-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G5toPhy4TffIE2o2EWzNAwuiTqViNUSNiAKXvB3ZDaWONH2NLczkk2YvPT124KAr DiMMLFwve9w9xTT32LSUGw== 0000033780-99-000003.txt : 19990120 0000033780-99-000003.hdr.sgml : 19990120 ACCESSION NUMBER: 0000033780-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981128 FILED AS OF DATE: 19990119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVANS INC CENTRAL INDEX KEY: 0000033780 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600] IRS NUMBER: 361050870 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-01500 FILM NUMBER: 99508056 BUSINESS ADDRESS: STREET 1: 36 S STATE ST CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3128552000 10-Q 1 EVANS, INC. 10Q FOR THE THIRD QUARTER FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended November 28, 1998 - ------------------------------------------------------------------- Commission File Number 0-1500 - ------------------------------------------------------------------- EVANS, INC. - ------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-1050870 - ------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Incorporation or organization) Identification Number) 36 South State Street, Chicago, Illinois 60603 - ------------------------------------------------------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312-855-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: as of January 18, 1999, 1,299,961 shares of common stock, $.20 par value, were outstanding. EVANS, INC. AND SUBSIDIARIES INDEX Page No. Part I. Financial Information Condensed Consolidated Balance Sheets - November 28, 1998, November 29, 1997 and November 30, 1996 2 Condensed Consolidated Statements of Operations - Thirteen and Thirty-nine weeks ended November 28, 1998 and November 29, 1997 3 Condensed Consolidated Statements of Cash Flows - Thirty-nine weeks ended November 28, 1998 and November 29, 1997 4 Notes to Condensed Consolidated Financial Statements 5 - 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 10 Part II. Other Information 11 Signatures 12 Index to Exhibits 13 PART I. FINANCIAL INFORMATION Evans, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS November 28, November 29, February 28, 1998 1997 1998 ----------- ----------- ----------- (unaudited) (unaudited) (audited) ASSETS Current assets: Cash and cash equivalents $ 801,000 $ 384,000 $ 650,000 Accounts receivable (net) 13,231,000 15,125,000 12,639,000 Merchandise inventories 37,772,000 39,640,000 25,495,000 Prepaid expenses and other asset 659,000 1,306,000 923,000 Assets held for sale - 4,750,000 - ----------- ----------- ----------- Total current assets 52,463,000 61,205,000 39,707,000 ----------- ----------- ----------- Property and equipment 11,958,000 11,566,000 11,642,000 Accumulated depreciation and amortization (8,759,000) (7,948,000) (8,203,000) ----------- ----------- ----------- Net property and equipment 3,199,000 3,618,000 3,439,000 ----------- ----------- ----------- Other assets 5,000,000 5,344,000 5,254,000 ----------- ----------- ----------- $ 60,662,000 $ 70,167,000 $ 48,400,000 ============ ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 20,273,000 $ 16,857,000 $ 13,021,000 Current portion of long-term debt 1,490,000 1,959,000 1,411,000 Accounts payable 21,152,000 26,220,000 11,165,000 Accrued liabilities 6,478,000 7,294,000 4,694,000 ----------- ----------- ----------- Total current liabilities 49,393,000 52,330,000 30,291,000 ----------- ----------- ----------- Long-term debt 931,000 3,918,000 1,808,000 ----------- ----------- ----------- Other liabilities - 12,000 - ----------- ----------- ----------- Shareholders' equity: Preferred stock, 3,000,000 shares authorized, none issued Common stock, 8,000,000 shares authorized, 6,333,435 shares issued 1,267,000 1,267,000 1,267,000 Capital in excess of par value 15,011,000 15,503,000 15,495,000 Unearned compensation (86,000) - - (Accumulated deficit) retained earnings (2,171,000) 1,503,000 3,890,000 ----------- ----------- ----------- 14,021,000 18,273,000 20,652,000 Treasury stock (1,133,590 shares at cost) (3,683,000) (4,366,000) (4,351,000) ----------- ----------- ----------- 10,338,000 13,907,000 16,301,000 ----------- ----------- ----------- $ 60,662,000 $ 70,167,000 $ 48,400,000 =========== =========== =========== See accompanying notes to condensed consolidated financial statements. Evans, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Thirteen weeks ended Thirty-nine weeks ended ------------------------- ------------------------- November 28, November 29, November 28, November 29, 1998 1997 1998 1997 ------------ ---------- ---------- ---------- Net sales $ 20,857,000 $ 24,619,000 $ 39,763,000 $ 40,935,000 Service revenues 1,545,000 1,887,000 12,223,000 10,660,000 ---------- ---------- ---------- ---------- 22,402,000 26,506,000 51,986,000 51,595,000 ---------- ---------- ---------- ---------- Costs and expenses: Cost of goods and services sold, buying and occupancy 14,659,000 16,310,000 34,806,000 32,869,000 Selling and general expenses 8,879,000 9,454,000 21,706,000 20,230,000 Provision for doubtful accounts 142,000 218,000 398,000 475,000 Interest expense 445,000 446,000 1,147,000 1,246,000 Other income, net (3,000) (1,000) (10,000) (3,000) ---------- ---------- ---------- ---------- 24,122,000 26,427,000 58,047,000 54,817,000 ---------- ---------- ---------- ---------- Net (loss) income (1,720,000) 79,000 (6,061,000) (3,222,000) ---------- ---------- ---------- ---------- Net (loss) income per common share and share equivalents Basic $ (0.33) $ 0.02 $ (1.17) $ (0.65) ========== ========== ========== ========== Diluted $ (0.33) $ 0.02 $ (1.17) $ (0.65) ========== ========== ========== ========== Weighted average number of common shares and share equivalents outstanding Basic 5,199,845 4,987,837 5,196,112 4,966,935 ========== ========== ========== ========== Diluted 5,199,845 5,174,635 5,196,112 4,966,935 ========== ========== ========== ========== See accompanying notes to condensed consolidated financial statements. Evans, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Thirty-nine weeks ended --------------------------------------- November 28, 1998 November 29, 1997 --------------------------------------- Cash Flows from Operating Activities: Net loss $ (6,061,000) $ (3,222,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 819,000 802,000 Provision for doubtful accounts 398,000 438,000 Non-cash compensation expense 81,000 22,000 Change in assets and liabilities, net of effects of acquisition: Accounts receivable (990,000) (2,898,000) Merchandise inventories (12,277,000) (19,506,000) Prepaid expenses and other current assets 281,000 (354,000) Other assets - (192,000) Accounts payable 9,987,000 16,902,000 Accrued liabilities 1,784,000 2,311,000 Other liabilities - (31,000) --------------- ---------------- Net cash used in operating activities (5,978,000) (5,728,000) Cash Flows from Investing Activities: Acquisition of business - (5,387,000) Additions to property and equipment (325,000) (164,000) --------------- ---------------- Net cash used in investing activities (325,000) (5,551,000) Cash Flows from Financing Activities: Proceeds from short-term borrowing 7,252,000 7,549,000 Notes payable related to acquisition - 3,815,000 Proceeds from long-term debt - 437,000 Payments on acquisition debt (617,000) - Payments on long-term debt (181,000) (291,000) --------------- --------------- Net cash provided by financing activities 6,454,000 11,510,000 --------------- --------------- Net increase in cash and cash equivalents 151,000 231,000 Cash and cash equivalents at beginning of period 650,000 153,000 --------------- --------------- Cash and cash equivalents at end of period $ 801,000 $ 384,000 =============== =============== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 1,090,000 $ 1,107,000 Income taxes 45,000 13,000 See accompanying notes to condensed consolidated financial statements. EVANS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The financial information included herein was prepared in conformity with generally accepted accounting principles and such principles were applied on a basis consistent with those reflected in the 1998 Form 10-K Annual Report filed with the Securities and Exchange Commission. The accompanying financial data should be read in conjunction with the notes to consolidated financial statements contained in the 1998 Form 10-K Annual Report. The information furnished herein, other than the Condensed Consolidated Balance Sheet as of February 28, 1998, is unaudited and includes all adjustments and accruals consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The Condensed Consolidated Balance Sheet as of February 28, 1998 has been derived from, and does not include, all the disclosures contained in the audited financial statements as of and for the year ended February 28, 1998. 2. Because of the seasonal nature of the Company's business, operating results for the first thirty-nine weeks are not considered to be indicative of the results that may be expected for the full year. Historically, the Company realizes a major portion of its annual revenues and most of its earnings in the fourth quarter of its fiscal year. 3. Certain reclassifications have been made to the consolidated financial statements. The reclassifications did not effect operating results. 4. The following table sets forth the computation of basic and diluted earnings per share: Weighted Avg. Per Net loss Shares Share (Numerator) (Denominator) Amounts Thirteen weeks ended November 28, 1998 Basic EPS: Loss available to common shareholder $(1,720,000) 5,199,845 $(0.33) Effect of dilutive options 0 Dilutive EPS: Loss available to common shareholder plus assumed conversions $(1,720,000) 5,199,845 $(0.33) Thirty-nine weeks ended November 28, 1998 Basic EPS: Loss available to common shareholder $(6,061,000) 5,196,112 $(1.17) Effect of dilutive options 0 Dilutive EPS: Loss available to common shareholder plus assumed conversions $(6,061,000) 5,196,112 $(1.17) Thirteen weeks ended November 29, 1997 Basic EPS: Loss available to common shareholder $ 79,000 4,987,837 $0.02 shareholder Effect of dilutive options 186,798 Dilutive EPS: Loss available to common shareholder plus assumed conversions $ 79,000 5,174,635 $0.02 Thirty-nine weeks ended November 29, 1997 Basic EPS: Loss available to common shareholder $(3,222,000) 4,966,935 $(0.65) Effect of dilutive options 0 Dilutive EPS: Loss available to common shareholder plus assumed conversions $(3,222,000) 4,966,935 $(0.65) 5. On January 14, 1999, the Company amended its agreement with its lender to, among other items, establish and modify certain financial covenants to reflect the Company's current operating results and financial needs. The agreement establishes a year to date debt service coverage ratio and requires the maintenance of a certain level of earnings before interest, taxes, depreciation and amortization (EBITDA) as of January 30, 1999 as well as modify all financial covenants to revised levels for the year ended February 27, 1999. In addition, the interest rate was increased to 1.25% over the base rate (prime) for direct borrowings under the revolving facility. 6. With the approval of its stockholders given at a Special Meeting of stockholders on December 8, 1998, the Company approved a one-for-four reverse stock split. In addition, Authorized Preferred Stock, par value $1.00 per share was reduced from 3,000,000 shares to 1,000,000 shares and authorized Common Stock, par value $0.20 per share, was reduced from 8,000,000 shares to 3,000,000 shares. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Cash and cash equivalents at November 28, 1998 were $801,000 as compared to $650,000 at February 28, 1998. The increase was due to cash provided by financing activities of $6,454,000 offset by cash used in operating activities of $5,978,000 and cash used in investing activities of $325,000. The cash used in operating activities was due primarily to the increase in inventories of $12,277,000 due to the seasonal increase of inventory for the fall season. Accounts payable increased $9,987,000 related to the inventory requirements. The cash used in investing activities was due to additions to property and equipment of $325,000. The cash provided by financing activities was due to proceeds from short-term borrowings of $7,252,000. The additional debt was offset by payments on the acquisition debt of $617,000 and principal payments on long-term debt obligations of $181,000. Working capital at November 28, 1998 was $3,070,000 as compared to $9,416,000 at February 28, 1998. On January 14, 1999, the Company amended its agreement with its lender to, among other items, establish and modify certain financial covenants to reflect the Company's current operating results and financial needs. The agreement establishes a year to date debt service coverage ratio and requires the maintenance of a certain level of earnings before interest, taxes, depreciation and amortization (EBITDA) as of January 30, 1999 as well as modify all financial covenants to revised levels for the year ended February 27, 1999. In addition, the interest rate was increased to 1.25% over the base rate (prime) for direct borrowings under the revolving facility. The credit facility which expires June 15, 2000 is considered adequate to finance seasonal inventory requirements as well as commitments for capital expenditures during fiscal 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total revenues for the third quarter ended November 28, 1998 decreased $4,104,000 (15.5%) as compared to the same period last year. Fur merchandise sales decreased $3,012,000 (16.3%) due primarily to a $2,878,000 decrease during the months of October and November resulting from the impact of the unseasonably warm pre-winter months. Women's ready-to-wear sales decreased $750,000 (12.3%) due to a decline in the coats division, related to the weather. Service revenues decreased $342,000 (18.1%) as compared to the prior year due primarily to the impact of the unseasonably warm winter months as customers' needs for services on their coats and purchases of new policies decreased. Total revenues for the first nine months increased $391,000 (0.8%) as compared to the same period last year. Fur merchandise sales decreased $743,000 (3.0%) due to a decrease of $2,370,000 (12.4%) in sales at comparable locations and sales of $855,000 associated with store closing events in the Macy's store in Texas in the second quarter of 1998. These decreases were offset by sales of $2,482,000 from locations acquired during the last month of the second quarter of fiscal 1998. The decrease in fur merchandise sales at comparable locations was largely due to a significant decrease of $2,400,000 during the months of October and November resulting from the impact of the unseasonably warm pre-winter months. For the first nine months, women's ready-to-wear sales decreased $429,000 (2.7%). Sales for ready-to-wear were mainly impacted by the third quarter decline in sales related to the decrease in the coat division as a result of the unseasonably warm weather. Service revenues increased $1,563,000 (14.7%) due primarily to an increase of $2,348,000 from locations acquired during the second quarter of fiscal 1998 offset by a comparable sales decrease of $776,000. The comparable sales decrease is a result of the impact of the unseasonably warm winter as customers' needs for services on their fur coats decreased due to reduced use and purchase of the garments. Cost of goods and services sold, buying and occupancy costs as a percentage of total revenues increased for the third quarter and for the first nine months (65.4% versus 61.5% and 67.0% versus 63.7%, respectively). Cost of goods and services sold as a percentage of revenues increased from 48.8% to 49.3% for the third quarter and increased from 48.3% to 49.0% for the nine month period. The increase in the quarter and year to date is due to increased costs associated with running the service business at locations acquired during the second quarter of fiscal 1998. Buying costs as a percentage of total revenues, for both the quarter and for the nine months ended, were comparable with prior year's levels. Occupancy costs as a percentage of total revenues for the third quarter (13.7% versus 10.8%) and the first nine months (14.9% versus 12.6%) increased in comparison with the prior periods. The increases were due primarily to higher average rental costs related to the rentals on locations acquired during the second quarter of 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of operations, (continued) Total selling and general expenses decreased $575,000 (6.1%) for the third quarter and increased $1,476,000 (7.3%) for the first nine months as compared to the prior year. Payroll and related fringe benefits decreased $447,000 (8.3%) in the third quarter primarily due to variable costs related to the decline in sales volume. For the nine months to date, payroll and related fringe benefits increased $1,602,000 (12.8%). The increases are due primarily to the payroll and benefits related to the acquisition and the operation of the Maximilian(R) Fur Salons at Bloomingdale's Stores offset by the savings in the third quarter. Advertising expense decreased $168,000 (6.5%) and $109,000 (2.8%) for the third quarter and first nine months, respectively, due to the Company's concerted efforts to manage expenditures through various types of media. Interest expense for the third quarter remained consistent with the prior year. The first nine months of interest expense decreased $99,000 (7.9%) due primarily to a lower weighted average interest rate and higher average short-term borrowings as compared to the same period last year. Other Evans recognizes the potential impact that the Year 2000 issue may have relative to its computer systems and has implemented an action plan to ensure that all systems will be fully Year 2000 compliant. The action plan includes a combination of internal and external resources to be utilized for modifications. These modifications will include hardware and software upgrades or replacement of non-compliant systems. Modifications for all systems are in various stages of completion. Some modifications have been fully implemented and satisfactorily tested, while others are in lesser stages of completion. The Company is confident that all systems will be appropriately modified in a timely manner to handle the turn of the century computer issues. The Company has preliminary estimated related costs of compliance ranging from $500,000 to $750,000. The Company has completed its assessment with regard to non-financial software and chip embedded technology. Modifications will include upgrades or replacement of systems. The cost of making those adaptations are not expected to be material and will be expensed in the period incurred. The Company has contacted its critical suppliers, service providers and partners to determine the extent to which the Company is vulnerable to those third parties' failure to remedy their own Year 2000 issues. The Company has received indications from a majority of its suppliers, service providers and partners that they are in the process of working on Year 2000 compliance. In the event that any of the Company's significant suppliers, service providers or partners do not successfully and timely achieve Year 2000 compliance, the Company's business or operations could be adversely affected. The costs of the project and the date on which the Company plans to complete its Year 2000 assessment and remediation are based on management's estimates, which were derived utilizing Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ significantly from those plans. The Company is developing contingency plans for the above areas addressing any material failure to deal with Year 2000 issues and anticipates that the plan will be completed by the fall of 1999. Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995 Certain statements included in these financial statements that are not historical facts may include forward-looking statements. The Company cautions readers that these forward-looking statements are subject to a variety of risks and uncertainties that could cause Evans' actual results to differ materially from those expressed in forward-looking statements. These risks and uncertainties include, without limitation, general economic and business conditions affecting the customers in existing and new geographical markets, competition from national, regional and local retailers, the availability of sufficient capital, and the ability to obtain and identify the right product mix and to maintain sufficient inventory to meet customer demand. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 4.61 Third Amendment to Loan and Security Agreement Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K None. Items other than those listed are omitted because they are not required. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized. EVANS, INC. DATE: January 18, 1999 ROBERT K. MELTZER ROBERT K. MELTZER President and Chief Executive Officer DATE: January 18, 1999 DEANNA L. HARNETT DEANNA L. HARNETT Vice President and Chief Financial Officer EVANS, INC. AND SUBSIDIARIES Exhibit Page Nos. 4.61 Third Amendment to Loan and Security Agreement 14-21 27 Financial Data Schedule 22 THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment") is made and entered into this 14th day of January, 1999, by and among EVANS, INC., a Delaware corporation ("Evans"), KOSLOW'S, INC., a Texas corporation ("Koslow's"), EVANS-ROSENDORF OF MARYLAND, INC., a Delaware corporation ("Rosendorf," along with each of Evans and Koslow, are referred to as the "Borrowers") and JACKSON NATIONAL LIFE INSURANCE COMPANY, a Michigan insurance corporation, ("Jackson" or "Lender"). . PRELIMINARY STATEMENTS A. Borrowers and Lender have entered into that certain Loan and Security Agreement, dated June 16, 1997, as amended by the First Amendment to Loan and Security Agreement dated August 7, 1997, and the Second Amendment ("Second Amendment") to Loan and Security Agreement dated May 28, 1998 (collectively, the "Loan Agreement", and together with this Amendment and with all other documents evidencing and implementing this Amendment and the Loan Agreement, the "Loan Documents"). B. The Borrowers have advised Lender that Borrowers are in violation of certain financial covenants contained in the Loan Agreement. C. The Lender is willing to amend the Loan Agreement subject to the terms and conditions of this Amendment. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: AGREEMENT ARTICLE I Definitions 1.01 Capitalized terms used in this Amendment are defined in the Loan Agreement, as amended hereby, unless otherwise stated. ARTICLE II Amendments to Loan Agreement 2.01 Amendment to Section 2 - Loans and Terms of Payment. The first full sentence of Section 2.4(a) is deleted and replaced with the following: "(a) The Borrowers will pay interest to Lender on the unpaid principal amount of the Term Loan and all Revolving Loan Advances and all other Obligations, if any, at a fluctuating rate per annum equal to one and one-quarter percent (1.25%) above the Prime Rate." 2.02 Amendments to Section 10.3 - Financial Covenants. Sections 10.3(a) and (b) are hereby amended in their entirety as follows; and section 10.3(c) is added: (a) Borrowers shall continuously maintain, on a consolidated basis: (i) For the twelve-month period ending February 28, 1999, Consolidated Tangible Net Worth equal to or greater than Eight Million Five Hundred Thousand Dollars ($8,500,000) and thereafter Consolidated Tangible Net Worth equal to or greater than Eight Million Five Hundred Thousand Dollars ($8,500,000) increased quarterly by 75% of the Borrowers' year to date consolidated Net Income. (ii) For the twelve-month period ended November 30, 1998, Borrowers shall maintain a minimum ratio of EBITDA to interest expense of (0.76) to 1.00; for the twelve-month period ended February 28, 1999, Borrowers shall maintain a minimum ratio of EBITDA to interest expense of (0.35) to 1.00; and thereafter shall maintain a minimum ratio of EBITDA to interest expense of 2.00 to 1.00 for each Fiscal Quarter calculated on a rolling twelve month basis. (iii)Borrowers will not permit consolidated EBITDA to be (x) less than negative $1,100,000 for the twelve-month period ended November 30, 1998, or (y) less than negative $125,000 for the eleven-month period ended January 31, 1999, or (z) less than negative $500,000 for the twelve-month period ended February 28, 1999. (b) Borrowers shall not permit the ratio of Net Income excluding any after-tax extraordinary gains or losses plus depreciation and amortization deducted in determining Net Income minus Capital Expenditures not financed ("Adjusted Net Cash Flow") to current principal maturities of long term debt and Capital Leases paid during such period for the periods set forth below to be either greater than, or less than (as specified below), the ratio set forth opposite each such period, provided, however, that Borrowers will be deemed to have complied for the rolling twelve- month period ending nearest to February 28, 1999, if non-compliance would result solely from Adjusted Net Cash Flow exceeding negative $2.40 million: PERIOD RATIO Rolling twelve-month period ending Less than nearest to November 30, 1998 (1.96) to 1.00 Rolling twelve-month period ending Greater than nearest to February 28, 1999 (2.30) to 1.001 Thereafter, for each rolling twelve-month Less than Fiscal Quarter 1.25 to 1.00 (c) Borrowers shall not permit the ratio of Net Income excluding any after-tax extraordinary gains or losses plus depreciation and amortization deducted in determining Net Income minus Capital Expenditures not financed, multiplied by negative one, to current principal maturities of long term debt and Capital Leases paid during such period for the period set forth below to be less than the ratio set forth opposite such period, provided, however, that Borrowers will be deemed to have complied for the eleven-month period ending nearest to January 31, 1999, if non-compliance would result solely from Adjusted Net Cash Flow exceeding negative $2.00 million: PERIOD RATIO Eleven-month period ended nearest to 1.90 to 1.00 January 31, 1999 2.03 Amendment to Schedule 10.2 of the Loan Agreement. Schedule 10.2 to the Loan Agreement, entitled Salary and Bonuses of Officers, is amended in its entirety to conform to Schedule 10.2 hereof. - -------- 1 For example, if the ratio is (1.70) to 1.00, the Borrower would be in violation. If the ratio is (2.50) to 1.00, the Borrower would be in compliance. ARTICLE III Amendment Fee 3.0 The Borrowers hereby agree to pay to the Lender on the date hereof an amendment fee in the amount of $15,000, and to pay Lender a fee of $2,500 per month to monitor collateral, monitor bankers' acceptances, and facilitate the forwarding of banking information. ARTICLE IV Waiver of Compliance With and Reset of Certain Covenants 4.01 Noncompliance with Certain Covenants. Borrowers acknowledge that, for the period ending November 30, 1998, Borrowers were not in compliance with the financial covenants set forth in Sections 10.3(a)(iii)(c) and 10.3(b) of the Loan Agreement, as amended by the Second Amendment ("November Noncompliance"), and that such noncompliance resulted in Events of Default under the Loan Agreement. Subject to the terms and conditions of this Amendment, Lender hereby agrees to waive the November Noncompliance and the Events of Default which resulted therefrom, provided, however, that nothing contained in this Amendment shall be or be deemed a waiver of any other presently existing or hereafter arising or occurring breach, default or Event of Default, or preclude the exercise of any of the Lender's rights or remedies under the Loan Agreement or the Loan Documents resulting therefrom. Upon the occurrence of a default or an Event of Default under this Amendment, or under the Loan Agreement or the Loan Documents, Lender may exercise all of its rights and remedies, pursuant to this Amendment, the Loan Agreement or the Loan Documents, at law, in equity or otherwise. 4.02 Reset of Covenants. Lender agrees to reset certain financial covenants for the period ended November 30, 1998, as set forth in Article 2.02 hereof. If any additional Events of Default under this Amendment, the Loan Agreement or the Loan Documents, including but not limited to non-compliance with the financial covenants set or reset in Article 2.02 hereof, occur or are discovered after the date of this Amendment, Lender shall be entitled to exercise all of its remedies under the Loan Agreement and the Loan Documents. ARTICLE V Ratifications, Representations and Warranties 5.01 Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the Loan Documents, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement and the Loan Documents are ratified and confirmed and shall continue in full force and effect. Borrowers and Lender agree that the Loan Agreement and the Loan Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 5.02 Representations and Warranties. Borrowers hereby represent and warrant to Lender that (a) the execution, delivery and performance of this Amendment and any and all Loan Documents executed and/or delivered in connection herewith, have been authorized by all requisite corporate action on the part of Borrowers and will not violate the Articles of Incorporation or Bylaws of any of the Borrowers; (b) the representations and warranties contained in the Loan Agreement, as amended hereby, and any Loan Documents are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (c) except as set forth expressly in Article 4.01 hereof, no Event of Default or event or condition which, with notice or passage of time or both, would constitute an Event of Default under the Loan Agreement, as amended hereby, has occurred and is continuing; and (d) except as set forth herein, Borrowers are in full compliance with all covenants and agreements contained in the Loan Agreement and the Loan Documents, as amended hereby. ARTICLE VI Miscellaneous Provisions 6.01 Survival of Representations and Warranties. All representations and warranties made in the Loan Agreement or any Loan Documents, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the Loan Documents, and no investigation by Lender shall affect the representations and warranties or the right of Lender to rely upon them. 6.02 Reference to Loan Agreement. Each of the Loan Agreement and the Loan Documents, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of thc Loan Agreement, as amended hereby, are hereby amended so that any reference in the Loan Agreement and the Loan Documents shall mean a reference to the Loan Agreement and the Loan Documents as amended hereby. 6.03 Expenses of Agent. As provided in the Loan Agreement, Borrowers agree to pay on demand all reasonable costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and the Loan Documents executed pursuant hereto, and any and all amendments, modifications, and supplements thereto, including, without limitation, the reasonable costs and fees of Lender's legal counsel. 6.04 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to thc provision so held to be invalid or unenforceable. 6.05 Successors and Assigns. This Amendment is binding upon and shall insure to the benefit of Lender and Borrowers and their respective successors and assigns, except that Borrowers may not assign or transfer any of their rights or obligations hereunder without the prior written consent of Lender. 6.06 Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument, and facsimile signatures may serve as original signatures. 6.07 Effect of Waiver. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant or condition by Borrowers shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 6.08 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 6.09 Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THE LOAN AGREEMENT OR OF THE LOAN DOCUMENTS. 6.10 Governing Law. NOTWITHSTANDING ANYTHING ELSE IN THE LOAN AGREEMENT OR THE LOAN DOCUMENTS, ALL MATTERS UNDER THIS AMENDMENT, THE LOAN AGREEMENT OR THE LOAN DOCUMENTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE OF THIS AMENDMENT, THE LOAN AGREEMENT AND THE LOAN DOCUMENTS, AND THE OBLIGATIONS ARISING THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND COOK COUNTY, ILLINOIS OR NEW YORK COUNTY, NEW YORK, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION AS TO ALL SUCH MATTERS. THE LENDER AND BORROWERS AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY OBJECTION AS TO VENUE IN COOK COUNTY, ILLINOIS OR NEW YORK COUNTY, NEW YORK. THIS SPACE INTENTIONALLY LEFT BLANK Witness the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. EVANS, INC., By: Title: Vice President KOSLOW'S, INC., By: Title: Vice President EVANS-ROSENDORF OF MARYLAND, INC., By: Title: Vice President JACKSON NATIONAL LIFE INSURANCE COMPANY, as Lender, By:PPM America, Inc., Attorney-in-Fact By: Title: SCHEDULE 10.2 - SALARY AND BONUSES OF OFFICERS NAME BASE BASE OFFICER TITLE SALARY BONUS % BONUS $ Robert Meltzer President and CEO $190,000 12.5% $23,750 John Sarama Vice President Operations, 150,000 12.5% 18,750 Director of Stores Deanna Harnett Vice President, CFO 110,000 12.5% 15,000 Sam Garber Vice President, Secretary, 115,000 12.5% 14,375 and General Counsel Dean Obrecht Vice President, Human Resources 100,000 12.5% 12,500 David Meltzer Chairman of the -0- N/A -0- Board $665,000 $84,375 EX-27 2 FDS -- FOR THIRD QUARTER 10Q
5 9-MOS Feb-27-1999 Nov-28-1998 801,000 0 13,231,000 0 37,772,000 52,463,000 11,958,000 8,759,000 60,662,000 49,393,000 0 0 0 1,267,000 9,071,000 60,662,000 39,763,000 51,986,000 25,489,000 56,512,000 388,000 0 1,147,000 (6,061,000) 0 (6,061,000) 0 0 0 (6,061,000) (1.17) (1.17)
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