UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 29, 1998
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 1-11893
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GUESS ?, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-3679695
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1444 South Alameda Street
Los Angeles, California, 90021
--------------------------------
(Address of principal executive offices)
(213) 765-3100
--------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether 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
---- ----
As of May 11, 1998, the registrant had 42,902,035 shares of Common Stock, $0.01
par value, outstanding.
GUESS ?, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) -
as of March 29, 1998 and December 31, 1997 . . . . . . . . . . . 1
Condensed Consolidated Statements of Earnings (Unaudited) -
First Quarters ended March 29, 1998 and March 30, 1997 . . . . . 2
Condensed Consolidated Statements of Cash Flows (Unaudited) -
First Quarters ended March 29, 1998 and March 30, 1997 . . . . . 3
Notes to Condensed Consolidated Financial Statements (Unaudited) . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Quantitative and Qualitative Disclosures About Market Risks. . . . .12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .13
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . .15
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . .15
Item 4. Submission of Matters to Vote of Security Holders. . . . . . . . . .15
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . .15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .16
GUESS ?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
MAR 29, DEC 31,
1998 1997*
-------- --------
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,696 $8,204
Receivables:
Trade receivables, net of reserves. . . . . . . . . . . . . 33,606 17,080
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . 16,021 14,663
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,020 6,032
-------- --------
54,647 37,775
Inventories, net of reserves (note 3) . . . . . . . . . . . . . 84,967 92,081
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . 10,284 14,705
Prepaid expenses and other current assets . . . . . . . . . . . 15,571 14,857
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . 173,165 167,622
Property and equipment, at cost, net of accumulated
depreciation and amortization . . . . . . . . . . . . . . . . . 92,557 98,170
Other assets, at cost, net of accumulated amortization. . . . . . 21,454 22,022
-------- --------
$287,176 $287,814
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable
and long-term debt. . . . . . . . . . . . . . . . . . . . . $217 $217
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 32,193 38,323
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 13,999 22,412
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . 46,409 60,952
Notes payable and long-term debt, net of current
installments. . . . . . . . . . . . . . . . . . . . . . . . . . 147,700 141,300
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 9,737 10,232
-------- --------
203,846 212,484
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000
shares; no shares issued and outstanding. . . . . . . . . . --- ---
Common stock, $0.01 par value. Authorized 150,000,000
shares; issued 62,932,827 and 62,928,827 shares,
outstanding 42,902,035 and 42,898,035 shares at
March 29, 1998 and December 31, 1997, respectively,
20,030,792 shares in Treasury . . . . . . . . . . . . . . . 137 137
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . 158,589 158,589
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 75,382 67,432
Foreign currency translation adjustment. . . . . . . . . . . . (2) (52)
Treasury stock, 20,030,792 shares repurchased. . . . . . . . . (150,776) (150,776)
-------- --------
Net stockholders' equity. . . . . . . . . . . . . . . . . . 83,330 75,330
-------- --------
$287,176 $287,814
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements
*Condensed from Audited Balance Sheet
1
GUESS ?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(Unaudited)
First Quarter Ended
-------------------------
March 29, March 30,
1998 1997
---------- ----------
Net revenue:
Product sales. . . . . . . . . . . . . . . . . . . . . . . . . $100,205 $122,668
Net royalties. . . . . . . . . . . . . . . . . . . . . . . . . 10,563 13,068
-------- --------
110,768 135,736
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 64,316 74,152
-------- --------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . 46,452 61,584
Selling, general & administrative expenses. . . . . . . . . . . . 30,024 34,731
-------- --------
Earnings from operations . . . . . . . . . . . . . . . . . . . 16,428 26,853
Non-operating income (expense):
Interest, net. . . . . . . . . . . . . . . . . . . . . . . . . (3,182) (3,226)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (212) 119
-------- --------
(3,394) (3,107)
Earnings before income taxes and cumulative effect of
change in accounting principle. . . . . . . . . . . . . . . 13,034 23,746
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,083 9,694
-------- --------
Earnings before cumulative effect of change in
accounting principle. . . . . . . . . . . . . . . . . . . . 7,951 14,052
Cumulative effect of change in accounting for product
display fixtures, net of income tax expense of $2,707
(note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 3,961
-------- --------
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . $7,951 $18,013
-------- --------
-------- --------
Basic and diluted earnings per share:
- -------------------------------------
Earnings before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . $0.19 $0.33
Cumulative effect of change in accounting for product
display fixtures, net of income tax expense of $2,707
(note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . --- $0.09
-------- --------
Net earnings - basic and diluted. . . . . . . . . . . . . . . . . $0.19 $0.42
-------- --------
-------- --------
Weighted average number of common shares outstanding -
basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,902 42,898
-------- --------
-------- --------
Weighted average number of common shares outstanding -
dilutive. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,903 42,912
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements
2
GUESS ?, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
First Quarter Ended
-----------------------
March 29, March 30,
1998 1997
--------- ---------
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $7,951 $18,013
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization of property and
equipment. . . . . . . . . . . . . . . . . . . . . . . . 5,693 4,690
Amortization of goodwill. . . . . . . . . . . . . . . . . . 199 82
Cumulative effect of change in accounting principle . . . . --- (3,961)
Foreign currency translation adjustment . . . . . . . . . . 65 (85)
Undistributed equity method earnings. . . . . . . . . . . . 128 (119)
(Increase) decrease in:
Receivables. . . . . . . . . . . . . . . . . . . . . . . (16,873) (22,608)
Inventories. . . . . . . . . . . . . . . . . . . . . . . 7,114 (7,150)
Prepaid taxes. . . . . . . . . . . . . . . . . . . . . . 4,421 249
Prepaid expenses and other current assets. . . . . . . . (713) (117)
Other assets . . . . . . . . . . . . . . . . . . . . . . 147 528
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . . . . (6,131) 3,935
Accrued expenses . . . . . . . . . . . . . . . . . . . . (7,744) (8,931)
Income taxes payable . . . . . . . . . . . . . . . . . . (64) 9,052
-------- --------
Net cash used in operating activities. . . . . . . . . . . . (5,807) (6,422)
Cash flows from investing activities:
Purchases of property and equipment. . . . . . . . . . . . . . (1,334) (6,866)
Proceeds from the disposition of property and equipment. . . . --- 2
Lease incentives granted . . . . . . . . . . . . . . . . . . . 154 55
Acquisition of license . . . . . . . . . . . . . . . . . . . . 94 (2,023)
Decrease in short-term investments . . . . . . . . . . . . . . --- 4,401
Increase in long-term investments. . . . . . . . . . . . . . . --- (1,420)
-------- --------
Net cash used in investing activities. . . . . . . . . . . (1,086) (5,851)
Cash flows from financing activities:
Proceeds from notes payable and long-term debt . . . . . . . . 40,400 31,114
Repayments of notes payable and long-term debt . . . . . . . . (34,000) (21,737)
-------- --------
Net cash provided by financing activities. . . . . . . . . 6,400 9,377
Effect of exchange rates on cash. . . . . . . . . . . . . . . . . (15) (141)
Net decrease in cash. . . . . . . . . . . . . . . . . . . . . . . (508) (3,037)
Cash, beginning of period . . . . . . . . . . . . . . . . . . . . 8,204 8,800
-------- --------
Cash, end of period . . . . . . . . . . . . . . . . . . . . . . . $7,696 $5,763
-------- --------
-------- --------
3
First Quarter Ended
------------------------
March 29, March 30,
1998 1997
--------- ---------
Supplemental disclosures:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $6,951 $6,551
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 303 1,328
Supplemental disclosure of noncash investing activities:
During the quarter ended March 30, 1997, the Company issued 216,216 shares of
common stock with a value of $3.0 million in connection with the acquisition of
a license.
See accompanying notes to condensed consolidated financial statements
4
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position as of March 29,
1998 and December 31, 1997, and the results of operations and cash flows for the
three months ended March 29, 1998 and March 30, 1997. Operating results for the
first quarter ended March 29, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998. The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission ("SEC"). Accordingly, they have been condensed and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
(2) Summary of Significant Accounting Policies
Earnings Per Share
Basic earnings per share represents net earnings divided by the weighted-
average number of common shares outstanding for the period. Diluted earnings
per share represents net earnings divided by the weighted-average number of
shares outstanding, inclusive of the dilutive impact of common stock
equivalents. During the first quarters ended March 29, 1998 and March 30, 1997,
the difference between basic and diluted earnings per share was due to the
dilutive impact of options to purchase common stock.
Recently Issued Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS 130 requires all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
displayed with the same prominence as other financial statements. SFAS 130 does
not require a specific financial statement format but requires an enterprise to
display an amount representing total comprehensive income for the period covered
by that financial statement. SFAS 130 requires an enterprise to (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997.
5
The Company adopted SFAS 130 on January 1, 1998. The only difference between
"net earnings" and "comprehensive income" is the impact from foreign currency
translation adjustments. Accordingly, a reconciliation of comprehensive income
for the first quarters ended March 29, 1998 and March 30, 1997 is as follows (in
thousands):
March 29, March 30,
1998 1997
--------- ---------
Net earnings . . . . . . . . . . . . . . . . . . $7,951 $18,013
Foreign currency translation adjustment. . . . . (65) 85
--------- ---------
Comprehensive income . . . . . . . . . . . . . . $7,886 $18,098
--------- ---------
--------- ---------
In June 1997, FASB issued Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 established standards for public business enterprises to report
information about operating segments in annual financial statements and requires
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also established standards
for related disclosures about products and services, geographic areas and major
customers. This statement supersedes FASB Statement No. 14, Financial Reporting
for Segments of a Business Enterprise, but retains the requirement to report
information about major customers. It amends FASB Statement No. 94,
Consolidation of All Majority-Owned Subsidiaries, to remove the special
disclosure requirement for previously unconsolidated subsidiaries. SFAS 131
requires, among other items, that a public business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets information about the revenues derived from the enterprise's
products or services and major customers. SFAS 131 also requires the enterprise
report descriptive information about the way the operating segments were
determined and the products and services provided by the operating segments.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. SFAS 131 need not be applied to interim
financial statements in the initial year of application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. Management believes the adoption of SFAS 131 will not have a
material impact on the Company's financial reporting.
On April 3, 1998, the American Institute of Certified Public Accountants
("AICPA") Accounting Standards Executive Committee issued Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities." SOP 98-5
requires that costs of start-up activities, including organization costs and
retail store openings, be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998.
Earlier application is encouraged. Restatement of previously issued financial
statements is not permitted. In the fiscal year in which the SOP 98-5 is first
adopted, the application should be reported as a cumulative effect of a change
in accounting principle. The Company has not yet determined whether the
application of SOP 98-5 will have a material impact upon the Company's financial
position or results of operations.
6
(3) Inventories
The components of inventory consist of the following (in thousands):
Mar 29 Dec 31,
1998 1997
--------- ---------
Raw materials . . . . . . . . . . . . . . . . . $10,073 $12,988
Work in progress. . . . . . . . . . . . . . . . 13,385 8,059
Finished goods. . . . . . . . . . . . . . . . . 61,509 71,034
--------- ---------
$84,967 $92,081
--------- ---------
--------- ---------
(4) Change in Accounting Principle
Effective January 1, 1997, the Company changed its method of accounting for
product display fixtures located in its wholesale customers' retail stores,
whereby the costs for such fixtures will be capitalized and depreciated over
five years using the straight-line method. In prior years, these costs had been
expensed as incurred. The Company believes this method will more closely match
the long-term benefit the product display fixtures provide with the expected
future revenue from such fixtures. The cumulative effect of the change in
accounting principle, recorded in the first quarter of 1997, is calculated based
upon the retroactive effect of applying the new accounting method to prior year
fixture acquisitions. The cumulative effect of the change in accounting
principle of $4.0 million (after reduction of income tax expense of $2.7
million) is included in earnings for the quarter ended March 30, 1997.
7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Various forward-looking statements have been made in this Form 10-Q.
Forward-looking statements may also be in the registrant's other reports filed
under the Securities Exchange Act of 1934, in its press releases and in other
documents. In addition, from time to time, the registrant through its
management may make oral forward-looking statements.
Forward-looking statements generally refer to future plans and performance, and
are identified by the words "believe," "expect," "anticipate," "optimistic,"
"intend," "aim," "will" or similar expressions. Readers are cautioned not to
place undue reliance on these forward-looking statements, which refer only as of
the date of which they are made. The registrant undertakes no obligation to
update publicly or revise any forward-looking statements. Reference is hereby
made to the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 for a discussion of important factors that could cause actual
results to differ materially from the forward-looking statements.
OVERVIEW
The Company derives its net revenue from the sale of Guess men's, women's and
girl's apparel worldwide to wholesale customers and distributors; from the sale
of Guess men's and women's apparel and its licensees' products through the
Company's network of retail and factory outlet stores located primarily in the
United States; and from net royalties via worldwide licensing activities.
RESULTS OF OPERATIONS
NET REVENUE. Net revenue decreased $24.9 million or 18.4% to $110.8 million in
the first quarter ended March 29, 1998 from $135.7 million in the first quarter
ended March 30, 1997.
Net revenue from wholesale operations decreased $19.6 million or 24.5% to $60.7
million from $80.3 million. Domestic and international wholesale operations net
revenue decreased $6.7 million and $12.9 million, respectively. International
wholesale operations decreased due to the sale of the Guess? Italia operations
in June 1997, which reflects the absence of $13.0 million recorded in the prior
year. The Company's domestic wholesale net revenue declined primarily due to
increased competition in branded basic denim apparel.
Net revenue from retail operations decreased $2.8 million or 6.6% to $39.5
million from $42.3 million, primarily attributable to a 21.6% decrease in
comparable store net revenue, partially offset by increased volume generated by
new store openings. The decrease in comparable store net revenue was primarily
due to product assortment changes in the Factory Stores, softening Pacific Rim
tourism and the impact of El Nino adversely affecting west coast stores.
Net royalties decreased $2.5 million or 19.2% in the first quarter ended March
29, 1998 to $10.6 million from $13.1 million in the first quarter ended March
30, 1997. The decline in net royalties was primarily due to the adverse affects
of lower royalties from Asian markets and certain discontinued licenses.
Net revenue from international operations comprised 10.0% and 17.3% of the
Company's net revenue during the first quarters of 1998 and 1997, respectively.
The decrease in the percentage of revenue from international
8
operations was primarily due to the aforementioned sale of the Guess? Italia
operations in June 1997.
GROSS PROFIT. Gross profit decreased 24.6% to $46.5 million in the first
quarter ended March 29, 1998 from $61.6 million in the first quarter ended March
30, 1997. The decline in gross profit was due to lower net royalties and net
revenue from product sales. Gross margin decreased to 41.9% in the quarter
ended March 29, 1998 compared to 45.4% in the quarter ended March 30, 1997.
Gross margin from product sales decreased to 35.8% in the quarter ended March
29, 1998 compared to 39.6% in the quarter ended March 30, 1997. The decline in
gross margin was primarily attributable to fixed store occupancy costs being
spread over a lower revenue base as well as an increase in retail store
markdowns in the 1998 period.
SG&A EXPENSES. Selling, general and administrative ("SG&A") expenses decreased
13.5% in the quarter ended March 29, 1998 to $30.0 million, or 27.1% of net
revenue, from $34.7 million, or 25.6% of net revenue, in the first quarter ended
March 30, 1997. The decrease was due to cost reduction initiatives implemented
in the fourth quarter of 1997, partially offset by higher legal costs associated
with UNITE activities (see "Legal Proceedings"). As a percentage of net revenue,
the increase in SG&A costs was the result of fixed expenses being spread over a
lower revenue base in the 1998 period.
EARNINGS FROM OPERATIONS. Earnings from operations decreased 38.8% to $16.4
million, or 14.8% of net revenue, in the first quarter ended March 29, 1998 from
$26.9 million, or 19.8% of net revenue, in the first quarter ended March 30,
1997. The decrease in earnings from operations was primarily due to lower
revenue.
INTEREST EXPENSE, NET. Net interest expense remained flat as compared to the
prior year at $3.2 million. The interest related to higher outstanding debt in
the first quarter ended March 29, 1998 was offset by a slightly lower net
effective interest rate. For the first quarter ended March 29, 1998, the
average debt balance was $146.9 million, with an average effective interest rate
of 8.8%. For the first quarter ended March 30, 1997, the average debt balance
was $131.3 million, with an average effective interest rate of 8.9%.
NET EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Net
earnings before the net cumulative effect of a change in accounting principle
decreased 43.4% to $8.0 million, or 7.2% of net revenue, in the first quarter
ended March 29, 1998, from $14.1 million, or 10.4% of net revenue, in the first
quarter ended March 30, 1997.
NET CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Effective January 1,
1997, the Company changed its method of accounting for product display fixtures
located in its wholesale customers' retail stores, whereby the costs for such
fixtures will be capitalized and depreciated over five years using the
straight-line method. In prior years, these costs had been expensed as
incurred. The Company believes this method will more closely match the long-term
benefit the product display fixtures provide with the expected future revenue
from such fixtures. The cumulative effect of the change in accounting
principle, recorded in the first quarter of 1997, is calculated based upon the
retroactive effect of applying the new accounting method to prior year fixture
acquisitions. The cumulative effect of the change in accounting principle of
$4.0 million (after reduction for income tax expense of $2.7 million) is
included in earnings for the quarter ended March 30, 1997.
NET EARNINGS. Net earnings decreased 55.9% to $8.0 million, or 7.2% of net
revenue, in the first quarter ended March 29, 1998, from $18.0 million, or 13.3%
of net revenue, in the first quarter ended March 30, 1997.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily on internally generated funds, trade credit and
bank borrowings to finance its operations and expansion. At March 29, 1998, the
Company had working capital of $126.8 million compared to $106.7 million at
December 31, 1997. The increase was primarily due to a $16.9 million increase
in receivables and a $14.0 million decrease in payables and accrued expenses,
which were partially offset by a $7.1 million decrease in inventory. The
increase in net receivables was primarily due to seasonal changes in volume.
The Company's Credit Agreement originally provided for a $100.0 million line of
credit facility. During the quarter ended March 29, 1998, this amount was
reduced to $86.9 million, which resulted from a certain Asian bank which fell
out of the bank group due to a restructuring of its U.S. portfolio. The current
revolving credit facility includes a $25.0 million sublimit for letters of
credit. At March 29, 1998, the Company had $42.7 million in outstanding
borrowings under the revolving credit facility, $1.0 million in outstanding
standby letters of credit and $9.4 million in outstanding commercial letters of
credit. At March 29, 1998, the Company had $33.8 million available for future
borrowings under such facility. The revolving credit facility will expire in
December 1999. The Credit Agreement contains various restrictive covenants
requiring, among other things, the maintenance of certain financial ratios. The
Company was in compliance with all such covenants as of March 29, 1998.
Capital expenditures, net of lease incentives granted, totaled $1.1 million in
the quarter ended March 29, 1998. The Company estimates its capital
expenditures for fiscal 1998 will be approximately $20.0 million, primarily for
the retail store expansion and remodeling, shop-in-shop programs and operations.
The Company anticipates that it will be able to satisfy its ongoing cash
requirements through 1998 for working capital and interest on the Company's
Senior Subordinated Notes, primarily with cash flow from operations,
supplemented, if necessary, by borrowings under its revolving Credit Agreement.
SEASONALITY
The Company's business is impacted by the general seasonal trends characteristic
of the apparel and retail industries. The Company's wholesale operations
generally experience stronger performance in the first and third quarters, while
retail operations are generally stronger in the third and fourth quarters. As
the timing of the shipment of products may vary from year to year, the result
for any particular quarter may not be indicative of results for the full year.
The Company has not had significant overhead and other costs generally
associated with large seasonal variations.
INFLATION
The Company does not believe the relatively moderate rates of inflation
experienced in the United States over the last three years have had a
significant effect on its net revenue or profitability. Although higher rates
of inflation have been experienced in a number of foreign countries in which the
Company's products are manufactured, the Company does not believe they have had
a material effect on the Company's net revenue or profitability.
EXCHANGE RATES
The Company receives United States dollars ("USD") for substantially all of its
product sales and its licensing revenues. Inventory purchases from
10
offshore contract manufacturers are primarily denominated in USD; however,
purchase prices for the Company's products may be impacted by fluctuations in
the exchange rate between the USD and the local currencies of the contract
manufacturers, which may have the effect of increasing the Company's cost of
goods in the future. In addition, royalties received from the Company's
international licensees are subject to foreign currency translation fluctuations
as a result of the net sales of the licensee being denominated in local currency
and royalties being paid to the Company in USD. During the last three fiscal
years, exchange rate fluctuations have not had a material impact on the
Company's inventory costs. The Company currently does not engage in hedging
activities with respect to such exchange rate risk.
IMPACT OF RECENTLY ISSUED PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards for
the reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS 130 requires all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement displayed with the same prominence as other financial
statements. SFAS 130 does not require a specific financial statement format but
requires an enterprise display an amount representing total comprehensive income
for the period covered by that financial statement. SFAS 130 requires an
enterprise to (a) classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. The Company
adopted the provisions of SFAS 130 effective January 1, 1998. The effect of the
adoption was immaterial to the Company's financial position and results of
operations for the quarter ended March 29, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 established standards for public business enterprises to report
information about operating segments in annual financial statements and requires
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also established standards
for related disclosures about products and services, geographic areas and major
customers. This statement supersedes FASB Statement No. 14, Financial Reporting
for Segments of a Business Enterprise, but retains the requirement to report
information about major customers. It amends FASB Statement No. 94,
Consolidation of All Majority-Owned Subsidiaries, to remove the special
disclosure requirement for previously unconsolidated subsidiaries. SFAS 131
requires, among other items, that a public business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets information about the revenues derived from the enterprise's
products or services and major customers. SFAS 131 also requires the enterprise
report descriptive information about the way the operating segments were
determined and the products and services provided by the operating segments.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. SFAS 131 need not be applied to interim
financial statements in the initial year of application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. Management believes that the adoption of SFAS 131 will not have a
material impact on the Company's financial reporting.
11
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires that costs of start-up activities, including
organization costs and retail store openings, be expensed as incurred. SOP 98-5
is effective for financial statements for fiscal years beginning after December
15, 1998. Earlier application is encouraged. Restatement of previously issued
financial statements is not permitted. In the fiscal year in which the SOP 98-5
is first adopted, the application should be reported as a cumulative effect of a
change in accounting principle. The Company has not yet determined whether the
application of SOP 98-5 will have a material impact upon the Company's financial
position or results of operations.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks.
Not applicable.
12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Litigation
On August 7, 1996, a class action complaint naming the Company and certain of
its independent contractors was filed in the Superior Court of the State of
California for the County of Los Angeles, titled as Brenda Figueroa et. al. v.
Guess ?, Inc. et. al. (Case No. BC 155 165). In this case, a purported class
action, plaintiffs assert claims for violation of state wage and hour laws,
wrongful discharge, and breach of contract arising out of the Company's
relationship with its independent contractors and actions taken by the Company's
independent contractors with respect to the employees of such independent
contractors. Plaintiffs contend that the Company is liable for its contractors'
violations because it is a "joint employer" with its independent contractors.
Plaintiffs also allege that the Company breached its agreement with the United
States Department of Labor ("USDOL") regarding the monitoring of its independent
contractors.
The Union of Needletrades, Industrial & Textile Employees ("UNITE") has filed
with the National Labor Relations Board ("NLRB") various charges that the
Company has engaged and is engaging in unfair labor practices within the meaning
of the National Labor Relations Act ("NLRA"). In Cases No. 21-CA-31524, No.
21-CA-31565 and No. 21-CA-31648, UNITE has alleged that the Company unlawfully
discharged certain employees because of certain union activities and unlawfully
threatened and coerced employees in the exercise of their rights under Section 7
of the NLRA. In Case No. 21-CA-31807, UNITE alleges that the Company has
unlawfully threatened to move its production to Mexico and elsewhere outside the
United States thus unlawfully interfering with UNITE's corporate campaign at the
Company's headquarters and at certain of the Company's independent contractors,
and has unlawfully ceased doing business with certain independent contractors
where ongoing union organizing campaigns are being conducted. On April 6, 1998,
the NLRB determined that it would not proceed with Case No. 21-CA-31807. UNITE
has indicated to the Company that it will appeal the NLRB's decision to
discharge Case No. 21-CA-31807.
On November 12,1997 UNITE filed Case No. 21-CA-32201, alleging the Company
violated the NLRA by filing retaliatory state and federal civil lawsuits against
UNITE and UNITE's employees, seeking fees and costs incurred defending such
lawsuits. These lawsuits primarily concern the legality of UNITE's picketing
activities against the Company, as well as trademark and other similar
violations under state and federal law. The NLRB determined not to issue a
complaint with respect to the Company's federal trademark suit, and to issue a
complaint with respect to certain of the Company's state law claims.
On December 15, 1997, UNITE filed Case No. 21-CA-32433 against the Company. In
this case, UNITE alleges the Company has interfered with, restrained and coerced
employees in the exercise of their Section 7 rights by filing and prosecuting
two other civil lawsuits against UNITE. The first of these lawsuits concerns
UNITE's alleged breach of a 1995 settlement agreement with the Company. The
second civil lawsuit involves the Company's claim for libel brought against
UNITE. In both of these cases, UNITE seeks, among other things, recovery of the
fees and costs in defending the civil lawsuits. The NLRB has informed the
Company that further processing of this charge will be held in abeyance pending
outcome of the underlying civil lawsuit.
On June 19, 1997 (Case No. 21-CA-32106), UNITE filed with the NLRB charges that
the Company, one of the Company's independent contractors, the law firm of
Mitchell Silberberg & Knupp LLP ("MSK") and certain employees of the Company and
MSK, acting in concert with each other interfered with the employees of the
independent contractors in the exercise of such employees'
13
Section 7 rights under the NLRA respecting the enforcement of wage and hour
laws. This Case was amended by UNITE on October 6, 1997, to add three additional
independent contractors of the Company as charged parties and to allege certain
of the contractors' employees were unlawfully polled and interrogated regarding
their union sympathies and threatened with plant closure. In this case, it is
further alleged the Company and its independent contractors were jointly liable
for the independent contractors' employees. On December 9 and 11, 1997, the
Regional Director for Region 21 of the NLRB ("Regional Director") advised the
Company that the portions of Case No. 21-Ca-32106 against MSK and the portion of
that charge which alleged the Company and its independent contractors were joint
employers would be dismissed. The NLRB has issued a formal complaint regarding
the allegations against the Company that it had unlawfully polled and
interrogated employees of its independent contractors regarding their union
and/or protected concerted activities. The administrative hearing on this charge
is scheduled to begin in July, 1998.
In Case No. 21-CA-32131 filed on June 30, 1997 and subsequently amended, UNITE
filed with the NLRB charges alleging the Company restrained, coerced, and
interfered with the Company's employees rights under Section 7 of the NLRA by
engaging in certain unlawful conduct including, without limitation: (a)
interrogating and polling employees regarding their and other employees' union
sympathies and activities; (b) organizing anti-union demonstrations; (c)
promising benefits to employees if they withdrew support for UNITE; (d)
threatening employees due to their support and activities on behalf of UNITE;
(e) assisting and supporting an unlawful employee committee; and (f) engaging in
other conduct designed to have a negative effect on UNITE's corporate campaign.
In Case No. 21-CA-32136, filed on July 3, 1997 and subsequently amended, UNITE
alleges the Company unlawfully discharged two employees because of their union
activities.
In November 1997, the Regional Director issued a consolidated complaint against
the Company based on the unfair labor practice charges filed in Cases No.
21-CA-32131 and No. 21-CA-32136. The consolidated complaint alleges the Company
unlawfully (a) threatened, coerced, restrained and interfered with its employees
in the exercise of their rights under Section 7 of the NLRA, (b) dominated,
administered, supported, assisted and failed to disband an allegedly unlawful
employee committee, (c) discharged an employee allegedly because of the
employee's union activities, (d) created onerous working conditions for another
employee, gave that employee a written warning, a poor performance evaluation
and probation and subsequently discharged that employee allegedly because of the
employee's union activities and (e) issued a written warning to another employee
allegedly because the employee did not engage in anti-union demonstrations.
On December 11, 1997, UNITE filed Case No. 21-CA-32427 alleging the Company
unlawfully discharged certain employees in October 1997 because of certain union
activities and unlawfully threatened employees due to their union activities.
On February 10, 1998, the NLRB determined to issue a complaint against the
Company alleging the Company unlawfully terminated eleven employees due to their
union activities and to consolidate this complaint with the consolidated
complaint issued in Cases No. 21-CA-32131, 21-CA-32136, 21-CA-31524, 21-CA-31565
and 21-CA-31648.
On April 22, 1998, the Company entered into a "Settlement Stipulation" with
UNITE and the NLRB settling the charges in Cases 21-CA-31524, 21-CA-31565,
21-CA-32131, 21-CA-32136, and 21-CA-32427. Under the Settlement Stipulation,
the Company has agreed to reinstate 13 "laid-off" former employees of the
Company and pay back wages and other costs to approximately 20 current and/or
former employees of the Company amounting to approximately $113,000.
In connection with its campaign against the company, UNITE has accused the
Company's independent contractors of engaging in illegal industrial homework
14
operations and violating minimum wage and overtime laws. It also accused the
Company of violating its agreement with the USDOL with respect to its program to
monitor its contractors for compliance with federal labor laws. In addition, as
a result of increased public attention to the apparel industry "sweatshop"
issue, federal and state labor investigators have continued to conduct frequent
inspections of apparel contractors, and federal labor officials have recently
reviewed the Company's contractor compliance monitoring program.
To the best of its knowledge, the Company's program to monitor its independent
contractors for compliance with federal labor laws is in compliance with its
voluntary agreement with the USDOL and meets USDOL guidelines for such programs.
However, there can be no assurance that, despite such a program, the Company's
contractors will not violate federal or state labor laws. To the best of the
Company's knowledge, no illegal industrial homework of the Company's apparel has
been found occurring at any contractor in the past year and no violations of
minimum wage or overtime laws have been found at the Company's contractors in
the sixteen months ended April 30, 1997.
On February 24, 1998, the Company and Maurice Marciano, Paul Marciano and Armand
Marciano, as individuals, were named as defendants in a putative class action
entitled John N. Robinson v. Guess ?, Inc., Maurice Marciano, Paul Marciano and
Armand Marciano, case number BC186583, filed in the Los Angeles Superior Court.
The complaint (the "Complaint") purports to state a claim under Sections
11.12(2) and 15 of the Securities Act of 1933 for alleged misrepresentations in
connection with the Company's initial public offering (the "IPO") in August
1996. Mr. Robinson purports to represent a class of all purchasers of the
Company's stock in the IPO and seeks unspecified damages. The case has just been
filed, and a response by the defendants is not yet due. While it is too soon to
predict the outcome of the case with any certainty, the Company believes it has
meritorious defenses to each of the claims asserted and intends to vigorously
defend itself.
The Company believes the outcome of one or more of the above cases could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company is also a party to various other claims, complaints and other legal
actions that have arisen in the ordinary course of business from time to time.
The Company believes that the outcome of such pending legal proceedings, in the
aggregate, will not have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the first quarter
of 1998.
ITEM 5. Other Information
None.
15
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit
Number Description
- ------- -----------
10.32. Second Amendment and Consent to the Amended and Restated Revolving
Credit Agreement by and between Guess ?, Inc. And BankBoston, N.A.,
F/K/A The First National Bank of Boston, Sanwa Bank California and the
Financial Institutions Party Hereto.
10.33. Third Amendment and Consent to the Amended and Restated Revolving
Credit Agreement by and between Guess ?, Inc. And BankBoston, N.A.,
F/K/A The First National Bank of Boston, Sanwa Bank California and the
Financial Institutions Party Hereto.
27.1. Financial Data Schedule
- --------------------------------
b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter ended March
29, 1998.
16
SIGNATURES
Pursuant to the requirements of Rule 12b-15 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.
GUESS ?, INC.
Date: May 12, 1998 By: /s/ MAURICE MARCIANO
------------------------------------
Maurice Marciano
Chairman of the Board, Chief Executive
Officer and Director (Principal Executive
Officer)
Date: May 12, 1998 By: /s/ TERENCE TSANG
------------------------------------
Terence Tsang
Vice President-Finance, Treasurer &
Corporate Controller (Principal
Financial Officer and Chief Accounting
Officer)
17
10.32. Second Amendment and Consent to the Amended and Restated Revolving
Credit Agreement by and between Guess ?, Inc. And BankBoston, N.A., F/K/A
The First National Bank of Boston, Sanwa Bank California and the Financial
Institutions Party Hereto.
- --------------------------------------------------------------------------------
SECOND AMENDMENT AND CONSENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
BY AND BETWEEN
GUESS ?, INC.
AND
BANKBOSTON, N.A.
F/K/A THE FIRST NATIONAL BANK OF BOSTON,
SANWA BANK CALIFORNIA
AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
Dated as of January 30, 1998
1
SECOND AMENDMENT AND CONSENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This Second Amendment and Consent to Amended and Restated Revolving Credit
Agreement (this "Agreement") is entered into as of January 30, 1998, by and
between GUESS ?, INC., a Delaware corporation having its chief executive office
at 1444 S. Alameda Street, Los Angeles, California, 90021 (the "Company") and
BankBoston, N.A. formerly THE FIRST NATIONAL BANK OF BOSTON, a bank with its
head offices at 100 Federal Street, Boston, Massachusetts, 02110 (the "Agent"),
SANWA BANK CALIFORNIA, a bank with its head offices at 601 South Figueroa
Street, Los Angeles, California 90017 (the "Co-Agent"), and THE FINANCIAL
INSTITUTIONS PARTIES HERETO (the "Lenders").
RECITALS
I. The parties hereto have previously entered into that certain Amended
and Restated Revolving Credit Agreement, dated as of March 28, 1997 as amended
by the First Amendment and Waiver to the Amended and Restated Revolving Credit
Agreement dated as of April 30, 1997 (collectively the "Credit Agreement");
A. As of December 31, 1997 the Company transferred certain assets to
Guess? Retail, Inc. ("Retail") and Guess? Licensing, Inc. ("Licensing") all as
more fully set forth in the Consent and Affirmation Agreement dated as of
December 31, 1997 and appended hereto as Exhibit A (the "Consent Agreement") ;
A. As set forth in the Consent Agreement, Retail and Licensing have each
agreed to become parties to the Credit Agreement as guarantors (the
"Guarantors") and to grant the Agent on behalf of the Lenders a security
interest as more fully set forth in the security agreements, the form of which
is appended hereto as Exhibit B (the "Guarantors Security Agreements");
A. Retail and Licensing have further agreed to make certain
representations and warranties as set forth in this Agreement and to affirm
that they are bound by certain covenants set forth in the Credit Agreement to
which Subsidiaries are to be bound; and
A. The Company, Retail and Licensing have agreed to make certain other
modifications to the Credit Agreement as provided in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained in this Waiver and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree to the above Recitals and as follows:
1. Definitions. All defined terms used herein without definition
shall have the meanings assigned to them in the Credit Agreement.
2
1. Amendments to the Credit Agreement. From and after the date
hereof the Credit Agreement is hereby amended as follows:
a) The Credit Agreement is amended by the addition of the following
definitions and the full substitution of the following definitions:
Consent Agreement. Consent and Affirmation Agreement dated
as of December 31, 1997 by and among the Majority Lenders,
the Agent, the Company, Retail and Licensing and appended
hereto as Exhibit M.
Consolidated Total Debt Service. For any period, all
interest (on a consolidated basis if and when the Company
has any Subsidiaries) which has accrued (whether actually
paid or not) for such period, and all scheduled payments of
principal due during the one year period preceding the end
of such period, on all obligations for borrowed money,
capitalized leases or otherwise, except for the principal
amounts outstanding under the Revolving Loans.
Consolidated Total Interest Expense. For any period, all
interest (on a consolidated basis if and when the Company
has any Subsidiaries) which has accrued (whether actually
paid or not) for such period on all Indebtedness for Money
Borrowed, Capitalized Leases or otherwise.
Four Wall Contribution Report. For any retail or outlet
store of the Company or any Subsidiary, a report of results
of operations for that store taking into account gross
sales, cost of goods sold and overhead expenses including
rent, payroll and tenant improvements, in each case related
only to that store and excluding charges relating to the
other operations and store locations of the Company and its
other Subsidiaries .
Guaranteed Obligations . See Section 4A.1.
Guarantors. Retail and Licensing and any other party who in the
future agrees to be bound by the provisions of Section 4A of this
Agreement.
Guarantors Security Agreement. The security agreement in
form appended hereto as Exhibit L-1 and L-2 executed by each
Guarantor.
Inventory Turnover. As of the last day of each fiscal
quarter, the result obtained (expressed as the number of
turns) by dividing (i) the total cost of sales of the
Company and its Subsidiaries on a consolidated basis for the
four fiscal quarters then ended, by (ii) the average
inventory of the Company and its Subsidiaries on a
consolidated basis for the four fiscal quarters then ended
(calculated by
3
adding the book value of the inventory of the
Company and its Subsidiaries on a consolidated basis as of
the end of the most recently ended fiscal quarter to the
book value of the inventory of the Company and its
Subsidiaries on a consolidated basis at the beginning of the
measurement period and dividing the result by 2).
Licensing . Guess? Licensing, Inc. a Delaware Corporation which is a
Wholly Owned Subsidiary.
Loan Documents. Collectively, this Agreement, the Notes,
the Security Agreement, the Guarantors Security Agreements,
any Letters of Credit, any Letter of Credit Agreement and
any guaranties or other document required by any such Loan
Document together with any amendments, modifications or
replacements thereto.
Retail . Guess? Retail, Inc. a Delaware Corporation which is a
Wholly Owned Subsidiary.
a) Section 4A is added to the Credit Agreement to read as follows:
SECTION 4A. Guaranty by Guarantors
4A.1 The Guaranty4A.1 Guaranty. Each Guarantor hereby jointly and
severally guaranties to each Lender, the Co-Agent and the Agent and
their respective successors and assigns the prompt payment in full
when due of all Obligations (whether at stated maturity, by
acceleration or otherwise) of any kind or nature each in accordance
with the terms thereof (being herein collectively called the
"Guaranteed Obligations"). Each Guarantor hereby further agrees that
if the Company shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, each Guarantor will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of
time of payment or renewal of any of the Guaranteed Obligations, the
same will be promptly paid in full when due (whether at extended
maturity, by acceleration or otherwise) in accordance with the terms
of such extension or renewal.
4A.2 Obligations Absolute Obligations Unconditional. The
obligations of each Guarantor under Section 4A.1 are absolute and
unconditional irrespective of the value, genuineness, validity,
regularity or enforceability of this Agreement, the other Loan
Documents or any other agreement or instrument referred to herein or
therein, or any substitution, release or exchange of any other
guaranty of or security for any of the Guaranteed Obligations, and
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 4A.2 that the
obligations of the Guarantors hereunder shall be absolute and
unconditional under any and all circumstances. Without limiting the
generality of the foregoing, it is agreed that the occurrence of any
one or more of the following shall not
4
alter or impair the liability of the Guarantors hereunder which shall
remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to
such Guarantors, the time for any performance of or compliance
with any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions
hereof or of the other Loan Documents or any other agreement or
instrument referred to herein or therein shall be done or
omitted;
(iii) the maturity of any of the Guaranteed Obligations
shall be accelerated, or any of the Guaranteed Obligations shall
be modified, supplemented or amended in any respect, or any right
hereunder or under the other Loan Documents or any other
agreement or instrument referred to herein or therein shall be
waived or any other guaranty of any of the Guaranteed Obligations
or any security therefor shall be released or exchanged in whole
or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor
of, the Agent, or any Lender or Lenders as security for any of
the Guaranteed Obligations shall fail to be perfected.
The Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement
that the Agent or any Lender exhaust any right, power or remedy or
proceed against the Company hereunder or under the other Loan
Documents or any other agreement or instrument referred to herein or
therein, or against any other Person under other guaranty of, or
security for, any of the Guaranteed Obligations.
4A.3 Reinstatement. The obligations of each Guarantor under this
Section 4A shall be automatically reinstated if and to the extent
that for any reason any payment by or on behalf of the Company in
respect of the Guaranteed Obligations is rescinded or must be
otherwise restored by any holder of any of the Guaranteed Obligations,
whether as a result of any proceedings in bankruptcy or reorganization
or otherwise, and each of the Guarantors agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and
expenses (including fees and expenses of counsel) incurred by the
Agent or any Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law.
4A.4 Subrogation. Each Guarantor hereby waives all rights of
subrogation or contribution, whether arising by contract or operation
of law (including any such right arising under
5
the Federal Bankruptcy Code of 1978, as amended) or otherwise by
reason of any payment by it pursuant to the provisions of this Section
4A and further agrees with the Company for the benefit of each of its
creditors (including each Lender and the Agent) that any such payment
by it shall constitute a contribution of capital by such Guarantor to
the Company.
4A.5 Remedies. Each Guarantor agrees that, as between such Guarantor
and the Lenders, the Obligations may be declared to be forthwith due
and payable as provided in Section 7.1 for purposes of Section 4A.1
notwithstanding any stay, injunction or other prohibition preventing
such declaration (or such obligations from becoming automatically due
and payable) as against the Company and that, in the event of such
declaration (or such obligations being deemed to have become
automatically due and payable), such Obligations (whether or not due
and payable by the Company) shall forthwith become due and payable by
such Guarantor for purposes of Section 4A.1.
4A.6 Instrument for the Payment of Money. 3.6 Instrument
for the Payment of Money. Each Guarantor hereby
acknowledges that the guaranty in this Section 4A
constitutes an instrument for the payment of money, and
consents and agrees that the any Lender or the Agent, at its
sole option, in the event of a dispute by the Guarantors in
the payment of any moneys due hereunder, shall have the
right to summary judgment or such other expedited procedure
as may be available for a suit on a note or other instrument
for the payment of money.
4A.7 Continuing Guaranty 3.7Continuing Guaranty. The guaranty in this
Section 4A is a continuing guaranty, and shall apply to all Guaranteed
Obligations whenever arising.
4A.8 General Limitation on Guaranty Obligations 3.9 General Limitation
on Guaranty Obligations. In any action or proceeding involving any
state corporate law, or any state or Federal bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors
generally, if the obligations of any Guarantor under Section 4A.1
would otherwise be held or determined to be void, invalid or
unenforceable, or subordinated to the claims of any other creditors,
on account of the amount of its liability under Section 4A.1, then,
notwithstanding any other provision hereof to the contrary, the amount
of such liability shall, without any further action by such Guarantor,
any Lender, the Agent or any other Person, be automatically limited
and reduced to the highest amount that is valid and enforceable and
not subordinated to the claims of other creditors as determined in
such action or proceeding.
6
a) Section 5.1(c) of the Credit Agreement is deleted in its entirety
and amended to read as follows:
5.1(c) concurrently with the delivery of each financial statement
pursuant to subsections (a) and (b) of this Section 5.l, a report in
substantially the form of Exhibit F hereto signed on behalf of the
Company by its chief financial officer; in addition, a report of the
actual results of composite store sales on a consolidated basis for
each retail and outlet store of the Company or any of its Subsidiaries
for the year to date;
a) Section 5.1 (j) of the Credit Agreement is deleted in its
entirety and amended to read as follows:
5.1 (j) annual financial forecasts and projections for the Company
and its Subsidiaries to be delivered no later than 120 days after the
end of each fiscal year; and
a) Section 5.1 of the Credit Agreement is amended by deleting the
word "and" at the end of Section 5.1 (j), deleting the period after the end of
Section 5.1.(k), adding a ";" and the word "and" to the end of Section 5.1 (k)
and adding the following Section 5.1 (l) to read as follows:
5.1 (l) all of the reports, statements and other documents required to
be delivered upon this Section 5.1 must be received in hand by the
Agent no later than the date upon which they are due in accordance
with the various provisions of this Section 5.1, notwithstanding any
provision of Section 9.1 on the giving of notice.
a) Section 5.13 of the Credit Agreement, Use of Proceeds, is
deleted in its entirety and amended to read as follows:
5.13 Use of Proceeds. The Company will use the proceeds of
the Revolving Loans for the ongoing working capital needs of the
Company and the Guarantors. Notwithstanding the foregoing, the
Company may use up to $75,000,000 , in the aggregate of the Commitment
Amount, reduced by all purchases of Senior Subordinated Notes prior to
the date of this Agreement as set forth on Exhibit C and further
reduced by all purchases of Senior Subordinated Notes and common stock
under the Stock Repurchase Program made on and after the date hereof,
to repurchase a portion of the Senior Subordinated Notes or any of the
Company's common stock under the Stock Repurchase Program, provided,
(i) that the Company shall satisfy on a pro forma basis, all of the
covenants made herein for the next four (4) fiscal quarters from the
date thereof, (ii) that the Company's repurchase of the Senior
Subordinated Notes and common stock under the Stock Repurchase Program
in any fiscal quarter shall be limited to the amount of the Company's
positive net income based on the average of net income for the
preceding four fiscal quarters, as previously reported to the Agent
and using the current quarter as the fourth quarter for purposes of
the calculation and (iii) that such repurchase complies with the
provisions of Section 6.8 (xiv) hereof.
7
a) Section 6.2 of the Credit Agreement, Guarantees, is amended by
deleting the word "and" at the end of Section 6.2 (g), deleting the period
after the end of Section 6.2 (h), adding a ";" and the word "and" to the end of
Section 6.2 (h) and adding the following Section 6.2 (i) to read as follows:
6.2 (i) Guarantees by the Company of the store leases of
Retail listed on Schedule 6.2 (i).
a) Section 6.4 (a) of the Credit Agreement, Encumbrances, is
deleted in its entirety and amended to read as follows:
6.4 (a) Encumbrances in favor of the Agent or any of its affiliates
or Lenders under the Security Agreement and the Guarantors Security
Agreements;
a) Section 6.5 of the Credit Agreement, Merger; Consolidation; Sale
or Lease of Assets is amended by deleting the word "and" at the end of Section
6.5 (iv), adding a "," at the end of Section 6.5 (iv), deleting the period
after the end of Section 6.5 (v), adding the word "and" to the end of Section
6.5 (v) and adding the following Section 6.5 (vi) to read as follows:
6.5 (vi) the transfer by the Company of certain of its
property and rights to Retail and Licensing as described in
the Consent Agreement and the exhibits to the Consent
Agreement.
a) Section 6.8 (i) of the Credit Agreement, Investments, is deleted
in its entirety and amended to read as follows:
6.8 (i) Investments in Subsidiaries and new Investments in
Subsidiaries, Newtimes Guess Parent and Newtimes Guess not
to exceed $15,000,000 in the aggregate at any one time, but
excluding the transfer by the Company of certain of its
property for the shares of Retail and Licensing as more
fully set forth in the Consent Agreement and the exhibits to
the Consent Agreement,
a) Exhibit K to Section 6.11, Transactions with Affiliates, is
amended and updated as provided on Exhibit K appended to this Agreement to
provide for transactions between the Company and the Guarantors.
a) Section 7.1 (e) of the Credit Agreement, Events of Default, is
deleted in its entirety and amended to read as follows:
7.1 (e) any representation or warranty of the Company or the
Guarantors or any of them made in this Agreement or in the
Notes or any other documents or agreements executed in
connection with the transactions contemplated by this
Agreement or in any certificate delivered hereunder shall
prove to have been false in any material respect upon the
date when made or deemed to have been made; or
8
a) Section 9.1 of the Credit Agreement, Notices. is amended to provide
that any notice to the Guarantors shall be effective if delivered to the
Company attention Glenn A. Weinman, General Counsel, at Telecopier
(213)765-0911 and all notices to the Agent should be addressed to BankBoston,
N.A. attention: Nancy Fuller, Director, at Telecopier (617) 434-6685.
a) Consent and Waiver. Subject to the terms of this Agreement and
the Consent Agreement, the Lenders hereby consent to the transfer by the Company
of certain of its assets to Licensing and Retail pursuant to the exhibits to
the Consent Agreement and waives any Event of Default which arose due to such
transfers.
1. Conditions to Second Amendment.
a) The agreements of the Agent and the Lenders as set forth in this
Second Amendment are subject to the fulfillment of the following conditions:
1) Receipt by Agent of a copy of this Second Amendment and Consent
Agreement executed by the Company, Retail, Licensing and the Majority Lenders;
1) Receipt by Agent of fully executed Guarantors Security Agreements
from Retail and Licensing, with executed UCC-1's for each jurisdiction in which
Retail and Licensing have Collateral and/or their chief executive office;
a) Receipt by the Agent of (i) the opinion of counsel to the
Company in form reasonably satisfactory to the counsel to the Agent affirming
the opinion given on December 31, 1997, opining as to such additional items as
counsel to the Company previously agreed to address and any other matters
reasonably requested by counsel to the Agent; (ii) a certificate signed by the
Secretary or Assistant Secretary of the Company, Retail and Licensing
certifying, among other things: that the Articles of Incorporation of the
Company, Retail and Licensing have not been amended since the date of the
certified Articles of Incorporation for each delivered to Lender and attached
thereto as an exhibit, that the By-laws of the Company, Retail and Licensing
have not been amended since the certificate delivered on December 31, 1997,
affirmation that the resolutions of the Company's, Retail's and Licensing's
respective Boards of Directors authorizing the execution, delivery and
performance of the Second Amendment to the Credit Agreement and the Guarantors
Security Agreements, and granting the liens and encumbrances to the Agent for
the benefit of the Lenders are in full force and effect, and affirmation as to
the names, incumbency and signatures of the officers of the Company, Retail and
Licensing executing the Second Amendment to Credit Agreement, the Guarantors
Security Agreements, the UCC-1's in the jurisdictions in which each of Retail
and Licensing do business naming the Agent on behalf of the Lenders and the
other Loan Documents executed by each of them;
(1) All of the certificates of foreign qualification set forth
on Exhibit C hereto.
(1) Such other documents, instruments and agreements as Agent may
reasonably request in connection herewith or in order to effectuate the matters
described herein.
9
1. Credit Agreement Remains in Full Force an Effect. Except for
the amendments set forth in Section 2 hereof, no other amendment to the Credit
Agreement is being given and all provisions of the Credit Agreement shall
remain in full force and effect.
1. Representations and Warranties; No Default or Event of Default.
a) The Company hereby confirms that the representations and warranties
contained in Section 4 of the Credit Agreement are true and correct as
of the date hereof (except to the extent that such representations and
warranties relate to a prior date) and that no Default or Event of
Default has occurred and is continuing on the date hereof.
a) The Guarantors hereby confirm that each of them is a Subsidiary for
all purposes under the Credit Agreement and that all of the
representations and warranties contained in Section 4 of the Credit
Agreement are true and correct as of the date hereof as to each of the
Guarantors.
a) Each Guarantor confirms that each of the representations and
warranties set forth in Sections 4.2, 4.3, 4.4, 4.7 and 4.10 are true
and accurate as to each Guarantor.
1. Limitation of Waiver. Any waiver contained herein by the Agent
and/or the Lenders, shall apply to the occurrence specifically described herein
and then only to the extent set forth herein and shall not in any way be
construed as a bar to a waiver of any right or remedy of the Agent and the
Lenders as to any other occurrence or event.
1. Governing Law. This Waiver shall be construed in accordance
with and governed by the laws of the Commonwealth of Massachusetts (without
giving effect to any conflicts of laws provisions contained therein).
1. Fees and Expenses. The Company shall pay the Lenders'
reasonable attorneys' fees not to exceed $10,000 and out-of-pocket expenses for
the filing of financing statements in approximately 50 locations and other
normal and customary charges for photocopying, facsimile transmission,
overnight delivery, postage, long distance telephone calls and similar charges
actually incurred in connection with this Agreement as of and through the date
hereof.
1. Counterparts. This Second Amendment and Consent may be executed
in any number of counterparts, each of which when executed and delivered shall
be deemed an original, but all of which together shall constitute one
instrument. In making proof of this Agreement, it shall not be necessary to
account for more than one counterpart hereof signed by each of the parties
hereto. Except to the extent specifically amended or supplemented hereby, all
of the items, conditions and provisions of the Credit Agreement shall remain
unmodified, and the Credit Agreement, as amended and supplemented by this
Agreement, is confirmed as being in full force and effect.
10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first written.
GUESS ?, INC.
By:
Print Name:
Title:
GUESS RETAIL ?, INC.
By:
Print Name:
Title:
GUESS LICENSING ?, INC.
By:
Print Name:
Title:
BANKBOSTON, N.A. FORMERLY
THE FIRST NATIONAL BANK OF BOSTON
(AS AGENT AND LENDER)
By:
Print Name:
Title:
SANWA BANK CALIFORNIA (AS CO-AGENT
AND LENDER)
By:
Print Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY (AS LENDER)
By:
Print Name:
Title:
LENDERS SIGNATURES ON NEXT PAGE
11
CREDIT LYONNAIS LOS ANGELES
BRANCH (AS LENDER)
By:
Print Name:
Title:
SUMITOMO BANK OF CALIFORNIA
(AS LENDER)
By:
Print Name:
Title:
12
BANKBOSTON, N.A.
formerly known as The First National Bank of Boston
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") made as of January 30, 1998 by
GUESS ? LICENSING, INC., a Delaware corporation with its chief executive
offices at 1444 South Alameda St., Los Angeles CA 90021 (the "Debtor") in favor
of BANKBOSTON, N.A., formerly known as THE FIRST NATIONAL BANK OF BOSTON, a
national banking association with its head office at 100 Federal Street,
Boston, Massachusetts 02110 (sometimes referred to as the "Agent") as agent for
itself and for the Lenders parties to the Loan Agreement referred to below (the
"Lenders") (the "Secured Party").
WHEREAS, Guess?, Inc (the "Company"), the Secured Party and the Lenders
entered into as of March 28, 1997 an Amended and Restated Revolving Credit
Agreement (the "Loan Agreement") (all terms not otherwise defined shall have
the meaning provided in the Loan Agreement) and;
WHEREAS, on December 31, 1997, the Company transferred to the Debtor
certain of its assets comprised of certain existing licenses of intellectual
property and the right to license certain intellectual property in the United
States; and
WHEREAS, the Secured Party and the Lenders consented to the transfer from
the Company to the Debtor on the condition that the Debtor would guarantee the
Guaranteed Obligations of the Company to the Secured Party and the Lenders and
grant a security interest in its assets as provided in this security agreement;
WHEREAS, the Company, the Debtor, Guess? Retail, Inc, the Secured Party
and the Lenders have entered into a Second Amendment and Consent to the Loan
Agreement by which the Debtor has agreed to guarantee the Guaranteed
Obligations as defined in the Loan Agreement.
NOW THEREFORE, for value received, the receipt and legal sufficiency of
which is hereby acknowledged, the Debtor hereby agrees as follows:
I. SECTION Definitions. All capitalized terms used herein or in any
certificate, report or other document delivered pursuant to this Agreement
shall have the meanings assigned to them below or in the Loan Agreement (unless
otherwise defined). Except as otherwise defined, terms defined in the Uniform
Commercial Code shall have the meanings set forth therein.
Accounts. All rights of the Debtor to payment for goods sold or leased or
for services rendered, all sums of money or other proceeds due or becoming due
thereon, all instruments evidencing any such right, all guarantees of and
security for any such right, and the Debtor's rights pertaining to and interest
in such goods, including the right of stoppage in transit, replevin or
reclamation, all chattel paper evidencing any such right and all other property
constituting "accounts" as such term is defined in the Uniform Commercial Code.
Collateral. See Section 2.
1
General Intangibles. All "general intangibles" as such term is defined in
the Uniform Commercial Code, but specifically excluding any trademarks, trade
names, patents, copyrights and any other intellectual property, other than an
Account arising from the licensing of any of the foregoing.
Inventory. All goods, merchandise and other personal property of the
Debtor that are held for sale, lease or other disposition, or for display or
demonstration, or leased or consigned, or that are raw materials, piece goods,
work-in-process or materials used or consumed or to be used or consumed in the
Debtor's business, whether in transit or in the possession of the Debtor or
another, including without limitation all goods covered by purchase orders and
contracts with suppliers and all goods billed and held by suppliers and goods
located on the premises of any carriers, forwarding agents, truckers,
warehousemen, vendors, selling agents or other third parties; all display
materials relating to any of the foregoing; all warehouse receipts and other
negotiable and non-negotiable documents of title covering any of the foregoing;
and all other property constituting "inventory" as such term is defined in the
Uniform Commercial Code.
Officer's Certificate. A certificate signed by an officer of the Debtor
authorized in the resolution delivered herewith in the form attached hereto and
delivered concurrently herewith.
Uniform Commercial Code. The Uniform Commercial Code as in effect in the
Commonwealth of Massachusetts.
I. SECTION Grant. To secure the payment and performance of the Debtor's
guarantee of the Guaranteed Obligations, the Debtor hereby assigns and pledges
to the Secured Party and grants to the Secured Party a continuing security
interest in all of its rights, title and interest in, whether now owned or
existing or hereafter arising or acquired, all Inventory and Accounts, and any
and all additions, substitutions, replacements and accessions to any of the
foregoing; and all proceeds and products of any of the foregoing (including,
without limitation, proceeds which constitute Accounts, Inventory or General
Intangibles) (collectively, the "Collateral").
I. SECTION Representations, Warranties and Covenants. The Debtor makes the
following representations and warranties, and agrees to the following
covenants, each of which representations, warranties and covenants shall be
continuing and in force so long as this Agreement is in effect:
A. Name; Debtor/Collateral Location; Changes.
(a) The name of the Debtor set forth on the first page hereof is the true
and correct legal name of the Debtor, and except as otherwise disclosed to the
Secured Party in the Officer's Certificate, the Debtor has not done business as
or used any other name.
(b) The address of the Debtor set forth on the first page hereof is the
Debtor's chief executive office (the "Chief Executive Office") and the place
where its business records are kept.
(c) The Debtor will not change its name, identity or organizational
structure or the Chief Executive Office or place where its business records are
kept, or move any tangible Collateral, unless the Debtor shall have given the
Secured Party at least 30 days' prior written notice thereof and shall have
delivered to the Secured Party such new Uniform Commercial Code financing
statements or other
2
documentation as may be necessary or required by the Secured Party to ensure
the continued perfection and priority of the security interests granted by this
Agreement.
A. Ownership of Collateral; Absence of Liens and Restrictions. The Debtor
is, and in the case of property acquired after the date hereof, will be, the
sole legal and equitable owner of the Collateral, holding good and marketable
title to the same free and clear of all Encumbrances except Permitted
Encumbrances, and has good right and legal authority to assign, deliver, and
create a security interest in the Collateral in the manner herein contemplated.
The Collateral is not subject to any restriction that would prohibit or
restrict the assignment, delivery or creation of the security interests
contemplated hereunder.
A. First Priority Security Interest. This Agreement, together with the
filing of Uniform Commercial Code financing statements in the appropriate
offices for the locations of Collateral listed in the Officer's Certificate,
create a valid and continuing first lien on and perfected security interest in
the Collateral (except for property not located in the United States or
property in which a security interest may not be perfected by filing of a
financing statement under the Uniform Commercial Code), prior to all other
Encumbrances other than Permitted Encumbrances, and is enforceable as such
against creditors of the Debtor.
A. Sales and Further Encumbrances. The Debtor shall defend its title to,
and the Secured Party's interest in, the Collateral against all claims and take
any action necessary to remove any Encumbrances other than Permitted
Encumbrances and defend the right, title and interest of the Secured Party in
and to any of the Secured Party's rights in the Collateral.
A. Accounts: Collection and Delivery of Proceeds. The Debtor will collect
all of its Accounts constituting Collateral in the ordinary course of its
business consistent with past practices unless and until the Secured Party
exercises its rights to collect the Accounts pursuant to this Agreement. After
the occurrence and during the continuation of an Event of Default, the Debtor
shall, at the request of the Secured Party, notify account debtors of the
security interest of the Secured Party in any Account and that payment thereof
is to be made directly to the Secured Party. After the occurrence and during
the continuance of an Event of Default and upon request of the Secured Party,
any proceeds of Accounts or Inventory constituting Collateral received by the
Debtor, whether in the form of cash, checks, notes or other instruments, shall
be held in trust for the Secured Party and the Debtor shall deliver said
proceeds daily to the Secured Party, without commingling, in the identical form
received (properly endorsed or assigned where required to enable the Secured
Party to collect same).
A. Records of Accounts. The Debtor will, at the request of the Secured
Party, retain off-site current copies of all materials created by or furnished
to the Debtor on which is recorded then-current information about any computer
programs or data bases that the Debtor has developed or otherwise has the right
to use from time to time as it relates to Accounts and Inventory only. The
Debtor will, after the occurrence and during the continuance of an Event of
Default, at the request of the Secured Party, deliver a set of such copies to
the Secured Party for safekeeping and retention or transfer in the event of
foreclosure.
3
A. Further Assurances. Upon the written request of the Secured Party, and
at the sole expense of the Debtor, the Debtor will promptly execute and deliver
such further instruments and documents and take such further actions as the
Secured Party may reasonably deem desirable to obtain the full benefits of this
Agreement and of the rights and powers herein granted, including, without
limitation, filing of any financing statement under the Uniform Commercial
Code. The Debtor authorizes the Secured Party to file any such financing
statement without the signature of the Debtor to the extent permitted by
applicable law, and to file a copy of this Agreement in lieu of a financing
statement. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be immediately delivered to the
Secured Party, duly endorsed in a manner satisfactory to it.
A. Insurance Proceeds. Other than after the occurrence and during the
continuance of an Event of Default, the Debtor shall retain all proceeds of any
insurance on the Collateral.
I. Section Notices and Reports Pertaining to Collateral. The Debtor will,
with respect to the Collateral:
(a) promptly furnish to the Secured Party, from time to time upon
written request, reports in form and detail reasonably satisfactory to the
Secured Party setting forth an aging of Accounts and location of all
Inventory and after an Default a copy of the names and addresses of all
account debtors of the Company with information as to the outstanding
balance due from each such account debtor; and
(b) promptly notify the Secured Party of any Encumbrance asserted
against the Collateral other than a Permitted Encumbrance, including any
attachment, levy, execution or other legal process levied against any of
the Collateral;
The Debtor authorizes the Secured Party to, and the Secured Party agrees to,
destroy all invoices, delivery receipts, reports and other types of documents
and records submitted to the Secured Party in connection with the transactions
contemplated herein at any time subsequent to 12 months from the time such
items are delivered to the Secured Party.
I. Section Secured Party's Rights with respect to Collateral. The Secured
Party may, at its option and at any time, after the occurrence and during the
continuance of an Event of Default and after the Guaranteed Obligations have
been accelerated in accordance with the terms of the Loan Agreement, without
notice or demand on the Debtor, take the following actions with respect to the
Collateral:
(a) with respect to any Accounts (i) notify account debtors of the
security interest of the Secured Party in such Accounts and that payment
thereof is to be made directly to the Secured Party; (ii) demand, collect,
and receipt for any amounts relating thereto, as the Secured Party may
determine; (iii) commence and prosecute any actions in any court for the
purposes of collecting any such Accounts and enforcing any other rights in
respect thereof; (iv) defend, settle or compromise any action brought and,
in connection therewith, give such discharges or releases as the Secured
Party may deem appropriate; (v) endorse checks, notes,
4
drafts, acceptances, money orders, bills of lading, warehouse receipts or
other instruments or documents evidencing payment, shipment or storage of
the goods giving rise to such Accounts or securing or relating to such
Accounts, on behalf of and in the name of the Debtor; and (vi) sell,
assign, transfer, make any agreement in respect of, or otherwise deal with
or exercise rights in respect of, any such Accounts or the goods or
services which have given rise thereto, as fully and completely as though
the Secured Party were the absolute owner thereof for all purposes; and
(b) with respect to any Inventory make, adjust and settle claims
under any insurance policy related thereto.
Except as otherwise provided herein or by law and except for accounting for
moneys actually received by it in good funds hereunder, the Secured Party shall
have no duty as to the collection or protection of the Collateral nor as to the
preservation of any rights pertaining thereto, beyond the safe custody and
reasonable care of any Collateral in its possession.
I. Section Set-off Rights. Regardless of the adequacy of any Collateral
or any other means of obtaining repayment for any Guaranteed Obligations, the
Lenders shall have the right to set off against the bank accounts of the
Debtor to the same extent as provided as to the Company under Section 9.3 of
the Loan Agreement.
I. Section Defaults. An event of default ("Event of Default") shall exist
as provided in Section 7.1 of the Loan Agreement or as provided in Section 4A
of the Loan Agreement.
I. Section Secured Party's Rights and Remedies.
(a) So long as any Event of Default shall have occurred and is continuing:
(i) the Secured Party may take immediate possession of the
Collateral, and for that purpose the Secured Party may, so far as the
Debtor can give authority therefor, enter upon any premises on which any of
the Collateral is situated and remove the same therefrom or remain on such
premises and in possession of such Collateral for a reasonable period for
purposes of conducting a sale or enforcing the rights of the Secured Party;
(ii) the Debtor will, upon demand, assemble the Collateral and
make it available to the Secured Party at a place and time designated by
the Secured Party that is reasonably convenient to both parties;
(iii) the Secured Party may sell or otherwise dispose of the
Collateral at a public or private sale, with or without having the
Collateral at the place of sale, and upon such terms and in such manner as
the Secured Party may reasonably determine, and the Secured Party may
purchase any Collateral at any such sale. Unless the Collateral threatens
to decline rapidly in value or is of the type customarily sold on a
recognized market, the Secured Party shall send to the Debtor prior written
notice (which, if given at least ten days prior to any sale, shall be
deemed
5
to be reasonable) of the time and place of any public sale of the
Collateral or of the time after which any private sale or other disposition
thereof is to be made. The Debtor agrees that upon any such sale the
Collateral shall be held by the purchaser free from all claims or rights of
every kind and nature, including any equity of redemption or similar
rights, and all such equity of redemption and similar rights are hereby
expressly waived and released by the Debtor. In the event any consent,
approval or authorization of any governmental agency is necessary to
effectuate any such sale, the Debtor shall execute all applications or
other instruments as may be reasonably required; and
(iv) in any jurisdiction where the enforcement of its rights
hereunder is sought, the Secured Party shall have, in addition to all other
rights and remedies, the rights and remedies of a secured party under the
Uniform Commercial Code.
(b) Prior to any disposition of Collateral pursuant to this Agreement the
Secured Party may, at its option, cause any of the Collateral to be repaired or
reconditioned (but not upgraded unless mutually agreed) in such manner and to
such extent as to make it saleable.
(c) To the extent necessary in connection with the exercise of remedies
hereunder, the Secured Party is hereby granted a license or other right to use,
upon the occurrence and during the continuance of an Event of Default, without
charge, the Debtor's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or any property
of a similar nature, relating to the Collateral, in completing production of,
advertising for sale and selling any Collateral.
(d) The filing of a case under the Bankruptcy Code or similar statute by or
against the Company shall not limit the right of the Secured Party on behalf of
the Lenders to exercise rights against the Debtor.
(e) The Secured Party shall be entitled to apply the proceeds of any
disposition of the Collateral, first, to its reasonable expenses of retaking,
holding, protecting and maintaining, and preparing for disposition and disposing
of, the Collateral, including reasonably attorneys' fees and other reasonable
legal expenses incurred by it in connection therewith; and second, to the
payment of the Guaranteed Obligations in accordance with the Loan Agreement.
Any surplus remaining after such application shall be paid to the Debtor or to
whomever may be legally entitled thereto, provided that in no event shall the
Debtor be credited with any part of the proceeds of the disposition of the
Collateral until such proceeds shall have been received in good funds (or the
equivalent value if any Collateral is retained) by the Secured Party. The
Debtor shall remain liable for any deficiency.
6
I. Section Waivers. The Debtor waives presentment, demand, notice,
protest, notice of acceptance of this Agreement, notice of any loans made,
credit or other extensions granted, Collateral received or delivered or any
other action taken in reliance hereon and all other demands and notices of
any description, except for such demands and notices as are expressly
required to be provided to the Debtor under this Agreement, any other Loan
Document or any other document evidencing the Guaranteed Obligations. With
respect to both the Guaranteed Obligations and the Collateral, the Debtor
assents to any extension or postponement of the time of payment or any other
forgiveness or indulgence, to any substitution, exchange or release of
Collateral, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromise or adjustment of any thereof, all in such manner and
at such time or times as the Secured Party may deem advisable. The Secured
Party may exercise its rights with respect to the Collateral without
resorting, or regard, to other collateral or sources of reimbursement for
Guaranteed Obligations. The Secured Party shall not be deemed to have waived
any of its rights with respect to the Guaranteed Obligations or the
Collateral unless such waiver is in writing and signed by the Secured Party.
No delay or omission on the part of the Secured Party in exercising any right
shall operate as a waiver of such right or any other right. A waiver on any
one occasion shall not bar or waive the exercise of any right on any future
occasion. All rights and remedies of the Secured Party in the Guaranteed
Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, are cumulative and not exclusive of any remedies
provided by law or any other agreement, and may be exercised separately or
concurrently.
I. Section Expenses. Guaranteed Obligations shall include all of the
expenses provided for in Section 9.2 of the Loan Agreement and in addition
all reasonable out-of-pocket expenses of the Secured Party or the Lenders
related to the enforcement of this Agreement, the collection, preservation or
sale of the Collateral or other reasonable out-of-pocket expense related to
the Secured Party's and the Lender's rights hereunder, including, without
limitation, reasonable attorneys fees or expenses related to any of the
forgoing, including the cost of internal appraisers and examiners.
I. Section Notices. Any demand upon or notice to the Debtor shall be
effective when delivered to the Company as provided in Section 9.1 of the
Loan Agreement and to the Secured Party if delivered as provided in Section
9.1 of the Loan Agreement.
I. Section Successors and Assigns. This Agreement shall be binding upon the
Debtor, the Secured Party, the Lenders, their respective successors and
assigns, and shall inure to the benefit of and be enforceable by the Debtor,
the Secured Party or any of the Lenders and their respective successors and
assigns. Without limiting the generality of the foregoing sentence, the Secured
Party and the Lenders may assign or otherwise transfer any agreement or any
note held by it evidencing, securing or otherwise executed in connection with
the Guaranteed Obligations as provided in the Loan Agreement, or sell
participation in any interest therein as provided in the Loan Agreement, to any
other person or entity, and such other person or entity shall thereupon become
vested, to the extent set forth in the agreement evidencing such assignment,
transfer or participation, with all the rights in respect thereof granted to
the Secured Party and the Lenders herein.
7
I. Section General. This Agreement may not be amended or modified except by
a writing signed by the Debtor and the Secured Party (subject to the provisions
of Section 9.7 of the Loan Agreement), nor may the Debtor assign any of its
rights hereunder. This Agreement and the terms, covenants and conditions
hereof shall be construed in accordance with, and governed by, the laws of The
Commonwealth of Massachusetts (without giving effect to any conflicts of law
provisions contained therein).
I. Section Section Headings. Section headings are for convenience of
reference only and are not a part of this Agreement.
I. Section JURY WAIVER. THE SECURED PARTY (BY ITS ACCEPTANCE HEREOF) AND
THE DEBTOR AGREE THAT NEITHER OF THEM, NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A)
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER ACTION
BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR
(B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE
BEEN FULLY DISCUSSED BY THE SECURED PARTY AND THE DEBTOR, AND THESE PROVISIONS
SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE SECURED PARTY NOR THE DEBTOR
HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS
PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
8
IN WITNESS WHEREOF, the Debtor has caused this Agreement to be duly
executed as an instrument under seal as of the date first written above.
WITNESS: DEBTOR: GUESS? LICENSING, INC.
By:
Title:
Accepted and Agreed to:
BANKBOSTON, N.A. as Agent for the Lenders
By:
-------------------------------------------------
Title:
9
OFFICER'S CERTIFICATE
to
SECURITY AGREEMENT
Dated JANUARY 30, 1998
GUESS ? LICENSING, Inc. (the "Debtor"), hereby certifies, with reference
to a certain Security Agreement dated January 30, 1998 (terms defined in such
Security Agreement having the same meanings herein as specified therein),
between the Debtor and BankBoston, N.A. (the "Agent"), to the Agent and the
Lenders as follows:
1. Names.
(a) The exact corporate name of the Debtor and its taxpayer
identification number is as follows:
Guess ? Licensing, Inc. ; 95-4-660504
(b) The following is a list of all other names (including trade names or
similar appellations) used by the Debtor, or any other business or organization
to which the Debtor became the successor by merger, consolidation, acquisition,
change in form, nature or jurisdiction of organization or otherwise, now or at
any previous time:
None.
2. Locations.
(a) The chief executive office of the Debtor is located at the following
address:
1444 South Alameda Street
Los Angeles, California 90021
(b) The following are is a list of all other locations in the United
States of America in which the Debtor maintains any books or records relating
to any of the Collateral:
NONE
Within the last four months, if different:
(c) Set forth on Schedule 2 (c) hereto are all the other places of
business of the Debtor in the United States of America where Collateral is
located.
(d) The following are the names and addresses of all persons or entities
other than the Debtor, such as lessees, consignees or warehousemen that have
possession or are intended to have possession of any of the Collateral
consisting of Inventory:
10
Currently:
Street and Number County State Zip Code
Within the last four months, if different:
Street and Number County State Zip Code
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Debtor by its duly authorized officer on this 30th day January, 1998.
GUESS ? LICENSING, INC.
By:
Title:
11
BANKBOSTON, N.A.
formerly known as The First National Bank of Boston
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") made as of January 30, 1998 by
GUESS ? RETAIL, INC., a Delaware corporation with its chief executive offices
at 1444 South Alameda St., Los Angeles CA 90021 (the "Debtor") in favor of
BANKBOSTON, N.A., formerly known as THE FIRST NATIONAL BANK OF BOSTON, a
national banking association with its head office at 100 Federal Street,
Boston, Massachusetts 02110 (sometimes referred to as the "Agent") as agent for
itself and for the Lenders parties to the Loan Agreement referred to below (the
"Lenders") (the "Secured Party").
WHEREAS, Guess?, Inc (the "Company"), the Secured Party and the Lenders
entered into as of March 28, 1997 an Amended and Restated Revolving Credit
Agreement (the "Loan Agreement") (all terms not otherwise defined shall have
the meaning provided in the Loan Agreement) and;
WHEREAS, on December 31, 1997, the Company transferred to the Debtor
certain of its assets comprised of certain leases of retail stores, the
inventory in those stores and related items of collateral; and
WHEREAS, the Secured Party and the Lenders consented to the transfer from
the Company to the Debtor on the condition that the Debtor would guarantee the
Guaranteed Obligations of the Company to the Secured Party and the Lenders and
grant a security interest in its assets as provided in this security agreement;
WHEREAS, the Company, the Debtor, Guess? Licensing, Inc, the Secured Party
and the Lenders have entered into a Second Amendment and Consent to the Loan
Agreement by which the Debtor has agreed to guarantee the Guaranteed
Obligations as defined in the Loan Agreement.
NOW THEREFORE, for value received, the receipt and legal sufficiency of
which is hereby acknowledged, the Debtor hereby agrees as follows:
I. Section Definitions. All capitalized terms used herein or in any
certificate, report or other document delivered pursuant to this Agreement
shall have the meanings assigned to them below or in the Loan Agreement (unless
otherwise defined). Except as otherwise defined, terms defined in the Uniform
Commercial Code shall have the meanings set forth therein.
Accounts. All rights of the Debtor to payment for goods sold or leased or
for services rendered, all sums of money or other proceeds due or becoming due
thereon, all instruments evidencing any such right, all guarantees of and
security for any such right, and the Debtor's rights pertaining to and interest
in such goods, including the right of stoppage in transit, replevin or
reclamation, all chattel paper evidencing any such right and all other property
constituting "accounts" as such term is defined in the Uniform Commercial Code.
Collateral. See Section 2.
1
General Intangibles. All "general intangibles" as such term is defined in
the Uniform Commercial Code, but specifically excluding any trademarks, trade
names, patents, copyrights and any other intellectual property, other than an
Account arising from the licensing of any of the foregoing.
Inventory. All goods, merchandise and other personal property of the
Debtor that are held for sale, lease or other disposition, or for display or
demonstration, or leased or consigned, or that are raw materials, piece goods,
work-in-process or materials used or consumed or to be used or consumed in the
Debtor's business, whether in transit or in the possession of the Debtor or
another, including without limitation all goods covered by purchase orders and
contracts with suppliers and all goods billed and held by suppliers and goods
located on the premises of any carriers, forwarding agents, truckers,
warehousemen, vendors, selling agents or other third parties; all display
materials relating to any of the foregoing; all warehouse receipts and other
negotiable and non-negotiable documents of title covering any of the foregoing;
and all other property constituting "inventory" as such term is defined in the
Uniform Commercial Code.
Officer's Certificate. A certificate signed by an officer of the Debtor
authorized in the resolution delivered herewith in the form attached hereto and
delivered concurrently herewith.
Uniform Commercial Code. The Uniform Commercial Code as in effect in the
Commonwealth of Massachusetts.
I. Section Grant. To secure the payment and performance of the Debtor's
guarantee of the Guaranteed Obligations, the Debtor hereby assigns and pledges
to the Secured Party and grants to the Secured Party a continuing security
interest in all of its rights, title and interest in, whether now owned or
existing or hereafter arising or acquired, all Inventory and Accounts, and any
and all additions, substitutions, replacements and accessions to any of the
foregoing; and all proceeds and products of any of the foregoing (including,
without limitation, proceeds which constitute Accounts, Inventory or General
Intangibles) (collectively, the "Collateral").
I. Section Representations, Warranties and Covenants. The Debtor makes
the following representations and warranties, and agrees to the following
covenants, each of which representations, warranties and covenants shall be
continuing and in force so long as this Agreement is in effect:
A. Name; Debtor/Collateral Location; Changes.
(a) The name of the Debtor set forth on the first page hereof is the true
and correct legal name of the Debtor, and except as otherwise disclosed to the
Secured Party in the Officer's Certificate, the Debtor has not done business as
or used any other name.
(b) The address of the Debtor set forth on the first page hereof is the
Debtor's chief executive office (the "Chief Executive Office") and the place
where its business records are kept. Except (i) as disclosed on the Officer's
Certificate, (ii) Collateral in transit between locations disclosed on the
Officers Certificate and the Chief Executive Office, and (iii) Collateral in
transit between the Company and the Debtor, all of the tangible Collateral is
located at the Chief
2
Executive Office and at the retail locations listed in the Officers
Certificate.
(c) The Debtor will not change its name, identity or organizational
structure or the Chief Executive Office or place where its business records
are kept, or move any tangible Collateral to a location other than (i) those
set forth in the Officer's Certificate, (ii) Collateral in transit between
locations disclosed on the Officers Certificate and the Chief Executive
Office and (iii) Collateral in transit between the Company and the Debtor,
unless the Debtor shall have given the Secured Party at least 30 days' prior
written notice thereof and shall have delivered to the Secured Party such new
Uniform Commercial Code financing statements or other documentation as may be
necessary or required by the Secured Party to ensure the continued perfection
and priority of the security interests granted by this Agreement.
A. Ownership of Collateral; Absence of Liens and Restrictions. The Debtor
is, and in the case of property acquired after the date hereof, will be, the
sole legal and equitable owner of the Collateral, holding good and marketable
title to the same free and clear of all Encumbrances except Permitted
Encumbrances, and has good right and legal authority to assign, deliver, and
create a security interest in the Collateral in the manner herein
contemplated. The Collateral is not subject to any restriction that would
prohibit or restrict the assignment, delivery or creation of the security
interests contemplated hereunder.
A. First Priority Security Interest. This Agreement, together with the
filing of Uniform Commercial Code financing statements in the appropriate
offices for the locations of Collateral listed in the Officer's Certificate,
create a valid and continuing first lien on and perfected security interest
in the Collateral (except for property not located in the United States or
property in which a security interest may not be perfected by filing of a
financing statement under the Uniform Commercial Code), prior to all other
Encumbrances other than Permitted Encumbrances, and is enforceable as such
against creditors of the Debtor.
A. Sales and Further Encumbrances. The Debtor shall defend its title to,
and the Secured Party's interest in, the Collateral against all claims and
take any action necessary to remove any Encumbrances other than Permitted
Encumbrances and defend the right, title and interest of the Secured Party in
and to any of the Secured Party's rights in the Collateral.
A. Accounts: Collection and Delivery of Proceeds. The Debtor will collect
all of its Accounts constituting Collateral in the ordinary course of its
business consistent with past practices unless and until the Secured Party
exercises its rights to collect the Accounts pursuant to this Agreement.
After the occurrence and during the continuation of an Event of Default, the
Debtor shall, at the request of the Secured Party, notify account debtors of
the security interest of the Secured Party in any Account and that payment
thereof is to be made directly to the Secured Party. After the occurrence
and during the continuance of an Event of Default and upon request of the
Secured Party, any proceeds of Accounts or Inventory constituting Collateral
received by the Debtor, whether in the form of cash, checks, notes or other
instruments, shall be held in trust for the Secured Party and the Debtor
shall deliver said proceeds daily to the Secured Party, without commingling,
in the
3
identical form received (properly endorsed or assigned where required to
enable the Secured Party to collect same).
A. Records of Accounts. The Debtor will, at the request of the Secured
Party, retain off-site current copies of all materials created by or
furnished to the Debtor on which is recorded then-current information about
any computer programs or data bases that the Debtor has developed or
otherwise has the right to use from time to time as it relates to Accounts
and Inventory only. The Debtor will, after the occurrence and during the
continuance of an Event of Default, at the request of the Secured Party,
deliver a set of such copies to the Secured Party for safekeeping and
retention or transfer in the event of foreclosure.
A. Further Assurances. Upon the written request of the Secured Party, and
at the sole expense of the Debtor, the Debtor will promptly execute and
deliver such further instruments and documents and take such further actions
as the Secured Party may reasonably deem desirable to obtain the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, filing of any financing statement under the
Uniform Commercial Code. The Debtor authorizes the Secured Party to file any
such financing statement without the signature of the Debtor to the extent
permitted by applicable law, and to file a copy of this Agreement in lieu of
a financing statement. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note or
other instrument, such note or instrument shall be immediately delivered to
the Secured Party, duly endorsed in a manner satisfactory to it.
A. Insurance Proceeds. Other than after the occurrence and during the
continuance of an Event of Default, the Debtor shall retain all proceeds of
any insurance on the Collateral.
I. Section Notices and Reports Pertaining to Collateral. The Debtor will,
with respect to the Collateral:
(a) promptly furnish to the Secured Party, from time to time upon
written request, reports in form and detail reasonably satisfactory to the
Secured Party setting forth an aging of Accounts and location of all
Inventory and after an Default a copy of the names and addresses of all
account debtors of the Company with information as to the outstanding
balance due from each such account debtor; and
(b) promptly notify the Secured Party of any Encumbrance asserted
against the Collateral other than a Permitted Encumbrance, including any
attachment, levy, execution or other legal process levied against any of
the Collateral;
The Debtor authorizes the Secured Party to, and the Secured Party agrees to,
destroy all invoices, delivery receipts, reports and other types of documents
and records submitted to the Secured Party in connection with the transactions
contemplated herein at any time subsequent to 12 months from the time such
items are delivered to the Secured Party.
4
I. Section Secured Party's Rights with respect to Collateral. The Secured
Party may, at its option and at any time, after the occurrence and during the
continuance of an Event of Default and after the Guaranteed Obligations have
been accelerated in accordance with the terms of the Loan Agreement, without
notice or demand on the Debtor, take the following actions with respect to the
Collateral:
(a) with respect to any Accounts (i) notify account debtors of the
security interest of the Secured Party in such Accounts and that payment
thereof is to be made directly to the Secured Party; (ii) demand, collect,
and receipt for any amounts relating thereto, as the Secured Party may
determine; (iii) commence and prosecute any actions in any court for the
purposes of collecting any such Accounts and enforcing any other rights in
respect thereof; (iv) defend, settle or compromise any action brought and,
in connection therewith, give such discharges or releases as the Secured
Party may deem appropriate; (v) endorse checks, notes, drafts, acceptances,
money orders, bills of lading, warehouse receipts or other instruments or
documents evidencing payment, shipment or storage of the goods giving rise
to such Accounts or securing or relating to such Accounts, on behalf of and
in the name of the Debtor; and (vi) sell, assign, transfer, make any
agreement in respect of, or otherwise deal with or exercise rights in
respect of, any such Accounts or the goods or services which have given
rise thereto, as fully and completely as though the Secured Party were the
absolute owner thereof for all purposes; and
(b) with respect to any Inventory make, adjust and settle claims
under any insurance policy related thereto.
Except as otherwise provided herein or by law and except for accounting for
moneys actually received by it in good funds hereunder, the Secured Party shall
have no duty as to the collection or protection of the Collateral nor as to the
preservation of any rights pertaining thereto, beyond the safe custody and
reasonable care of any Collateral in its possession.
I. Section Set-off Rights. Regardless of the adequacy of any Collateral or
any other means of obtaining repayment for any Guaranteed Obligations, the
Lenders shall have the right to set off against the bank accounts of the Debtor
the to the same extent as provided as to the Company under Section 9.3 of the
Loan Agreement.
I. Section Defaults. An event of default ("Event of Default") shall exist
as provided in Section 7.1 of the Loan Agreement or as provided in Section 4A
of the Loan Agreement.
I. Section Secured Party's Rights and Remedies.
(a) So long as any Event of Default shall have occurred and is
continuing:
(i) the Secured Party may take immediate possession of the
Collateral, and for that purpose the Secured Party may, so far as the
Debtor can give authority therefor, enter upon any premises on which any of
the Collateral is situated and remove the same therefrom or remain on such
premises and in possession of such Collateral for a reasonable period for
5
purposes of conducting a sale or enforcing the rights of the Secured Party;
(ii) the Debtor will, upon demand, assemble the Collateral and
make it available to the Secured Party at a place and time designated by
the Secured Party that is reasonably convenient to both parties;
(iii) the Secured Party may sell or otherwise dispose of the
Collateral at a public or private sale, with or without having the
Collateral at the place of sale, and upon such terms and in such manner as
the Secured Party may reasonably determine, and the Secured Party may
purchase any Collateral at any such sale. Unless the Collateral threatens
to decline rapidly in value or is of the type customarily sold on a
recognized market, the Secured Party shall send to the Debtor prior written
notice (which, if given at least ten days prior to any sale, shall be
deemed to be reasonable) of the time and place of any public sale of the
Collateral or of the time after which any private sale or other disposition
thereof is to be made. The Debtor agrees that upon any such sale the
Collateral shall be held by the purchaser free from all claims or rights of
every kind and nature, including any equity of redemption or similar
rights, and all such equity of redemption and similar rights are hereby
expressly waived and released by the Debtor. In the event any consent,
approval or authorization of any governmental agency is necessary to
effectuate any such sale, the Debtor shall execute all applications or
other instruments as may be reasonably required; and
(iv) in any jurisdiction where the enforcement of its rights
hereunder is sought, the Secured Party shall have, in addition to all other
rights and remedies, the rights and remedies of a secured party under the
Uniform Commercial Code.
(b) Prior to any disposition of Collateral pursuant to this Agreement the
Secured Party may, at its option, cause any of the Collateral to be repaired or
reconditioned (but not upgraded unless mutually agreed) in such manner and to
such extent as to make it saleable.
(c) To the extent necessary in connection with the exercise of remedies
hereunder, the Secured Party is hereby granted a license or other right to use,
upon the occurrence and during the continuance of an Event of Default, without
charge, the Debtor's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or any property
of a similar nature, relating to the Collateral, in completing production of,
advertising for sale and selling any Collateral.
(d) The filing of a case under the Bankruptcy Code or similar statute by or
against the Company shall not limit the right of the Secured Party on behalf of
the Lenders to exercise rights against the Debtor.
(e) The Secured Party shall be entitled to apply the proceeds of any
disposition of the Collateral, first, to its reasonable expenses of
6
retaking,holding, protecting and maintaining, and preparing for disposition
and disposing of, the Collateral, including reasonably attorneys' fees and
other reasonable legal expenses incurred by it in connection therewith; and
second, to the payment of the Guaranteed Obligations in accordance with the
Loan Agreement. Any surplus remaining after such application shall be paid to
the Debtor or to whomever may be legally entitled thereto, provided that in
no event shall the Debtor be credited with any part of the proceeds of the
disposition of the Collateral until such proceeds shall have been received in
good funds (or the equivalent value if any Collateral is retained) by the
Secured Party. The Debtor shall remain liable for any deficiency.
I. Section Waivers. The Debtor waives presentment, demand, notice,
protest, notice of acceptance of this Agreement, notice of any loans made,
credit or other extensions granted, Collateral received or delivered or any
other action taken in reliance hereon and all other demands and notices of
any description, except for such demands and notices as are expressly
required to be provided to the Debtor under this Agreement, any other Loan
Document or any other document evidencing the Guaranteed Obligations. With
respect to both the Guaranteed Obligations and the Collateral, the Debtor
assents to any extension or postponement of the time of payment or any other
forgiveness or indulgence, to any substitution, exchange or release of
Collateral, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromise or adjustment of any thereof, all in such manner and
at such time or times as the Secured Party may deem advisable. The Secured
Party may exercise its rights with respect to the Collateral without
resorting, or regard, to other collateral or sources of reimbursement for
Guaranteed Obligations. The Secured Party shall not be deemed to have waived
any of its rights with respect to the Guaranteed Obligations or the
Collateral unless such waiver is in writing and signed by the Secured Party.
No delay or omission on the part of the Secured Party in exercising any right
shall operate as a waiver of such right or any other right. A waiver on any
one occasion shall not bar or waive the exercise of any right on any future
occasion. All rights and remedies of the Secured Party in the Guaranteed
Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, are cumulative and not exclusive of any remedies
provided by law or any other agreement, and may be exercised separately or
concurrently.
I. Section Expenses. Guaranteed Obligations shall include all of the
expenses provided for in Section 9.2 of the Loan Agreement and in addition all
reasonable out-of-pocket expenses of the Secured Party or the Lenders related
to the enforcement of this Agreement, the collection, preservation or sale of
the Collateral or other reasonable out-of-pocket expense related to the Secured
Party's and the Lender's rights hereunder, including, without limitation,
reasonable attorneys fees or expenses related to any of the forgoing, including
the cost of internal appraisers and examiners.
I. Section Notices. Any demand upon or notice to the Debtor shall be
effective when delivered to the Company as provided in Section 9.1 of the Loan
Agreement and to the Secured Party if delivered as provided in the Section 9.l
of the Loan Agreement.
I. Section Successors and Assigns. This Agreement shall be binding upon
the Debtor, the Secured Party, the Lenders, their respective successors and
assigns, and shall inure to the benefit of and
7
be enforceable by the Debtor, the Secured Party or any of the Lenders and
their respective successors and assigns. Without limiting the generality of
the foregoing sentence, the Secured Party and the Lenders may assign or
otherwise transfer any agreement or any note held by it evidencing, securing
or otherwise executed in connection with the Guaranteed Obligations as
provided in the Loan Agreement, or sell participation in any interest therein
as provided in the Loan Agreement, to any other person or entity, and such
other person or entity shall thereupon become vested, to the extent set forth
in the agreement evidencing such assignment, transfer or participation, with
all the rights in respect thereof granted to the Secured Party and the
Lenders herein.
I. Section General. This Agreement may not be amended or modified except
by a writing signed by the Debtor and the Secured Party (subject to the
provisions of Section 9.7 of the Loan Agreement), nor may the Debtor assign
any of its rights hereunder. This Agreement and the terms, covenants and
conditions hereof shall be construed in accordance with, and governed by, the
laws of The Commonwealth of Massachusetts (without giving effect to any
conflicts of law provisions contained therein).
I. Section Section Headings. Section headings are for convenience of
reference only and are not a part of this Agreement.
I. Section JURY WAIVER. THE SECURED PARTY (BY ITS ACCEPTANCE HEREOF) AND
THE DEBTOR AGREE THAT NEITHER OF THEM, NOR ANY ASSIGNEE OR SUCCESSOR SHALL
(A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER
ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR
AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE SECURED PARTY
AND THE DEBTOR, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER THE SECURED PARTY NOR THE DEBTOR HAS AGREED WITH OR REPRESENTED TO
THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN
ALL INSTANCES.
8
IN WITNESS WHEREOF, the Debtor has caused this Agreement to
be duly executed as an instrument under seal as of the date first written
above.
WITNESS: DEBTOR: GUESS? RETAIL, INC.
By:
Title:
Accepted and Agreed to:
BANKBOSTON, N.A. as Agent for the Lenders
By:__________________________________________
Title:
9
OFFICER'S CERTIFICATE
to
SECURITY AGREEMENT
Dated JANUARY 30, 1998
GUESS ? Retail, Inc. (the "Debtor"), hereby certifies, with reference to a
certain Security Agreement dated January 30, 1998(the "Security Agreement")
(terms defined in such Security Agreement having the same meanings herein as
specified therein), between the Debtor and BankBoston, N.A. (the "Agent"), to
the Agent and the Lenders as follows:
1. Names.
(a) The exact corporate name of the Debtor and its taxpayer
identification number are as follows:
Guess ? Retail, Inc.; 95-4-660502
(b) The following is a list of all other names (including trade names or
similar appellations) used by the Debtor, or any other business or organization
to which the Debtor became the successor by merger, consolidation, acquisition,
change in form, nature or jurisdiction of organization or otherwise, now or at
any previous time:
None.
2. Locations.
(a) The chief executive office of the Debtor is located at the following
address:
1444 South Alameda Street
Los Angeles, California 90021
(b) The following are is a list of all other locations in the United
States of America in which the Debtor maintains any books or records relating
to any of the Collateral:
See Schedule 2 (b)
Within the last four months, if different:
(c) Set forth on Schedule 2 (c) hereto are all the other places of
business of the Debtor in the United States of America where Collateral is
located.
(d) The following are the names and addresses of all persons or entities
other than the Debtor, such as lessees, consignees or
10
warehousemen that have possession or are intended to have possession of any
of the Collateral consisting of Inventory:
Currently:
Street and Number County State Zip Code
Within the last four months, if different:
Street and Number County State Zip Code
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Debtor by its duly authorized officer on this 30th day January, 1998.
GUESS ? Retail, Inc.
By:
Title:
11
FOOTER B HAS BEEN ENTERED (DRAFT) EXHIBIT K
TRANSACTIONS WITH AFFILIATES
The Company is engaged in various transactions with entities affiliated
with trusts for the respective benefit of Maurice, Paul and Marciano (the
"Marciano Trusts"). The Company believes that each of the companies in which
the Marciano Trusts have an investment, and related party transactions
discussed below were entered into on terms no less favorable to the Company
than could have been obtained from an unaffiliated third party.
So long as each of Retailing and Licensing is a Guarantor and a
wholly-owned Subsidiary of the Company, any transactions between or among any
of the Company, Licensing and Retailing shall not constitute prohibited
transactions under Section 6.11 of the Credit Agreement.
Mergers
On August 13, 1996, Marciano International, which was wholly owned by the
Marciano Trusts, was merged with and into the Company in connection with the
initial public offering. Consideration paid to the Marciano Trusts was
$300,000.
License Arrangements and Licensee Transactions
The Company has a licensing agreement with Charles David of California
("Charles David"). Charles David is controlled by the father-in-law of Maurice
Marciano. The Marciano Trusts and Nathalie Marciano (the spouse of Maurice
Marciano) together own 50% of the Charles David, and the remaining 50% is owned
by the father-in-law of Maurice Marciano. The Licensing agreement grants
Charles David the rights to manufacture worldwide and distribute worldwide
(except Japan) men's, women's and some children's leather and rubber footwear,
excluding athletic footwear, which bear the Guess 'r' logo and trademark. The
license also includes related shoe care products and accessories. Gross
royalties earned by the Company under such license agreement for the fiscal
year ended December 31, 1996 was $1.5 million. Additionally, the Company
purchased $6.0 million of product from Charles David for resale in the
Company's retail stores during the same period.
On September 1, 1994, the Company entered into a licensing agreement with
California Sunshine Active Wear, Inc. ("California Sunshine"), granting it the
rights to manufacture and distribute men's and women's activewear, which bear
the Guess 'r' logo and trademark, in the United States. The Marciano Trusts
together own 51% of California Sunshine. Gross royalties earned by the Company
under such license agreement for the fiscal year ended December 31, 1996 was
$742,000. Additionally, the Company purchased $1.4 million of product from
California Sunshine for resale in the Company's retail stores during the same
period.
Effective January 1, 1995, the Company entered into a licensing agreement
with Guess? Italia, S.r.1. ("Guess Italia"), granting it the exclusive right in
Italy and non-exclusive rights to other parts of Europe to manufacture and
distribute men's and women's apparel and accessories, which bear the Guess 'r'
logo and trademark. Prior to the
1
initial public offering, Guess Italia was owned 79% by the Company and 21% by
Marciano International, a company wholly owned by the Marciano Trusts. As
part of the reorganization in connection with the initial public offering,
Guess Italia became a wholly-owned subsidiary of the Company when Marciano
International was merged with and into the Company. Gross royalties earned by
the Company under such license agreement for the fiscal year ended December
31, 1996 was $766,000. Additionally, the Company purchased $327,000, of
product from Guess? Italia and sold $89,000, of product for resale in Guess?
Italia's retail store and to other wholesale customers during the fiscal year
ended December 3, 1996. All inter-company transactions were eliminated
during consolidation.
Effective December 9, 1992, the Company entered into a licensing agreement
with Nantucket Industries ("Nantucket"), granting it the rights to manufacture
and distribute women's intimate apparel within the United States, which bear
the Guess 'r' logo and trademark. Nantucket is owned 13.0% by the Company and
7.6% by the Marciano Trusts. During the fiscal year ended December 31, 1996,
the Company recorded gross royalty income of $327,000, purchased $416,000 of
product for resale in its retail stores, and recorded an equity loss of
$349,000.
Effective December 1, 1989, the Company entered into a licensing agreement
with Strandel, Inc. ("Strandel"), granting it the rights to manufacture and
distribute Men's, Women's and Children's Knits and woven sportswear in Canada,
which bear the Guess 'r' logo and trademark. Strandel is owned 20% by the
Company. During the fiscal year ended December 31, 1996, the Company recorded
gross royalty income $1.8 million and recorded an equity loss of $127,000.
On January 1, 1997, the Company acquired a limited partnership interest of
24.75% in S.W.P.I., Ltd., a California limited partnership, in which the
Marciano Trusts have a 76.25% interest, from Pour Le Bebe, Inc., a California
corporation, as payment in lieu of unpaid license fees due November 1, 1996.
The limited partnership interest of 24.75% in S.W.P.I., Ltd. was valued at $1.4
million by the Company.
Purchasing Agent Agreement
On May 3, 1994, the Company entered into an agreement with Ranche, Ltd.
("Ranche"), a wholly owned subsidiary of Guess Europe, BV ("GEBV") to serve as
a non-exclusive buying agent for the Company in Hong Kong, which agreement was
terminated in the first quarter of 1996 when certain of Ranche's assets were
transferred to Newtimes Guess, Ltd., a Hong Kong corporation ("Newtimes") in
which the Company and the Marciano Trusts then held indirect ownership interest
of 25% and 25%, respectively. In connection with the initial public offering,
the Marciano Trusts' indirect interest in Newtimes was transferred to the
Company. Ranche earned commissions of $192,000 during the period in 1996 in
which the agreement was still active. In addition, Ranche operates earned by
the Company under such license for the fiscal year ended December 31, 1996 was
$383,000.
In February 1996, the Company entered into a buying agency agreement
with Newtimes. Pursuant to such agreement, the Company pays Newtimes a
commission based upon the cost of finished garments purchased for the Company
by Newtimes. Commissions earned by Newtimes during the fiscal year ended
December 31, 1996 and $624,000. Additionally, the Company recorded $190,000
in equity losses during 1996.
2
Leases
The Company leases manufacturing, warehouse and administrative
facilities and one retail administrative facility from partnerships
affiliated with certain Stockholders of the Company. The leases in effect at
December 31, 1996 will expire in July 2008. Aggregate lease payments under
leases in effective for the fiscal year ended December 31, 1996 were $2.9
million.
The Company currently rents, on a month-to-month basis, a portion of a
remote Guess facility to Southwest Pacific Investment Company ("SWPI"), an
entity owned by the Marciano Trusts. Monthly rental charges are $11,000,
effective August 1, 1996. An aggregate of $57,000 was paid by SWPI to the
Company during 1996.
3
10.33. Third Amendment and Consent to the Amended and Restated Revolving
Credit Agreement by and between Guess ?, Inc. And BankBoston, N.A.,
F/K/A The First National Bank of Boston, Sanwa Bank California and the
Financial Institutions Party Hereto.
- -------------------------------------------------------------------------------
THIRD AMENDMENT AND CONSENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
BY AND BETWEEN
GUESS ?, INC.
AND
BANKBOSTON, N.A.
F/K/A THE FIRST NATIONAL BANK OF BOSTON,
SANWA BANK CALIFORNIA
AND
THE FINANCIAL INSTITUTIONS PARTY HERETO
Dated as of March 29, 1998
1
THIRD AMENDMENT AND CONSENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This Third Amendment and Consent to Amended and Restated Revolving
Credit Agreement (this "Agreement") is entered into as of March 29, 1998, by
and between GUESS ?, INC., a Delaware corporation having its chief executive
office at 1444 S. Alameda Street, Los Angeles, California, 90021 (the
"Company") and BankBoston, N.A. formerly THE FIRST NATIONAL BANK OF BOSTON, a
bank with its head offices at 100 Federal Street, Boston, Massachusetts,
02110 (the "Agent"), SANWA BANK CALIFORNIA, a bank with its head offices at
601 South Figueroa Street, Los Angeles, California 90017 (the "Co-Agent"),
and THE FINANCIAL INSTITUTIONS PARTIES HERETO (the "Lenders").
RECITALS
I. The parties hereto have previously entered into that certain Amended
and Restated Revolving Credit Agreement, dated as of March 28, 1997 as amended
by the First Amendment and Waiver to the Amended and Restated Revolving Credit
Agreement dated as of April 30, 1997 and the Second Amendment and Consent to
the Amended and Restated Revolving Credit Agreement dated as of January 30,
1998 (collectively the "Credit Agreement");
A. As a condition of the Waiver Agreement dated as of March 6, 1998
(the "Waiver Agreement"), the Company agreed to enter into this Third
Amendment to the Amended and Restated Revolving Credit Agreement (the "Third
Amendment") ;
A. By this Third Amendment, The Industrial Bank of Japan, Limited, Los
Angeles Agency is removed as a Lender and the Lenders and the Lender's
Percentage has been revised as provided on revised Schedule J to the Third
Amendment; and
A. The Company, the Agent and the Lenders have agreed to modify the
Credit Agreement as provided below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained in this Amendment and Waiver and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree to the above Recitals and as follows:
1. Definitions. All defined terms used herein without definition
shall have the meanings assigned to them in the Credit Agreement.
1. Amendments to the Credit Agreement. From and after the date
hereof the Credit Agreement is hereby amended as follows:
a. The Credit Agreement is amended by the deletion of the
definition of the Eurodollar Spread and the addition of the following
definition of "Applicable Margin" to read as follows:
Applicable Margin. Shall equal the following percentage
margins as to each of the interest rates or percentages as
to Letters of Credit for each and every quarter in which
the Company falls within the following range of ratios for
the fiscal quarter then most recently ended, as certified by
the chief
2
financial officer of the Company to the Agent pursuant to Section
5.1(c), of both Indebtedness for Money Borrowed less the Fair
Market Value (as hereinafter defined) of the Senior Subordinated
Notes held by the Company or any of its Wholly Owned Subsidiaries
(to the extent such Senior Subordinated Notes are included in the
calculation of Indebtedness for Money Borrowed; but only so long as
the Fair Market Value of such Senior Subordinated Notes so held is
not less than 80% of the principal amount of such Senior
Subordinated Notes), as of the fiscal quarter then ended to
Consolidated Cash Flow ("Leverage") for the prior four fiscal
quarters and Consolidated EBITDA less Capital Expenditures to
Consolidated Total Interest Expense ("Coverage") for the prior four
fiscal quarters:
Level Leverage Coverage Adjusted Base Standby Documentary
Eurodolla Rate + Letters of Letter of
r Rate + Credit Fee per Credit Fee
Annum
- -----------------------------------------------------------------------------------------------------------
1 greater greater 1.75% -0- 1.75% .875%
than than or
4.00 to equal to
1 2.75 to 1
- -----------------------------------------------------------------------------------------------------------
2 greater greater 1.50% -0- 1.50% .750%
than than or
3.00 to equal to
1, but 3.00 to 1
less
than or
equal to
4.00 to
1
- -----------------------------------------------------------------------------------------------------------
3 greater greater 1.25% (.50%) 1.25% .625%
than than or
2.25 to equal to
1, but 3.50 to 1
less
than or
equal to
3.00 to
1
- -----------------------------------------------------------------------------------------------------------
4 greater greater 1.00% (.50%) 1.00% .50%
than than or
1.75 to equal to
1, but 4.00 to 1
less
than or
equal to
2.25 to
1
- -----------------------------------------------------------------------------------------------------------
5 less greater .75% (.50%) .75% .50%
than or than or
equal to equal to
1.75 to 4.50 to 1
1
3
provided, that (i) for the fiscal year ending December 31, 1998, regardless
of the actual Leverage and Coverage, the Applicable Margin shall not be
reduced below Level 3, set forth above, (ii) any change in pricing shall be
effective on and after receipt by the Agent of the financial statement
showing such ratio, (iii) if financial statements are not received as
provided in Section 5.1, the Applicable Margin shall be at Level 1 until such
compliance statement is received. The term "Fair Market Value" as used
herein with respect to the Senior Subordinated Notes shall mean the price for
such notes quoted by PaineWebber, Inc. on the date of such calculation of the
Applicable Margin.
a. The Credit Agreement is amended by deleting the definition of
"Commitment Amount" and substituting the following definition to read as
follows:
Commitment Amount . $86,875,000 or any lesser amount, including
zero, resulting from a termination or reduction of such amount in
accordance with Section 2.5 or Section 7.2 .
a. The Credit Agreement is amended by deleting the definition "Letter
of Credit Sublimit" and substituting the following definition to read as
follows:
Letter of Credit Sublimit. The sum of the outstanding amount of all
Letters of Credit, which shall not exceed $25,000,000 at any time.
a. Section 2.1(a) of the Credit Agreement is deleted in its entirety and
amended to read as follows:
(a) Subject to the terms and conditions hereof, the
Lenders will make Revolving Loans to the Company, from time to time
until the close of business on the Revolving Credit Termination
Date, in such sums as the Company may request, provided that the
aggregate principal amount of all Loans plus the outstanding amount
of all Letters of Credit at any one time outstanding hereunder
shall not exceed the Commitment Amount; that the aggregate
Revolving Loans may not exceed $20,000,000 for a period of 30
consecutive days during each 12 month period commencing April 1,
1998 . The Company may borrow, prepay pursuant to Section 2.12 and
reborrow, from the date of this Agreement until the Revolving
Credit Termination Date, the full amount of the Commitment Amount,
(other than a 30 day period in each 12 months as provided in the
prior sentence) or any lesser sum that is at least $100,000 and an
integral multiple of $100,000. Any Revolving Loan not repaid by
the Revolving Credit Termination Date shall be due and payable on
the Revolving Credit Termination Date.
a. Section 2.1(c) of the Credit Agreement is deleted in its entirety and
amended to read as follows:
(c) The proceeds of the Revolving Loans shall be used by the
Company exclusively for working capital purposes, except that, up
to $75,000,000 (reduced as provided in Section 5.13) of the
Commitment Amount may be used, in the aggregate, to repurchase some
or all of the Senior Subordinated Notes and fund the Stock
Repurchase Program, provided that the Company shall demonstrate
that it will comply with provisions of Sections 5.13
4
and 6.8 (xiv) of this Agreement and the Company may not repurchase
any additional Senior Subordinated Notes or fund the Stock
Repurchase Program prior to October 1, 1998 and shall only make
such purchases or do such funding thereafter with the consent of
the Majority Lenders.
a. Section 2.4 of the Credit Agreement is deleted in its entirety and
amended to read as follows:
2.4 Commitment Fee. The Company shall pay to the Agent for the
benefit of the Lenders during the Revolving Credit Period a
commitment fee (the "Commitment Fee") computed at the rate of 0.25%
per annum on the average daily amount of the unborrowed portion of
the Commitment Amount less the average daily amount of the
outstanding amount of all Letters of Credit during each quarter or
portion thereof. Commitment fees shall be payable quarterly in
arrears, on the last Business Day of each of March, June, September
and December of each year and on the last day of the Revolving
Credit Period.
a. Sections 2.8 (a) and 2.8 (b) of the Credit Agreement are deleted in
their entirety and amended to read as follows:
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof at a rate per annum equal to the Base Rate
plus the Applicable Margin, which rate shall change
contemporaneously with any change in the Base Rate. Such interest
shall be payable on the last day of each month, and when such Loan
is due (whether at maturity, by reason of acceleration or
otherwise).
(b) Each Eurodollar Loan shall bear interest on the outstanding
principal amount thereof, for each Interest Period applicable
thereto, at a rate per annum equal to the Adjusted Eurodollar Rate
plus the Applicable Margin. Such interest shall be payable for such
Interest Period on the last day thereof and when such Eurodollar
Loan is due (whether at maturity, by reason of acceleration or
otherwise) and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.
a. Section 2.16 and 2.17 of the Credit Agreement are deleted in their
entirety and amended to read as follows:
2.16 Letters of Credit.
(a) General. Subject to the terms and conditions set forth
herein in addition to the Loans provided for in Section 2.1, as
long as any Event of Default or Default has not occurred and is not
continuing, the Company may request the issuance of Letters of
Credit for its own account by the Agent, in a form reasonably
acceptable to the Agent, at any time and from time to time during
the Revolving Credit Period. Letters of Credit issued hereunder
shall constitute utilization of the Commitment. In the event of
any inconsistency between the terms and conditions of this
Agreement and the terms and conditions of any form of letter of
credit application or other agreement submitted by the Company to,
or entered into by the Company with, the Agent relating to any
Letter of Credit, the terms and conditions of this Agreement shall
control.
5
(b) Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. To request the issuance of a Letter of Credit
(or the amendment, renewal or extension of an outstanding Letter of
Credit), the Company shall hand deliver or telecopy (or transmit by
electronic communication, if arrangements for doing so have been
approved by the Agent) to the Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a
notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or
extended, the date of issuance, amendment, renewal or extension,
the date on which such Letter of Credit is to expire (which shall
comply with paragraph (c) of this Section 2.16), the amount of such
Letter of Credit, the name and address of the beneficiary thereof,
and such other information as shall be necessary to prepare, amend,
renew or extend such Letter of Credit. As required by the Agent,
the Company also shall submit a letter of credit application on the
Agent's standard form in connection with any request for a Letter
of Credit. A Letter of Credit shall be issued, amended, renewed or
extended only if (and upon issuance, amendment, renewal or
extension of each Letter of Credit the Company shall be deemed to
represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the aggregate Letter of Credit
exposure of the Agent, including unpaid drawings under Letters of
Credit (determined for these purposes without giving effect to the
participations therein of the Lenders pursuant to paragraph (d) of
this Section 2.16) shall not exceed the Letter of Credit Sublimit,
and (ii) the total of all outstanding Loans and Letters of Credit
exposure of the Agent shall not exceed the total Commitment..
(c) Expiration Date. Each Letter of Credit shall expire
(without giving effect to any extension thereof by reason of an
interruption of business) at or prior to the close of business on
the earlier of (i) the date 365 days after the date of the issuance
of such Letter of Credit (or, in the case of any renewal or
extension thereof, 365 days after such renewal or extension)
PROVIDED that any such Letter of Credit may provide for automatic
extensions thereof to a date not later than 365 days beyond its
current expiration date, and (ii) the date that is fifteen Business
Days prior to the Revolving Credit Termination Date. No Letter of
Credit may be extended beyond the date that is fifteen Business
Days prior to the Revolving Credit Termination Date.
(d) Participations. By the issuance of a Letter of Credit
(or an amendment to a Letter of Credit increasing the amount
thereof) by the Agent, and without any further action on the part
of the Agent, the Agent hereby grants to each Lender, and each
Lender hereby acquires from the Agent, a participation in such
Letter of Credit equal to such Lender's Percentage of the aggregate
amount available to be drawn under such Letter of Credit. In
consideration and in furtherance of the foregoing, each Lender
hereby absolutely and unconditionally agrees to pay to the Agent
such Lender's Percentage of each disbursement made by the Agent
under such Letter of Credit and not reimbursed by the Company on
the date due as provided in paragraph (e) of this Section 2.16, or
of any reimbursement payment required to be
6
refunded to the Company for any reason. Each Lender acknowledges
and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or
reduction or termination of the Commitment, and that each such
payment shall be made without any offset, abatement, withholding or
reduction whatsoever.
(e) Reimbursement. If the Agent shall make any
disbursement in respect of a Letter of Credit, the Company shall
reimburse the Agent in respect of such disbursement by paying to
the Agent an amount equal to such disbursement not later than 1:30
p.m., Boston, Massachusetts time, on (i) the Business Day that the
Company receives notice of such disbursement, if such notice is
received prior to 12:00 noon, Boston, Massachusetts time, or (ii)
the Business Day immediately following the day that the Company
receives such notice, if such notice is not received prior to such
time, PROVIDED that the Company may, subject to the conditions to
borrowing set forth herein, request in accordance with Section 2.1
that such payment be financed with a Revolving Loan in an
equivalent amount and, to the extent so financed, the Company's
obligation to make such payment shall be discharged and replaced by
the resulting Revolving Credit Base Rate Borrowing.
(f) Failure to Pay. If the Company fails to make payment
when due under any Letter of Credit, the Agent shall notify each
Lender of the applicable disbursement under the Letter of Credit,
the payment then due from the Company in respect thereof and such
Lender's Percentage thereof. Promptly following receipt of such
notice, each Lender shall pay to the Agent its Percentage of the
payment then due from the Company, in the same manner as with
respect to Revolving Loans made by such Lender. Promptly following
receipt by the Administrative Agent of any payment from the
Company, the Agent shall distribute such payment, to the extent
that the Lenders have made payments pursuant to this paragraph to
reimburse the Agent, as their interests may appear. Any payment
made by a Lender pursuant to this paragraph to reimburse the Agent
for any disbursement under a Letter of Credit shall not constitute
a Revolving Loan and shall not relieve the Company of its
obligation to reimburse such disbursement.
a. (g) Obligations Absolute. The Company's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this
Section 2.16 shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this
Agreement under any and all circumstances whatsoever and
irrespective of (A) any lack of validity or enforceability of any
Letter of Credit, or any term or provision therein, (B) any draft
or other document presented under a Letter of Credit proving to be
forged, fraudulent or invalid in any respect or any statement
therein being untrue or inaccurate in any respect, (C) payment by
the Agent under a Letter of Credit against presentation of a draft
or other document that does not comply strictly with the terms of
such Letter of Credit and (D) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that
might, but for the
7
provisions of this Section 2.16, constitute a legal or equitable
discharge of the Company's obligations hereunder.
(h) Neither the Agent nor the Lenders shall have any
liability or responsibility by reason of or in connection with the
issuance or transfer of any Letter of Credit by the Agent or any
payment or failure to make any payment thereunder, or any error,
omission, interruption, loss or delay in transmission or delivery
of any draft, notice or other communication under or relating to
any Letter of Credit (including any document required to make a
drawing thereunder), any error in interpretation of technical terms
or any consequence arising from causes beyond the control of the
Agent; PROVIDED that the foregoing shall not be construed to excuse
the Agent from liability to the Company to the extent of any direct
damages (as opposed to consequential damages, claims in respect of
which are hereby waived by the Company to the extent permitted by
applicable law) suffered by the Company that are caused by the
Agent's gross negligence or willful misconduct when determining
whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof.
(i) Interim Interest. All amounts drawn under Letters of
Credit are Obligations hereunder and if not paid when due by the
Company shall bear interest at the rate provided in Section 2.14
for overdue payments.
2.17 Letter of Credit Fees . The Company shall pay to the
Agent (in each case, a "Letter of Credit Fee") (a) for the accounts
of the Lenders in accordance with their respective Lender's
Percentage, a commission on the average daily face amount of each
outstanding Letter of Credit (i) with respect to each documentary
Letter of Credit, at the Applicable Margin per annum for
documentary letters of credit and (ii) with respect to each standby
Letter of Credit, at the Applicable Margin per annum for standby
letters of credit, payable in either such case quarterly in arrears
on the last Business Day of each quarter for the immediately
preceding quarter in which any Letters of Credit shall have been or
remain outstanding, and on the Revolving Credit Termination Date,
and (b) for the Agent's own account, such customary commissions,
issuance fees, transfer fees and other fees and charges in
connection with the issuance or administration of each Letter of
Credit as the Company and the Agent shall agree.
a. Section 5.8 of the Credit Agreement is deleted in its entirety and
amended to read as follows:
5.8 Leverage Ratio. The Company shall maintain at the end of each
fiscal quarter, as provided below, a ratio of Indebtedness for
Money Borrowed at the end of such fiscal quarter to Consolidated
Cash Flow less dividends permitted hereunder all calculated for the
four fiscal quarters then ended in amount no greater than the ratio
provided below as follows:
8
Fiscal Quarter Ending Ratio
- ------------------------------------------------------------------
March 31, 1998 less than or equal to 4.40 to 1
- ------------------------------------------------------------------
June 30, 1998 less than or equal to 4.20 to 1
- ------------------------------------------------------------------
September 30, 1998 less than or equal to 3.25 to 1
- ------------------------------------------------------------------
December 31, 1998 less than or equal to 2.75 to 1
- ------------------------------------------------------------------
March 31, 1999 and each less than or equal to 2.75
fiscal quarter to 1
thereafter
- ------------------------------------------------------------------
a. Section 5.9 of the Credit Agreement is deleted in its entirety and
amended to read as follows:
5.9 Total Interest Coverage. The Company shall maintain, at the
end of each fiscal quarter, as provided below, for the four fiscal
quarters then ended, a ratio of Consolidated EBITDA less Capital
Expenditures for the period to Consolidated Total Interest Expense
for the period as follows:
Fiscal Quarter Ending Ratio
- ---------------------------------------------------------------
March 31, 1998 greater than or equal to
2.35 to 1
- ---------------------------------------------------------------
June 30, 1998 greater than or equal to
2.40 to 1
- ---------------------------------------------------------------
September 30, 1998 greater than or equal to
2.75 to 1
- ---------------------------------------------------------------
December 31, 1998 and greater than or equal to
each quarter thereafter 3.00 to 1
- ---------------------------------------------------------------
a. Section 5.10 of the Credit Agreement is deleted in its entirety and
amended to read as follows:
5.10 Total Fixed Charge Coverage. The Company shall maintain, at
the end of each fiscal quarter, as provided below, for the four
fiscal quarters then ended, a ratio of Consolidated Cash Flow plus
payments on Operating Leases for the period to Consolidated Total
Debt Service plus payments on Operating Leases for the period as
follows:
Fiscal Quarter Ending Ratio
- ------------------------------------------------------------------
March 31, 1998 greater than or equal to
1.35 to 1
- ------------------------------------------------------------------
June 30, 1998 greater than or equal to
1.35 to 1
- ------------------------------------------------------------------
September 30, 1998 greater than or equal to
1.60 to 1
- ------------------------------------------------------------------
December 31, 1998 greater than or equal to
1.65 to 1
- ------------------------------------------------------------------
March 31, 1999 and each greater than or equal to
fiscal quarter 2.00 to 1
thereafter
- ------------------------------------------------------------------
a. Section 5.11 of the Credit Agreement, Profitability, is deleted in
its entirety and amended to read as follows:
9
5.11 Profitability . The Company shall have Consolidated Net Income at the
end of each fiscal quarter of a least $1.00.
a. Section 5.13 of the Credit Agreement, Use of Proceeds, is deleted in its
entirety and amended to read as follows:
5.13 Use of Proceeds. The Company will use the proceeds of the
Revolving Loans for the ongoing working capital needs of the Company
and the Guarantors. Notwithstanding the foregoing, the Company may
use up to $75,000,000 , in the aggregate of the Commitment Amount,
reduced by all purchases of Senior Subordinated Notes prior to the
date of this Agreement as set forth on Exhibit C and further reduced
by all purchases of Senior Subordinated Notes and common stock under
the Stock Repurchase Program made on and after the date hereof, to
repurchase a portion of the Senior Subordinated Notes or any of the
Company's common stock under the Stock Repurchase Program, provided,
(i) that the Company shall satisfy on a pro forma basis, all of the
covenants made herein for the next four (4) fiscal quarters from the
date thereof, (ii) that the Company's repurchase of the Senior
Subordinated Notes and common stock under the Stock Repurchase Program
in any fiscal quarter shall be limited to the amount of the Company's
positive net income based on the average of net income for the
preceding four fiscal quarters, as previously reported to the Agent
and using the current quarter as the fourth quarter for purposes of
the calculation and (iii) that such repurchase complies with the
provisions of Section 6.8 (xiv) hereof. Notwithstanding the forgoing,
the Company shall not repurchase any additional Senior Subordinated
Note or common stock under the Stock Repurchase Program prior to
October 1, 1998 and shall only make such repurchases after October 1,
1998 with the prior consent of the Majority Lenders.
a. Section 5.16 is added to the Credit Agreement to read as follows:
5.16 Capital Expenditures. The Company shall not make Capital
Expenditures (i) in the fiscal year ending December 31, 1998 which exceed
$20,000,000 and (ii) in the fiscal year ending December 31, 1999 which
exceed $30,000,000.
a. Section 6.1 (i) of the Credit Agreement is deleted in its entirety.
b. Exhibit F is amended in its entirety as provided in Exhibit F to this
Third Amendment.
c. Exhibit J is amended in its entirety as provided in Exhibit J to this
Third Amendment.
1. Consent and Waiver. Subject to the terms of this Agreement and the
Consent Agreement, the Lenders hereby reaffirm the waiver contained in the
Waiver Agreement.
1. Conditions to Third Amendment.
10
a. The agreements of the Agent and the Lenders as set forth in this Third
Amendment are subject to the fulfillment of the following conditions:
(1) Receipt by Agent of a copy of this Third Amendment and Consent Agreement
executed by the Company, Retail, Licensing and the Majority Lenders;
(1) Receipt by each of the Lenders of a one time amendment fee equal to 10
basis points of each such Lender's Commitment.
(1) Evidence of Termination of the Guess Letter of Credit;
(a) Receipt by the Agent of (i) the opinion of counsel to the Company in form
reasonably satisfactory to the counsel to the Agent; (ii) a certificate signed
by the Secretary or Assistant Secretary of the Company certifying, among other
things: that appended is a Certified Articles of Incorporation of the Company,
that the By-laws of the Company has not been amended since the certificate
delivered on December 31, 1997, that the appended resolutions of the
Company's Boards of Directors authorizing the execution, delivery and
performance of the Third Amendment to the Credit Agreement are in full force
and effect, and affirmation as to the names, incumbency and signatures of the
officers of the Company, Retail and Licensing executing the Third Amendment to
Credit Agreement and the other Loan Documents executed pursuant thereto;
(1) Current certificates of foreign qualification for the Company.
(1) Such other documents, instruments and agreements as Agent may reasonably
request in connection herewith or in order to effectuate the matters described
herein.
1. Credit Agreement Remains in Full Force an Effect. Except for the
amendments set forth in Section 2 hereof, no other amendment to the Credit
Agreement is being made or implied by this Third Amendment and all provisions
of the Credit Agreement shall remain in full force and effect, except as
specifically amended by this Third Amendment.
1. Representations and Warranties; No Default or Event of Default.
a. The Company hereby confirms that the representations and warranties
contained in Section 4 of the Credit Agreement are true and correct as of the
date hereof (except to the extent that such representations and warranties
relate to a prior date) and that no Default or Event of Default has occurred
and is continuing on the date hereof which was not waived under the Waiver
Agreement.
a. The Guarantors, which have consented to this Third Amendment, hereby
confirm that each of them is a Subsidiary for all purposes under the Credit
Agreement and that all of the representations and warranties contained in
Section 4 of the Credit Agreement are true and correct as of the date hereof as
to each of the Guarantors.
1. Governing Law. This Waiver shall be construed in accordance with and
governed by the laws of the Commonwealth of Massachusetts (without giving
effect to any conflicts of laws provisions contained therein).
1. Fees and Expenses. The Company shall pay the Lenders' reasonable
attorneys' fees and out-of-pocket expenses including, without limitation, other
normal and customary charges for photocopying, facsimile transmission,
overnight delivery, postage, long distance telephone calls and
11
similar charges actually incurred in connection with this Third Amendment as of
and through the date hereof.
1. Counterparts. This Third Amendment and Waiver may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed an original, but all of which together shall constitute one instrument.
In making proof of this Third Amendment, it shall not be necessary to account
for more than one counterpart hereof signed by each of the parties hereto.
Except to the extent specifically amended or supplemented hereby, all of the
items, conditions and provisions of the Credit Agreement shall remain
unmodified, and the Credit Agreement, as amended and supplemented by this Third
Amendment, is confirmed as being in full force and effect.
12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first written.
GUESS ?, INC.
By:
Print Name:
Title:
BANKBOSTON, N.A. FORMERLY THE FIRST NATIONAL BANK OF
BOSTON (AS AGENT AND LENDER)
By:
Print Name:
Title:
SANWA BANK
CALIFORNIA (AS CO-AGENT AND LENDER)
By:
Print Name:
Title:
CREDIT LYONNAIS LOS ANGELES
BRANCH (AS LENDER)
By:
Print Name:
Title:
SUMITOMO
BANK OF CALIFORNIA (AS LENDER)
By:
Print Name:
Title:
Acknowledged and Consented to:
GUESS ? RETAIL, INC.
By:___________________
Print Name:_________________
Title:_____________________
GUESS? LICENSING, INC.
By:
Print Name:
Title:____________________
13
EXHIBIT F
GUESS ?, INC.
REPORT OF CHIEF FINANCIAL OFFICER
GUESS ?, INC. (the "Company") HEREBY CERTIFIES that:
This Report is furnished pursuant to Section 5.1(c) of the Amended and
Restated Revolving Credit Agreement dated as of March 28, 1997, as amended from
time to time, by and between the Company and BankBoston, N.A. formerly known as
The First National Bank of Boston (the "Bank of Boston"), as Agent, Sanwa Bank
California, as Co-Agent, and the other Lenders party thereto (the "Agreement").
Unless otherwise defined herein, the terms used in this Report have the meanings
given to them in the Agreement.
As required by Section 5.1(a) and (b) of the Agreement, consolidated
financial statements of the Company and its Subsidiaries for the
[year/month/quarter] ended , 19 (the "Financial Statements")
prepared in accordance with GAAP consistently applied accompany this Report.
The Financial Statements present fairly the consolidated financial position of
the Company and its Subsidiaries as at the date thereof and the consolidated
results of operations of the Company and its Subsidiaries for the period
covered thereby (subject only to normal recurring year-end adjustments).
The figures set forth in Schedule A for determining compliance by the
Company with the financial covenants contained in the Agreement are true and
complete as of the date hereof.
The activities of the Company and its Subsidiaries during the period
covered by the Financial Statements have been reviewed by the Chief Financial
Officer or by employees or agents under his immediate supervision. Based on
such review, to the best knowledge and belief of the Chief Financial Officer,
and as of the date of this Report, no Default has occurred and is continuing.(1)
WITNESS my hand this day of , 19 .
GUESS ?, INC.
By:
Title:
(1) If a Default has occurred, this paragraph is to be modified with an
appropriate statement as to the nature thereof, the period of existence
period of existence thereof and what action the Company has taken, is
taking, is taking, or proposes to take with respect thereto.
1
SCHEDULE A
to
EXHIBIT F
FINANCIAL COVENANTS
Current Ratio (Section 5.7)
REQUIRED for fiscal quarter ending
:
:1.00
ACTUAL for fiscal quarter ending
:
(i) Consolidated Current Assets $
(ii) Consolidated Current Liabilities
(iii) Current portion of Indebtedness for Money Borrowed $
(iv) Line (ii) less line (iii) $
(v) Line (i) divided by line (iv) :1.00
Leverage Ratio (Section 5.8)
MAXIMUM for fiscal quarter ending
: :1.00
ACTUAL for fiscal quarter ending
:
(i) Indebtedness for Money Borrowed $
(ii) Consolidated Cash Flow $
(iii) Excess Dividends $
(iv) Line (ii) less line (iii) $
(vi) Line (i) divided by line (iv) :1.00
Total Interest Coverage (Section 5.9)
REQUIRED for fiscal quarter ending
: :1.00
ACTUAL for fiscal quarter ending $
:
(i) Consolidated EBITDA
(ii) Capital Expenditures $
(iii) Line (i) less Line (ii) $
2
(iv) Consolidated Total Interest Expense $
(v) Line (iii) divided by line (iv) :1.00
Total Fixed Charge Coverage (Section 5.10)
REQUIRED for fiscal quarter ending
: :1.00
ACTUAL for fiscal quarter ending
:
(i) Consolidated Cash Flow $
(ii) Payments on Operating Leases $
(iii) Sum Total of Line (i) plus Line (ii) $
(iv) Consolidated Total Debt Service $
(v) Payments on Operating Leases
(vi) Sum Total of Line (iv) plus Line (v)
(vii) Line (iii) divided by Line (iv) :1.00
Profitability (Section 5.11)
REQUIRED at the end of each fiscal quarter: $ 1.00
ACTUAL for fiscal quarter ending
:
Consolidated net income $
Inventory Turnover (Section 5.12)
MINIMUM: 2.25 Turns
ACTUAL:
(i) Total cost of sales for the $
Company for the four fiscal quarters ended
(ii) Book Value of inventory at end $
of current fiscal quarter
(iii) Book value of inventory $
at beginning of measurement period
(iv) Line (ii) plus line (iii) $
(v) Line (iv) divided by 2
(vi) Line (i) divided by line (v) ____ Turns
3
CAPITAL EXPENDITURES (SECTION 5.16)
MAXIMUM for fiscal year ending
:
ACTUAL through the fiscal quarter ending
:
WITNESS my hand this ______ day of ____________, 19__.
GUESS ?, INC.
By:
Title:
4
EXHIBIT J
LENDER'S PERCENTAGES
Lender Maximum
Total Lender's
Commitment Percentages
BankBoston, N.A. $30,000,000 34.5324%
100 Federal Street
Mail Stop 01-09-05
Boston, Massachusetts 02110
Attention: Nancy Fuller, Director
Telecopier: (617)434-6685
Sanwa Bank California $26,875,000 30.9353%
Sanwa Bank Plaza
601 South Figueroa Street
10th Floor
Los Angeles, California 90017
Attention: Nicole Garnier, Vice President
Telecopier: (213)896-7090
Credit Lyonnais $20,000,000 23.0216%
Los Angeles Branch
515 South Flower Street
Suite 2200
Los Angeles, CA 90071
Attention: Dianne Scott, Vice President
Telecopier: (213) 623-3437
Sumitomo Bank of California $10,000,000 11.5108%
611 West 6th Street
Suite 3900
Los Angeles, California 90017
Attention: Matthew R. Van Steenhuyse, Vice President
Telecopier: (213) 622-1385
1
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-29-1998
7,696
0
37,772
4,116
84,967
173,165
174,151
81,594
287,176
46,408
147,700
0
0
137
83,194
287,176
100,205
110,768
64,316
94,340
212
75
3,182
13,034
5,083
0
0
0
0
7,951
$0.19
$0.19
Includes net royalties of $10.1 million.
