999, by Mortgagor to Mortgagee, and recorded in the
Belknap County Registry of Deeds (the "RECORDER'S OFFICE") in Book 1518 at Page
0596 (the "MORTGAGE"), encumbering certain real property located in the Town of
Tilton, County of Belknap and State of New Hampshire and the improvements
thereon; (ii) a certain Assignment of Leases and Rents dated March 1, 1999, by
Mortgagor to Mortgagee, and recorded in the Recorder's Office in Book 1518 at
Page 0680 (the "ASSIGNMENT"); (iii) a certain UCC-1 Financing Statement dated
March 3, 1999 and recorded in the Recorder's Office in Book 1518 at Page 0692
(the "BIRCH POND UCC"); and (iv) a certain UCC-1 Financing Statement dated
March 3, 1999 and recorded in the Recorder's Office in Book 1518 at Page 0699
(the "BPRC UCC"; the Birch Pond UCC and the BPRC UCC are sometimes collectively
referred to herein as the "UCCs"); and
WHEREAS, Mortgagor and Mortgagee now desire to amend the Mortgage to
correct certain provisions relating to the description of certain property to be
released, and to grant to Mortgagee as additional security certain easements
which affect the property encumbered by the Mortgage.
NOW THEREFORE, in consideration of the foregoing premises, and to
effectuate the terms and conditions of the Mortgage, Mortgagor and the Mortgagee
hereby agree as follows (all capitalized terms used herein, but not otherwise
defined, shall have the meaning assigned thereto in the Mortgage):
1. AMENDMENT OF MORTGAGE.
<PAGE>
(a) Paragraph 72 of the Mortgage is hereby corrected as follows:
(i) The reference to "Lots 1 and 3" is hereby corrected to read
"Lots 2 and 3."
(iii) The title of the Subdivision Plan is hereby corrected
by substituting the following in its place and stead:
"Subdivision, Plan of Land Prepared for Birch Pond Realty
Corporation, Route 132 (Sanborn Road) Tilton, NH" sheets 1 and
2 of 2, dated April 8, 1999 by Yerkes Surveying Consultants,
Laconia, NH, and certified by Frank P. Yerkes on May 17, 1999,
which plan was recorded on May 12, 1999 in the Recorder's
Office in Drawer L31 as Plan No. 99 and 100.
(b) The Mortgage is hereby amended to include an alternative
description of the Land (as defined in the Mortgage) as set forth in
EXHIBIT A-1 attached hereto, which description is in addition to, and
not a replacement for, EXHIBIT A of the Mortgage. Exhibit A-1 also
incorporates and includes a description of the easements granted to
Mortgagee as described in Section 2 hereof.
2. GRANT OF EASEMENTS. To additionally secure the payment of the
Indebtedness, Mortgagor has mortgaged, given, granted, bargained, sold,
alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated
and by these presents does mortgage, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign and hypothecate unto Mortgagee with MORTGAGE
COVENANTS and hereby grants unto Mortgagee a security interest in the following
property and rights, whether now owned by Mortgagor or held or hereafter
acquired by Mortgagor (which property shall be included in the definition of
"Mortgaged Property" in the Mortgage for all purposes): those certain easements
and rights benefitting or appurtenant to the Land or Mortgagor as set forth and
described in that certain Declaration of Easements and Restrictions dated June
28, 1999, made by Mortgagor which is, or will be recorded in the Recorder's
Office.
TO HAVE AND TO HOLD the above granted and described property into and
to the use and benefit of Mortgagee and the successors and assigns of Mortgagee
forever pursuant to and in accordance with the terms and conditions of the
Mortgage.
3. MISCELLANEOUS.
(a) The parties hereto hereby acknowledge and agree that, except as
provided in this Agreement, the Mortgage has not been
modified or amended, and the Mortgage, as amended by this
Agreement, remains in full force and effect.
<PAGE>
(b) Mortgagor hereby warrants and represents that as of the date of
this Agreement (after giving effect to the transactions
contemplated by this Agreement), there are no defaults under the
Note or the Mortgage and Mortgagor has no defenses, counterclaims
or offsets to the payment or performance of any of its obligations
under the Note or the Mortgage. Without limiting the foregoing,
Mortgagor hereby ratifies and confirms every provision, covenant,
condition and obligation contained in and under the Note or the
Mortgage, as hereinbefore modified, which provisions, covenants,
conditions and obligations shall continue in full force and effect,
affected by this Agreement only to the extent of the amendments and
modifications set forth herein.
(c) All provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and assigns of the parties hereto.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement as
of the date set forth above.
Witnessed:
/s/ Patricia L. Eppich BIRCH POND REALTY CORPORATION
- ------------------------------ (doing business in the State of New
Print Name: Patricia Eppich Hampshire as BPRC)
/s/ Denise A. Fallon By: /s/ Olga L. Conley
- ------------------------------ ------------------------------------
Print Name: Denise Fallon Name: Olga L. Conley
Title: Treasurer and Secretary
/s/ Noreen Scott JOHN HANCOCK REAL ESTATE
- ------------------------------ FINANCE, INC., a Delaware corporation
Print Name: Noreen Scott
/s/ Roseann Carbone By: /s/ William G. McPadden
- ------------------------------ ------------------------------------
Print Name: Roseann Carbone Name: William G. McPadden
Title: Vice President
<PAGE>
STATE OF MASSACHUSETTS )
) SS.
COUNTY OF PLYMOUTH )
On this the 28th day of June, 1999, before me, Patricia L. Eppich, the
undersigned, personally appeared Olga L. Conley, who acknowledged herself to be
the Secretary/Treasurer of BIRCH POND REALTY CORPORATION, a Delaware corporation
(doing business in the State of New Hampshire as BPRC), and that she, as such
Secretary/Treasurer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by herself as Secretary/Treasurer.
In witness whereof I hereunto set my hand and official seal.
/s/ Patricia L. Eppich
----------------------------------------
Name:
Notary Public
My Commission Expires: 4/1/05
[NOTARY SEAL]
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF SUFFOLK )
On this the 28th day of June, 1999, before me, Mary R. Steede, the
undersigned, personally appeared William G. McPadden, who acknowledged himself
to be the Vice President of JOHN HANCOCK REAL ESTATE FINANCE, INC., a Delaware
corporation, and that he, as such Vice President, being authorized to do so,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation by himself as Vice President.
In witness whereof I hereunto set my hand and official seal.
/s/ Mary R.Steede
-----------------------------------------
Name: Mary R. Steede
Notary Public
My Commission Expires: 2/04/05
[NOTARY SEAL]
<PAGE>
Exhibit 10.4
Recorded 6/30/99 with the Belknap Registry in Book 1538, Page 727
PARTIAL RELEASE
THIS PARTIAL RELEASE is made by JOHN HANCOCK REAL ESTATE FINANCE, INC.,
a Delaware corporation having its principal place of business at John Hancock
Place, T-53, 200 Clarendon Street, Boston, Massachusetts 02116 ("MORTGAGEE").
W I T N E S S E T H:
WHEREAS, Mortgagee has made a mortgage loan in the original principal
amount of $12,000,000 to Birch Pond Realty Corporation, a Delaware corporation,
doing business in the State of New Hampshire as BPRC ("MORTGAGOR"), which loan
is secured by, inter alia: (i) a Mortgage, Assignment of Leases and Rents and
Security Agreement dated March 1, 1999, by Mortgagor to Mortgagee, and recorded
in the Belknap County Registry of Deeds (the "RECORDER'S OFFICE") in Book 1518
at Page 0596 (the "ORIGINAL MORTGAGE"), as modified by a First Mortgage
Modification Agreement of even date herewith, by and between Mortgagor and
Mortgagee (the "FIRST MODIFICATION"; the Original Mortgage and the First
Modification are collectively referred to herein as the "MORTGAGE"); (ii) a
certain Assignment of Leases and Rents dated March 1, 1999, by Mortgagor to
Mortgagee, and recorded in the Recorder's Office in Book 1518 at Page 0680 (the
"ASSIGNMENT"); (iii) a certain UCC-1 Financing Statement dated March 3, 1999 and
recorded in the Recorder's Office in Book 1518 at Page 0692 (the "BIRCH POND
UCC"); and (iv) a certain UCC-1 Financing Statement dated March 3, 1999 and
recorded in the Recorder's Office in Book 1518 at Page 0699 (the "BPRC UCC"; the
Birch Pond UCC and the BPRC UCC are sometimes collectively referred to herein as
the AUCCS"); and
WHEREAS, the Mortgage, the Assignment and the UCCs encumber or affect
certain land and other real property located in the Town of Tilton, County of
Belknap, New Hampshire, and more particularly described in the Mortgage; and
WHEREAS, pursuant to paragraph 72 of the Mortgage, Mortgagor has now
requested that Mortgagee release the "RELEASE PARCEL," as more particularly
described on SCHEDULE A attached hereto and made a part hereof, from the lien of
the Mortgage, Assignment, and the UCCs;
NOW, THEREFORE, for good and valuable consideration received by
Mortgagee, Mortgagee does hereby release and discharge the lien of the Mortgage,
the Assignment, and the UCCs to the extent that such lien encumbers the Release
Parcel. This Partial Release shall not in any way affect or impair the lien or
effect of the Mortgage, Assignment or the UCCs or any rights of Mortgagee
thereunder, with respect to the remainder of the Mortgaged Property which has
not been released under this Partial Release.
<PAGE>
IN WITNESS WHEREOF, Mortgagee has caused this Partial Release to be
executed this 28th day of June, 1999.
Signed, Sealed and Delivered
in the Presence of:
/s/ Noreen Scott JOHN HANCOCK REAL ESTATE
- ------------------------------ FINANCE, INC., a Delaware corporation
Print Name: Noreen Scott
/s/ Roseann Carbone By: /S/ William G. McPadden
- ------------------------------ ----------------------------------
Print Name: Roseann Carbone Name: William G. McPadden
Title: Vice President
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF SUFFOLK )
On this the 28th day of June, 1999, before me, Mary R. Steede, the
undersigned, personally appeared William G. McPadden, who acknowledged himself
to be the Vice President of JOHN HANCOCK REAL ESTATE FINANCE, INC., a Delaware
corporation, and that he, as such Vice President, being authorized to do so,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation by himself as Vice President.
In witness whereof I hereunto set my hand and official seal.
/s/ Mary R. Steede
--------------------------------
Name: Mary R. Steede
Notary Public
My Commission Expires: 2/04/05
[NOTARY SEAL]
<PAGE>
SCHEDULE A
DESCRIPTION OF RELEASE PARCEL
That certain lot or tract of land, with the buildings and improvements thereon,
located in Tilton, Belknap County, New Hampshire, and being more particularly
described as follows: Lot 2 and Lot 3 as shown and described on that certain
plan entitled "Subdivision, Plan of Land Prepared for Birch Pond Realty
Corporation, Route 132 (Sanborn Road) Tilton, NH" sheets 1 and 2 of 2, dated
April 8, 1999 by Yerkes Surveying Consultants, Laconia, NH, and certified by
Frank P. Yerkes on May 17, 1999, which plan was recorded on May 12, 1999 in the
Belknap County Registry of Deeds in Drawer L31 as Plan No. 99 and 100, which Lot
2 and Lot 3 are also shown and described on that certain map entitled "ALTA/ACSM
LAND TITLE SURVEY, Plan of Land Prepared for Birch Pond Realty Corporation,
Route 132, (Sanborn Road) Tilton, NH, dated June 8, 1999, Scale 1" = 100', by
Yerkes Surveying Consultants, Laconia, NH, and certified by Frank P. Yerkes on
June 21, 1999, which plan was recorded on June 25, 1999 in the Belknap County
Registry of Deeds in Drawer L32 as Plan No. 32 and 33.
<PAGE>
Exhibit 10.5
REAFFIRMATION OF GUARANTY AND INDEMNITY AGREEMENTS
THIS REAFFIRMATION OF GUARANTY AND INDEMNITY AGREEMENTS (this
"Agreement") dated as of June 28, 1999 is made by THE J. JILL GROUP, INC. (f/k/a
DM Management Company), a Delaware corporation with a mailing address at 25
Recreation Park Drive, Hingham, Massachusetts 02043 ("DM"), and by BIRCH POND
REALTY CORPORATION, a Delaware corporation (doing business in the State of New
Hampshire as BPRC), with a principal place of business at 100 Birch Pond Drive,
Tilton, New Hampshire 03289 ("BIRCH POND"; DM and Birch Pond are each an
"INDEMNITOR" and collectively, "INDEMNITORS"), in favor of JOHN HANCOCK REAL
ESTATE FINANCE, INC., a Delaware corporation, having its principal place of
business at John Hancock Place, T-53, 200 Clarendon Street, Boston,
Massachusetts 02116 ("JHREF").
WITNESSETH:
WHEREAS, JHREF has extended a Loan (the "LOAN") to Birch Pond in the
original principal amount of $12,000,000.00; and
WHEREAS, to evidence the Loan, JHREF is the holder of a certain
Mortgage Note (the "NOTE") secured by, inter alia, a certain Mortgage,
Assignment of Leases and Rents and Security Agreement dated March 1, 1999, by
Birch Pond to JHREF, and recorded in the Belknap County Registry of Deeds in
Book 1518 at Page 0596 (the "MORTGAGE"), as modified by a First Modification of
Mortgage, Assignment of Leases and Rents and Security Agreement of even date
herewith, by and between Birch Pond and JHREF, a copy of which is attached
hereto as EXHIBIT A and made a part hereof (the "FIRST MODIFICATION AGREEMENT");
and
WHEREAS, as additional consideration for the Loan as evidenced by the
Note, the Indemnitors have entered into a certain Indemnity Agreement dated
March 1, 1999, by and among Indemnitors and JHREF; and
WHEREAS, as additional consideration for the Loan as evidenced by the
Note, DM, as guarantor, has entered into a certain Guaranty Agreement made in
favor of JHREF, and dated March 1, 1999; and
WHEREAS, JHREF is contemporaneously herewith releasing certain of the
Mortgaged Property (as defined in the Mortgage) pursuant to JHREF's execution
and delivery to Birch Pond of a certain Partial Release of even date herewith, a
copy of which is attached hereto as EXHIBIT B and made a part hereof;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Indemnitors hereby agree and
covenant for the benefit of JHREF as follows:
1. ACKNOWLEDGMENT AND CONSENT. Indemnitors acknowledge that each of them has
received and reviewed a copy of the First Modification Agreement and the Partial
Release (collectively, the "DOCUMENTS") and each consents to the terms and
conditions of the Documents.
<PAGE>
2. REAFFIRMATION BY INDEMNITORS. Indemnitors hereby ratify, confirm
and reaffirm Indemnitors' obligations, representations, warranties, covenants,
agreements and waivers contained in the Indemnity Agreement, agree that the
Documents have no affect whatsoever on such obligations, representations,
warranties, covenants, agreements or waivers, and further represent and warrant
to JHREF that Indemnitors have no defenses to, or claims, charges or set-offs
against, such obligations, representations, warranties, covenants, agreements or
waivers.
3. REAFFIRMATION BY DM. DM hereby reaffirms its obligations,
representations, warranties, covenants, agreements and waivers contained in the
Guaranty Agreement, agree that the Documents have no affect whatsoever on such
obligations, representations, warranties, covenants, agreements or waivers, and
further represents and warrants to JHREF that DM has no defenses to, or claims,
charges or set-offs against, such obligations, representations, warranties,
covenants, agreements or waivers.
4. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which, when taken together,
shall be deemed one and the same agreement.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Indemnitors and their respective successors and assigns and shall inure to the
benefit of and be enforceable by JHREF and its successors and assigns.
IN WITNESS WHEREOF, the Indemnitors have duly executed this Agreement
as of the date first hereinabove mentioned.
THE J. JILL GROUP, INC. (f/k/a DM
Management Company), a Delaware corporation
By: /s/ Olga L. Conley
----------------------------------------
Name: Olga L. Conley
Title: Chief Financial Officer
BIRCH POND REALTY CORPORATION, a
Delaware corporation
By: /s/ Olga L. Conley
-----------------------------------------
Name: Olga L. Conley
Title: Treasurer and Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet at June 26, 1999 and from the consolidated
statement of operations for the three months and the six months ended June 26,
1999 contained in the Company's quarterly report on form 10-Q and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000910721
<NAME> THE J. JILL GROUP, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-25-1999 DEC-25-1999
<PERIOD-START> MAR-28-1999 DEC-27-1998
<PERIOD-END> JUN-26-1999 JUN-26-1999
<CASH> 12,276 12,276
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 22,058 22,058
<CURRENT-ASSETS> 50,022 50,022
<PP&E> 49,369 49,369
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 105,634 105,634
<CURRENT-LIABILITIES> 24,428 24,428
<BONDS> 21,344 21,344
0 0
0 0
<COMMON> 99 99
<OTHER-SE> 59,763 59,763
<TOTAL-LIABILITY-AND-EQUITY> 105,634 105,634
<SALES> 78,041 142,760
<TOTAL-REVENUES> 78,041 142,760
<CGS> 33,944 62,542
<TOTAL-COSTS> 49,775 93,759
<OTHER-EXPENSES> 21,616 39,755
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 354 766
<INCOME-PRETAX> 6,296 8,480
<INCOME-TAX> 2,518 3,392
<INCOME-CONTINUING> 3,778 5,088
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,778 5,088
<EPS-BASIC> 0.38 0.52
<EPS-DILUTED> 0.36 0.48
</TABLE>
