-----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, FU0xjrow0RN/Cvy5gOf7az4Uo+Yj+vvbnDhZw1CoHPRKA68SpG5vgLwoQ971EqEr NJbdnTgbnKl5svh5t9pEKA== 0000950135-95-002632.txt : 19951213 0000950135-95-002632.hdr.sgml : 19951213 ACCESSION NUMBER: 0000950135-95-002632 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951028 FILED AS OF DATE: 19951212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CML GROUP INC CENTRAL INDEX KEY: 0000729576 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 042451745 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09630 FILM NUMBER: 95600975 BUSINESS ADDRESS: STREET 1: 524 MAIN ST CITY: ACTON STATE: MA ZIP: 01720 BUSINESS PHONE: 5082644155 MAIL ADDRESS: STREET 1: 524 MAIN STREET CITY: ACTON STATE: MA ZIP: 01720 10-Q 1 CML GROUP, INC. 1 ================================================================================ 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 OCTOBER 28, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ---------------- --------------- Commission file number 0-12628 ------- CML GROUP, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 04-2451745 - ------------------------ ------------------------------------ (State of Incorporation) (IRS Employer Identification Number) 524 Main Street, Acton, Massachusetts 01720 - ------------------------------------- -------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 264-4155 -------------- Not Applicable --------------------------------------------------- (Former name, former address and former fiscal year if changed since last report.) 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 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 ------- ------- Number of shares outstanding of each of the issuer's classes of common stock: 49,127,903 shares of common stock, $.10 par value, as of December 5, 1995. ================================================================================ Page 1 of 30 Pages Exhibit Index Begins on Page 14 2 CML GROUP, INC. AND SUBSIDIARIES -------------------------------- Form 10-Q Index ----- Page ---- Part I: Financial Information Item 1: Financial Statements Consolidated Condensed Balance Sheets as of October 28, 1995 and July 31, 1995 3 - 4 Consolidated Condensed Statements of Operations for the three-month periods ended October 28, 1995 and October 29, 1994 5 Consolidated Condensed Statements of Cash Flows for the three-month periods ended October 28, 1995 and October 29, 1994 6 Notes to Consolidated Condensed Financial Statements 7 - 9 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 11 Part II: Other Information 12 - 13 Signatures 13 Exhibit Index 14
2 3 Part I: FINANCIAL INFORMATION Item 1. Financial Statements -------------------- CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Balance Sheets ------------------------------------- ASSETS
October 28, 1995 July 31, 1995 ---------------- ------------- Current assets: Cash and cash equivalents $ 2,099,000 $ 8,338,000 Accounts receivable 47,965,000 51,949,000 Prepaid income taxes 20,406,000 8,710,000 Inventories: Raw materials 13,063,000 12,970,000 Work in process 3,196,000 3,096,000 Finished goods 72,774,000 49,378,000 ------------ ------------ Total inventories 89,033,000 65,444,000 Other current assets 23,291,000 30,286,000 Net assets of business held for sale 34,963,000 34,314,000 ------------ ------------ Total current assets 217,757,000 199,041,000 ------------ ------------ Property, plant and equipment, at cost: Land and buildings 19,907,000 19,865,000 Machinery and equipment 81,693,000 77,522,000 Leasehold improvements 83,034,000 80,710,000 ------------ ------------ 184,634,000 178,097,000 Less accumulated depreciation 70,461,000 65,057,000 ------------ ------------ 114,173,000 113,040,000 ------------ ------------ Goodwill 12,431,000 12,521,000 Other assets 14,551,000 15,479,000 ------------ ------------ $358,912,000 $340,081,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 3 4 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Balance Sheets ------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY
October 28, 1995 July 31, 1995 ---------------- ------------- Current liabilities: Current portion of long-term debt $ 204,000 $ 203,000 Accounts payable 39,966,000 35,156,000 Accrued compensation 6,821,000 6,905,000 Accrued advertising 6,352,000 4,381,000 Accrued sales returns 2,746,000 4,572,000 Accrued income taxes 303,000 1,892,000 Other accrued expenses 26,439,000 29,399,000 ------------ ------------ Total current liabilities 82,831,000 82,508,000 ------------ ------------ Noncurrent liabilities: Long-term debt 44,855,000 10,082,000 Convertible subordinated debentures 41,593,000 41,593,000 Other noncurrent liabilities 18,444,000 17,346,000 ------------ ------------ Total noncurrent liabilities 104,892,000 69,021,000 ------------ ------------ Stockholders' equity: Common stock, par value $.10 per share Authorized - 120,000,000 shares Issued - 52,097,794 shares and 52,076,674 shares 5,209,000 5,207,000 Additional paid-in capital 79,898,000 79,805,000 Retained earnings 124,193,000 140,444,000 ------------ ------------ 209,300,000 225,456,000 Less treasury stock, at cost, 2,969,891 shares and 2,797,791 shares 38,111,000 36,904,000 ------------ ------------ 171,189,000 188,552,000 ------------ ------------ $358,912,000 $340,081,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 4 5 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Statements of Operations ----------------------------------------------- For the periods ended October 28, 1995 and October 29, 1994
Three Months -------------------------- 1995 1994 ------------- ------------ Net sales $108,865,000 $129,198,000 ------------- ------------ Less costs and expenses: Cost of goods sold 48,595,000 50,309,000 Selling, general and administrative expenses 84,039,000 75,860,000 Interest expense 532,000 577,000 ------------- ------------ 133,166,000 126,746,000 ------------- ------------ Income (loss) from continuing operations before income taxes (24,301,000) 2,452,000 Provision (benefit) for income taxes (9,283,000) 920,000 ------------- ------------ Income (loss) from continuing operations before extraordinary credit (15,018,000) 1,532,000 ------------- ------------ Discontinued operations: Income (loss) from operations, net of income taxes -- (651,000) ------------- ------------ -- (651,000) ------------- ------------ Net income (loss) ($15,018,000) $881,000 ============= ============ Earnings (loss) per share: Income (loss) from continuing operations Primary ($0.30) $0.03 ============= ============ Fully diluted ($0.30) $0.03 ============= ============ Net income (loss): Primary ($0.30) $0.02 ============= ============ Fully diluted ($0.30) $0.02 ============= ============ Weighted average number of shares outstanding 49,771,232 50,804,437
See Notes to Consolidated Condensed Financial Statements. 5 6 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Statements of Cash Flows -----------------------------------------------
For the Three Months --------------------------------- October 28, 1995 October 29, 1994 ---------------- ---------------- Cash flows from operating activities: Net income (loss) ($15,018,000) $ 881,000 ------------- ------------ Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,123,000 7,122,000 Loss on disposal of property, plant and equipment 808,000 620,000 Increase in working capital items (24,725,000) (32,343,000) (Increase) decrease in other assets 180,000 (339,000) Increase in other noncurrent liabilities 854,000 381,000 ------------ ------------ Total adjustments (14,760,000) (24,559,000) ------------ ------------ Net cash used in operating activities (29,778,000) (23,678,000) ------------- ------------ Cash flows from investing activities: Additions to property, plant and equipment (8,902,000) (9,242,000) Reduction in notes receivable 12,000 10,000 ------------ ------------ Net cash used in investing activities (8,890,000) (9,232,000) ------------ ------------ Cash flows from financing activities: Increase in long-term debt 34,774,000 12,342,000 Dividends paid (1,233,000) (1,000,000) Exercise of stock options 95,000 34,000 Acquisition of treasury stock (1,207,000) -- ------------ ------------ Net cash provided by financing activities 32,429,000 11,376,000 ------------ ------------ Net decrease in cash and cash equivalents during the period (6,239,000) (21,534,000) Cash and cash equivalents at the beginning of the period 8,338,000 28,929,000 ------------ ------------ Cash and cash equivalents at the end of the period $ 2,099,000 $ 7,395,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 6 7 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - ---------------------------------------------------- Note 1 - ------ The accompanying consolidated condensed financial statements and notes should be read in conjunction with the financial statements contained in the Company's Annual Report on Form 10-K. In the opinion of management, the accompanying consolidated condensed financial statements include all adjustments necessary for a fair presentation of the results of the interim periods presented and all such adjustments are of a normal recurring nature. The retail industry is seasonal in nature and the results of operations for the interim periods presented may not be indicative of the results for a full year. Certain 1995 amounts have been reclassified to conform to the 1996 presentation. Note 2 - Long-term Debt - ----------------------- Consolidated long-term debt is summarized as follows:
October 28, 1995 July 31, 1995 ---------------- ------------- Revolving credit loan $44,800,000 $10,000,000 Note payable 174,000 199,000 Obligations under capital leases 85,000 86,000 ----------- ----------- 45,059,000 10,285,000 Less current portion 204,000 203,000 ----------- ----------- Long-term debt $44,855,000 $10,082,000 =========== ===========
Note 3 - Contingencies - ---------------------- Litigation ---------- In May 1994, ICON Health & Fitness, Inc. commenced a civil suit against NordicTrack in the United States District Court for the District of Utah alleging infringement of three patents of ICON, Inc. arising out of NordicTrack's design of its WalkFit treadmill and certain other similar products. Discovery has been completed. In November 1995, the Court granted NordicTrack's Motion for Summary Judgment relating to one of ICON's three patent infringement claims. ICON's other two claims have been scheduled for trial during the summer of 1996. In January 1995, an individual, William Wilkinson, filed a demand for arbitration and statement of claim alleging that NordicTrack breached the terms of a licensing and product development agreement by failing to compensate him with royalties for certain design features of its WalkFit treadmill and certain similar products. This case is still in the discovery stage. The results of an arbitration hearing scheduled for January 1996 in Chicago, Illinois will be binding on both parties. 7 8 While the Company believes it has meritorious defenses, no assurance can be given of a favorable outcome in either the ICON lawsuit or the Wilkinson claim. An unfavorable outcome in both matters could have a material adverse effect on the Company's financial condition. An unfavorable decision in either matter could also have a material adverse effect on the operating results for the period or periods in which such decision occurs. On October 25, 1994, four stockholders, owning an aggregate of 2,400 shares of CML Group, Inc. Common Stock, filed a class action lawsuit in U.S. District Court for the District of Massachusetts against the Company and its Chairman, Charles M. Leighton, and President, G. Robert Tod. The complaint alleged that the Company failed to properly disclose the extent of its NordicTrack advertising expenditures and the impact of those expenditures on its future operating results, thereby violating federal securities laws. On December 19, 1994, the defendants filed a motion to dismiss the complaint, and on April 7, 1995, the plaintiffs responded by filing an amended complaint which added an allegation that Messrs. Leighton and Tod violated the securities laws by selling CML stock in the Spring of 1994. The Company believes the amended complaint is without merit and intends to vigorously contest the lawsuit. In April 1995, the defendants filed a motion to dismiss this lawsuit. The hearing on this motion is scheduled for mid-December 1995. The Company is involved in various other legal proceedings which have arisen in the ordinary course of business. Management believes the outcome of such proceedings will not have a material adverse impact on the Company's financial condition or results of operations. Environmental Matters --------------------- On June 3, 1991, the Company received from the United States Environmental Protection Agency ("EPA") a Special Notice Letter containing a formal demand on the Company as a Potentially Responsible Party ("PRP") for reimbursement of the costs incurred and expected to be incurred in response to environmental problems at a so-called "Superfund" site in Conway, New Hampshire. The EPA originally estimated the costs of remedial action and future maintenance and monitoring programs at the site at about $7.3 million. The Superfund site includes a vacant parcel of land owned by a subsidiary of the Company as well as adjoining property owned by a third party. No manufacturing or other activities involving hazardous substances have ever been conducted by the Company or its affiliates on the Superfund site in Conway. The environmental problems affecting the land resulted from activities by the owners of the adjoining parcel. Representatives of the Company have engaged in discussions with the EPA regarding responsibility for the environmental problems and the costs of cleanup. The owners of the adjoining parcel are bankrupt. The EPA commenced cleanup activities at the site in July 1992. The EPA expended approximately $1.4 million for the removal phase of the site cleanup, which has now been completed. The EPA had estimated that the removal costs would exceed $3.0 million, but only a small portion of the solid waste removed from the site was ultimately identified as hazardous waste. Therefore, the EPA's actual response costs for the removal phase were less than the EPA originally estimated. The EPA has implemented the groundwater phase of the cleanup, which the EPA originally estimated would cost approximately $4.0 million. 8 9 The Company believes that the EPA's estimated cost for cleanup, including the proposed remedial actions, is excessive and involves unnecessary actions. In addition, a portion of the proposed remedial cost involves cleanup of the adjoining property that is not owned by the Company or any of its affiliates. Therefore, the Company believes it is not responsible for that portion of the cleanup costs. The Company has reserves and insurance coverage (from its primary insurer) for environmental liabilities at the site in the amount of approximately $2.3 million. The Company also believes that it is entitled to additional insurance from its excess insurance carriers. However, if excess liability coverage is not available to the Company and the ultimate liability substantially exceeds the primary insurance amount and reserves, the liability would have a material adverse effect upon the Company's operating results for the period in which the resolution of the claim occurs, but would not have a material adverse effect upon the Company's financial condition. In June 1992, the EPA notified the Company it may be liable for the release of hazardous substances by the Company's former Boston Whaler subsidiary at a hazardous waste treatment and storage facility in Southington, Connecticut. The EPA has calculated the Company's volumetric contribution at less than two tenths of one percent. The EPA has not completed its Remedial Investigation/Feasibility Study and, therefore, an estimate of cleanup costs is not available. Tax Matters ----------- The Internal Revenue Service ("IRS") has been engaged in an examination of the Company's tax returns for the fiscal years 1987 through 1991. The Company has been advised by the IRS that the examination will be completed in the near future. Although the Company has not received an official notice, based on recent discussions with IRS personnel, the Company expects that the IRS will propose certain adjustments which, if sustained by the IRS, would be material and result in a tax deficiency for the years under examination. The adjustments expected to be proposed by the IRS primarily relate to: (i) the disallowance of deductions taken by the Company with respect to incentive compensation payments made to the former owners of NordicTrack (acquired in June 1986) and to the former owners of Britches of Georgetowne (acquired in August 1983); and (ii) the valuation of certain assets acquired in connection with the acquisition of Britches. The Company believes that the tax deductions taken were valid and in accordance with the Internal Revenue Code. However, at this stage no assurance can be given of a favorable outcome on these matters. If the IRS proposed adjustments are sustained, any back taxes owed and associated interest could have a material adverse effect on the operating results for the period in which such issues are finally resolved and could also have a material adverse effect on the Company's financial condition. Note 4 - Dividends - ------------------ On October 3, 1995, the Company's Board of Directors declared a cash dividend of $0.025 per share, payable December 14, 1995 to shareholders of record as of November 28, 1995. On December 1, 1995, the Board of Directors declared a cash dividend of $0.025 per share, payable March 21, 1996 to shareholders of record as of March 6, 1996. 9 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations. ------------- Financial Condition - ------------------- Stockholders' equity at October 28, 1995 decreased $17.4 million to $171.2 million from $188.6 million at July 31, 1995. The Company's working capital increased to $134.9 million at October 28, 1995 from $116.5 million at July 31, 1995 primarily due to the normal seasonal increase in inventories. During the first quarter of fiscal 1996, the Company spent approximately $8.9 million on additions to property, plant and equipment. The Company's long-term debt-to-equity ratio was 0.5 to 1 at October 28, 1995 compared to 0.3 to 1 at July 31, 1995 reflecting seasonal borrowings under the Company's revolving credit agreement to finance the seasonal increase in working capital. The Company's available cash decreased from $8.3 million at July 31, 1995 to $2.1 million at October 28, 1995 due primarily to capital expenditures for new retail stores and normal seasonal working capital requirements. Total unused borrowing capacity under the Company's revolving credit agreement was approximately $34.4 million at October 28, 1995 compared to $40.2 million at July 31, 1995. Results of Operations - --------------------- As a result of the Company's decision to sell its Britches of Georgetowne subsidiary, the Company's continuing operations consist of NordicTrack and The Nature Company segment (which includes Smith & Hawken). During the first quarter of fiscal 1996, net sales of the Company's continuing operations decreased by $20.3 million to $108.9 million, or 15.7%, over the first quarter of fiscal 1995. The Company incurred a loss of $15.0 million from continuing operations during the first quarter of fiscal 1996 compared with income of $1.5 million from continuing operations during the first quarter of fiscal 1995. The decrease in income from continuing operations is primarily due to a decrease in sales and gross margins and an increase in selling, general and administrative expenses. Total retail store sales from continuing operations increased by $7.4 million to $69.4 million, or 11.9%, over the first quarter of fiscal 1995 primarily due to the addition of new Nordic Advantage, Smith & Hawken and Nature Company stores. During the first quarter of fiscal 1996, comparable store sales decreased by 20.5%. Direct response and mail order sales decreased by $27.6 million to $39.5 million, or 41.1%, over the first quarter of fiscal 1995 primarily due to lower direct response sales at NordicTrack and within the Nature Company segment. Cost of goods sold increased as a percentage of sales from 38.9% of sales in the first quarter of fiscal 1995 to 44.6% of sales in the first quarter of fiscal 1996 primarily due to increased sales promotions offered by NordicTrack and The Nature Company segment in response to a more competitive environment, higher costs at NordicTrack due to increases in materials prices, higher labor costs at NordicTrack due to lower production volumes and an increase in the proportion of NordicTrack's sales which are accounted for by products with lower gross margins. Selling, general and administrative expenses increased as a percentage of sales from 58.7% of sales in the first quarter of fiscal 1995 to 77.2% of sales in the first quarter of fiscal 1996 primarily due less efficient advertising at NordicTrack, fixed costs at stores which experienced a decrease in comparable store sales, higher operating expenses attributable to the 10 11 increased number of mall kiosks and costs related to the administration and collection of consumer installment receivables at NordicTrack. Interest expense was $0.5 million, or 0.5% of sales, in the first quarter of fiscal 1996 compared to $0.6 million, or 0.5% of sales, in the first quarter of fiscal 1995. The Company recorded an income tax benefit of 38.2% during the first quarter of fiscal 1996 compared with a provision for income taxes of 37.5% during the first quarter of fiscal 1995. During the first quarter of fiscal 1996, NordicTrack's total sales decreased by $18.4 million to $72.9 million, or 20.2%, over the first quarter of fiscal 1995. Approximately 54.3% of NordicTrack's total sales during the first quarter of fiscal 1996 were accounted for by sales at its NordicAdvantage subsidiary which operates retail stores and mall kiosks. NordicAdvantage's retail sales increased from $32.7 million in the first quarter of fiscal 1995 to $39.6 million in the first quarter of fiscal 1996 primarily due to the opening of new mall kiosks. During the first quarter of fiscal 1996, NordicAdvantage opened 9 retail stores and 157 seasonal mall kiosks and at the end of the quarter operated 123 retail stores and 248 seasonal mall kiosks. NordicAdvantage's comparable store sales decreased 30.3% during the first quarter of fiscal 1996. NordicTrack's direct response sales decreased $25.3 million during the first quarter of fiscal 1996 to $33.3 million, or 43.2%, over the first quarter of fiscal 1995. The Nature Company segment includes The Nature Company, Smith & Hawken, and two early stage retail concepts, Hear Music and Scientific Revolution. During the first quarter of fiscal 1996, The Nature Company segment's sales decreased by $1.9 million to $36.0 million, or 5.1%, over the first quarter of fiscal 1995. The Nature Company segment's retail sales increased by $0.4 million, or 1.4%, to $29.8 million compared to $29.4 million in the first quarter of fiscal 1995 primarily due to the opening of new retail stores. During the first quarter of fiscal 1996, The Nature Company segment opened 6 retail stores and at the end of the quarter operated 155 retail stores. The Nature Company segment's comparable store sales decreased 11.1% during the first quarter of fiscal 1996. During the first quarter of fiscal 1996, The Nature Company segment's mail order sales decreased $2.3 million to $6.2 million, or 27.1%, over the first quarter of fiscal 1995 due primarily to a reduction in the number of catalogs mailed and later mailing dates in fiscal 1996 compared with fiscal 1995. During the first quarter of fiscal 1996, Britches' sales decreased $0.8 million to $29.1 million, or 2.5%, primarily due to a decrease in comparable store sales. Overall, comparable store sales decreased 11.1% during the first quarter of fiscal 1996. Sales of the company's professional men's clothing division, Britches of Georgetowne, were unchanged at $6.0 million and sales of the company's casual men's clothing division, Britches Great Outdoors, decreased $0.8 million to $23.1 million. 11 12 PART II: OTHER INFORMATION Item 1: Legal Proceedings. Environmental Matters --------------------- Note 3 of Notes to Consolidated Condensed Financial Statements in Item 1 of Part I hereof is hereby incorporated by reference for information concerning environmental matters. Litigation ---------- In May 1994, ICON Health & Fitness, Inc. commenced a civil suit against NordicTrack in the United States District Court for the District of Utah alleging infringement of three patents of ICON, Inc. arising out of NordicTrack's design of its WalkFit treadmill and certain other similar products. Discovery has been completed. In November 1995, the Court granted NordicTrack's Motion for Summary Judgment relating to one of ICON's three patent infringement claims. ICON's other two claims have been scheduled for trial during the summer of 1996. In January 1995, an individual, William Wilkinson, filed a demand for arbitration and statement of claim alleging that NordicTrack breached the terms of a licensing and product development agreement by failing to compensate him with royalties for certain design features of its WalkFit treadmill and certain similar products. This case is still in the discovery stage. The results of an arbitration hearing scheduled for January 1996 in Chicago, Illinois will be binding on both parties. While the Company believes it has meritorious defenses, no assurance can be given of a favorable outcome in either the ICON lawsuit or the Wilkinson claim. An unfavorable outcome in both matters could have a material adverse effect on the Company's financial condition. An unfavorable decision in either matter could also have a material adverse effect on the operating results for the period or periods in which such decision occurs. On October 25, 1994, four stockholders, owning an aggregate of 2,400 shares of CML Group, Inc. Common Stock, filed a class action lawsuit in U.S. District Court for the District of Massachusetts against the Company and its Chairman, Charles M. Leighton, and President, G. Robert Tod. The complaint alleged that the Company failed to properly disclose the extent of its NordicTrack advertising expenditures and the impact of those expenditures on its future operating results, thereby violating federal securities laws. On December 19, 1994, the defendants filed a motion to dismiss the complaint, and on April 7, 1995, the plaintiffs responded by filing an amended complaint which added an allegation that Messrs. Leighton and Tod violated the securities laws by selling CML stock in the Spring of 1994. The Company believes the amended complaint is without merit and intends to vigorously contest the lawsuit. In April 1995, the defendants filed a motion to dismiss this lawsuit. The hearing on this motion is scheduled for mid-December 1995. 12 13 The Company is involved in various other legal proceedings which have arisen in the ordinary course of business. Management believes the outcome of such proceedings will not have a material adverse impact on the Company's financial condition or results of operations. Tax Matters ----------- The Internal Revenue Service ("IRS") has been engaged in an examination of the Company's tax returns for the fiscal years 1987 through 1991. The Company has been advised by the IRS that the examination will be completed in the near future. Although the Company has not received an official notice, based on recent discussions with IRS personnel, the Company expects that the IRS will propose certain adjustments which, if sustained by the IRS, would be material and result in a tax deficiency for the years under examination. The adjustments expected to be proposed by the IRS primarily relate to: (i) the disallowance of deductions taken by the Company with respect to incentive compensation payments made to the former owners of NordicTrack (acquired in June 1986) and to the former owners of Britches of Georgetowne (acquired in August 1983); and (ii) the valuation of certain assets acquired in connection with the acquisition of Britches. The Company believes that the tax deductions taken were valid and in accordance with the Internal Revenue Code. However, at this stage no assurance can be given of a favorable outcome on these matters. If the IRS proposed adjustments are sustained, any back taxes owed and associated interest could have a material adverse effect on the operating results for the period in which such issues are finally resolved and could also have a material adverse effect on the Company's financial condition. Items 2-5: None. Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits - See Exhibit Index. (b) Reports on Form 8-K: None. Signatures - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CML GROUP, INC. --------------- (Registrant) Date: December 11,1995 /s/ Glenn E. Davis ---------------- ------------------ Glenn E. Davis Vice President and Controller Principal Accounting Officer 13 14 EXHIBIT INDEX Page No. -------- 10(a) -- Fourth Amendment to the Company's Third Amended and Restated Revolving Credit Agreement dated as of July 31, 1993 by and among CML Group, Inc., Citibank N.A., BayBank Boston, N.A. and The First National Bank of Boston 15 - 28 11 -- Statement Regarding Computation of Earnings (Loss) Per Share 29 27 -- Financial Data Schedule 30
14 EX-10.A 2 FOURTH AMENDMENT TO RESTATED REVOLVING AGREEMENT 1 Exhibit 10(a) ------------- FOURTH AMENDMENT AGREEMENT -------------------------- FOURTH AMENDMENT AGREEMENT (this "AMENDMENT AGREEMENT") dated as of July 31, 1995 by and among (1) CML Group, Inc. (the "BORROWER"), (2) Citibank, N.A. ("CITIBANK"), BayBank Boston, N.A. ("BAYBANK") and The First National Bank of Boston ("FNBB") as lenders (collectively, the "LENDERS" and individually, a "LENDER"), and (3) Citibank as agent (the "AGENT") for the Lenders, amending a certain Third Amended and Restated Revolving Credit Agreement dated as of July 31, 1993 among the Borrower, the Lenders and the Agent (the "ORIGINAL LOAN AGREEMENT"), as amended by a certain Amendment Agreement dated as of May 15, 1994 (the "FIRST AMENDMENT"), as further amended by a certain Second Amendment Agreement dated as of June 1, 1994 (the "SECOND AMENDMENT"), as further amended by a certain Third Amendment Agreement dated as of April 28, 1995 (the "THIRD AMENDMENT")(the Original Loan Agreement, the First Amendment, the Second Amendment and the Third Amendment are collectively referred to as the "LOAN AGREEMENT"). All capitalized terms used herein which are defined in the Loan Agreement shall have the same meanings herein as therein. W I T N E S S E T H: WHEREAS, pursuant to the terms of the Loan Agreement, the Lenders may make Advances to the Borrower in the original principal amount of up to $60,000,000; and WHEREAS, pursuant to the Loan Agreement, the Borrower executed and delivered the following: (i) a Third Amended and Restated Revolver Note dated as of July 31, 1993 in the original principal amount of up to $25,716,000 in favor of Citibank (the "CITIBANK NOTE"); (ii) a Third Amended and Restated Revolver Note dated as of July 31, 1993 in the original principal amount of up to $17,142,000 in favor of BayBank (the "BAYBANK NOTE"); and (iii) a Third Amended and Restated Revolver Note dated as of July 31, 1993 in the original principal amount of up to $17,142,000 in favor of FNBB (the "FNBB NOTE") (the Citibank Note, the BayBank Note and the FNBB Note are collectively referred to herein as the "NOTES"); and WHEREAS, the Borrower has requested that the Lenders and Agent amend certain provisions of the Loan Agreement as further set forth herein; and WHEREAS, the Borrower, the Lenders and the Agent have agreed to modify the Loan Agreement pursuant to the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. DEFINITIONS. Capitalized terms used herein without definition that are defined in the Loan Agreement shall have the same meanings herein as therein. 15 2 Section 2. RATIFICATION OF EXISTING AGREEMENTS. All of the Borrower's obligations and and liabilities to the Lenders and the Agent as evidenced by or otherwise arising under the Loan Agreement, the Notes and the other Loan Documents, except as otherwise expressly modified in this Amendment Agreement upon the terms set forth herein, are, by the Borrower's execution of this Amendment Agreement, ratified and confirmed in all respects. In addition, by the Borrower's execution of this Amendment Agreement, the Borrower represents and warrants that no counterclaim, right of set-off or defense of any kind exists or is outstanding with respect to such obligations and liabilities. The Borrower acknowledges and agrees that this Amendment Agreement shall be included in the definition of Loan Documents under the Loan Agreement. Section 3. REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made by the Borrower in the Loan Agreement, the Notes and the other Loan Documents are true and correct on the date hereof as if made on and as of the date hereof, except to the extent that any of such representations and warranties relate by their terms to a prior date. Section 4. CONDITIONS PRECEDENT. (a) The effectiveness of the amendments contemplated hereby shall be subject to the satisfaction on or before September 28, 1995 hereof of each of the following conditions precedent: (i) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made by the Borrower herein, whether directly or incorporated by reference, shall be true and correct on the date hereof, except as provided in Section 3 hereof. (ii) PERFORMANCE; NO EVENT OF DEFAULT. The Borrower shall have performed and complied in all material respects with all terms and conditions herein required to be performed or complied with by it prior to or at the time hereof, and there shall exist no Default or Event of Default or condition which, with either or both the giving of notice or the lapse of time, would result in an Event of Default upon the execution and delivery of this Amendment Agreement. (iii) DELIVERY. The parties hereto shall have executed and delivered this Amendment Agreement together with Fourth Amended and Restated Notes executed in favor of each of the Lenders, each in form and substance satisfactory to the Lenders and Agent. (iv) FEES AND EXPENSES. The Borrower shall have paid to the Agent in immediately available funds a non-refundable amendment fee equal to $150,000 for the accounts of the Lenders in accordance with their respective Commitment Percentages proposed to be in effect on the Commitment Effective Date pursuant to Section 5.2 hereof. In addition, the Borrower shall have paid all fees and expenses incurred by the Agent in connection with this Amendment Agreement, the Loan Agreement or the other Loan Documents on or prior to the date hereof. (b) In addition to the conditions precedent set forth in clause (a) of Section 4 above, the effectiveness of the Amendments contemplated by Section 5.1, 5.2, and clauses (f) and (h) of Section 5.14 hereof shall be subject to the satisfaction prior to the effectiveness thereof to each of the following conditions precedent: 16 3 (i) CORPORATE ACTION. The Agent shall receive evidence satisfactory to it that all requisite corporate action necessary for the valid execution, delivery and performance by the Borrower and its Subsidiaries of this Amendment Agreement and all other instruments and documents delivered by the Borrower and its Subsidiaries in connection therewith shall have been duly and effectively taken. (ii) The Agent shall have received from Hale & Dorr, counsel to the Borrower, a favorable opinion addressed to the Agent and the Lenders in form and substance satisfactory to the Agent. 5. AMENDMENTS TO THE LOAN AGREEMENT. --------------------------------- 5.1 Section 1.01(b) of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: "(b) COMMITMENT TO LEND. Subject to the terms and conditions set forth in this Agreement, each of the Lenders severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Effective Date and the Final Maturity Date upon notice by the Borrower to the Agent given in accordance with Section 1.02 hereof, such sums as are requested by the Borrower up to a maximum aggregate amount Outstanding (after giving effect to all amounts requested) at any one time equal to such Lender's Commitment MINUS such Lender's Commitment Percentage of the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations; PROVIDED that the sum of the Outstanding amount of the Advances (after giving effect to all amounts requested) PLUS the Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not at any time exceed the Total Commitment. The Advances shall be made PRO RATA in accordance with each Lender's Commitment Percentage. Each request for an Advance hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in Section 4.01 and Section 4.02 have been satisfied on the date of such request. Each Borrowing of a Base Rate Advance under this Section 1.01(a) shall be in an aggregate amount of $500,000 or an integral multiple thereof. Each Borrowing of a Eurodollar Rate Advance under this Section 1.01(a) shall be in the aggregate amount of $5,000,000 or an integral multiple thereof. Each Borrowing under this Section 1.01(a) shall consist of Advances made on the same day by each Lender ratably according to the respective Commitment Percentages of the Lenders. Within the limits of each Lender's Commitment, the Borrower may borrow, prepay pursuant to Section 1.08, and reborrow under this Section 1.01(a)." 5.2. Section 1.01(c) of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: 17 4 "(c) (i) During the period beginning on July 31, 1995 and ending on the Commitment Effective Date, each Lender's Commitment Percentage shall be as follows: Lender Commitment Percentage -------- --------------------- Citibank 42.86% BayBank 28.57% FNBB 28.57% Total 100.00%
(ii) During the period beginning on the Commitment Effective Date and ending on December 29, 1995, each Lender's Commitment Percentage shall be as follows: Lender Commitment Percentage -------- --------------------- Citibank 40.00% BayBank 30.00% FNBB 30.00% Total 100.00%
(iii) From and after December 30, 1995, each Lender's Commitment Percentage shall be as follows: Lender Commitment Percentage -------- --------------------- Citibank 42.86% BayBank 28.57% FNBB 28.57% Total 100.00%
(iv) On and as of the date of any increase of the Total Commitment or change in the respective Commitment Percentages of the Lenders pursuant to the terms of this Agreement, the Lenders shall make such assignments and assumptions of Loans and Commitments as shall be necessary in the opinion of the Agent to effectuate any such increase or change." 18 5 5.3. Section 1.05 of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: "1.05. Reduction of Total Commitment. ----------------------------- (a) The Total Commitment shall be immediately and irrevocably reduced by an amount equal to (i) one hundred percent (100%) of any Net Cash Proceeds in an aggregate amount on a cumulative basis of up to and including eight million dollars ($8,000,000) received by the Borrower or any Subsidiary after the date hereof in connection with any sales of its properties and assets not in the ordinary course of business (any such sales being referred to herein as "REDUCTION SALES"), (ii) zero percent (0%) of any Net Cash Proceeds in excess of eight million dollars ($8,000,000) in the aggregate on a cumulative basis but less than or equal to eighteen million dollars ($18,000,000) in the aggregate on a cumulative basis received by the Borrower or any Subsidiary after the date hereof in connection with Reduction Sales, (iii) fifty percent (50%) of any Net Cash Proceeds in excess of eighteen million dollars ($18,000,000) in the aggregate on a cumulative basis received by the Borrower or any Subsidiary after the date hereof in connection with Reduction Sales constituted of sales of the properties and assets of any of the First Tier Companies not in the ordinary course of business (to the extent permitted by the Majority Lenders), excluding any sales of NordicTrack accounts receivable ("NordicTrack Receivables"), (iv) fifty percent (50%) of any Net Cash Proceeds in excess of eighteen million dollars ($18,000,000) in the aggregate on a cumulative basis received by the Borrower or any Subsidiary after the date hereof in connection with Reduction Sales constituted of sales of NordicTrack Receivables and any of the other properties and assets of the Borrower and its Subsidiaries (other than the properties and assets of any of the First Tier Companies) not in the ordinary course of business (to the extent permitted by the Majority Lenders) until such time as the Total Commitment is equal to or less than $55,000,000, (v) zero percent (0%) of any Net Cash Proceeds received by the Borrower or any Subsidiary from the sales of those assets and properties subject to the operation of clause (iv) hereof to the extent the Total Commitment would not be required to be reduced in connection therewith pursuant to the operation of clause (iv) hereof (to the extent such sales are permitted by the Majority Lenders) and (vi) eighty-five percent (85%) of the Net Cash Proceeds of any Senior Debt Securities issued by the Borrower or any Subsidiary after the date hereof, provided that nothing set forth in this Section 1.05(a) shall alter or modify the Borrower's obligations set forth in Section 6.02(e) or (j) hereof. Without limiting the generality of the foregoing, for the purposes of calculating reductions of the Total Commitment required by the operation of Section 1.05(a)(iv) the purchase by or assignment to any Person (a "THIRD-PARTY CREDITOR") by the Borrower or any of its Subsidiaries or the underwriting by a Third-Party Creditor of credit extended to any retail purchasers of goods sold by the Borrower or any of its Subsidiaries pursuant to an ongoing underwriting arrangement facilitated by the Borrower or any of 19 6 its Subsidiaries (excluding so-called "credit card" transactions carried out in the ordinary course of business of the Borrower and its Subsidiaries and which are consistent with past practices) shall be deemed to be the sale of an asset not in the ordinary course of business and trigger the commitment reduction obligations set forth in Section 105(a)(iv), as applicable." (b) The Borrower shall also have the right, upon at least two (2) Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the Total Commitment of the Lenders, PROVIDED that each partial reduction shall be in an amount equal to $5,000,000 or an integral multiple thereof. (c) Upon the occurrence of a reduction in the Total Commitment as contemplated by paragraphs (a) and (b) of this Section 1.05, the respective Commitments of the Lenders shall be reduced PRO RATA to an amount equal to their respective Commitment Percentages of the Total Commitment in effect immediately after such reduction. (d) No reduction of the Total Commitment as contemplated by paragraphs (a), (b) or (c) of this Section 1.05 may be reinstated. (e) If at any time the sum of (i) the aggregate principal amount of all Advances Outstanding PLUS (ii) the Maximum Drawing Amount and all Unpaid Reimbursement Obligations, exceeds the Total Commitment, then the Borrower shall immediately pay the amount of such excess to the Agent for the respective accounts of the Lenders for application to the Advances. (f) The Total Commitment shall be reduced to $0 and the Advances shall become due and payable in full on the Final Maturity Date." 5.4. Section 2.01(a) of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: "(a) Subject to the terms and conditions hereof, the Issuing Bank, on behalf of the Lenders and in reliance on the agreement of the Lenders set forth in Section 2.01(b) hereof and upon the representations and warranties of the Borrower contained herein and in the other Loan Documents, agrees to issue, extend, and renew for the account of the Borrower one or more standby and trade letters of credit (individually, a "LETTER OF CREDIT" and collectively, the "LETTERS OF CREDIT"), in such form as may be requested from time to time by the Borrower and agreed to by the Issuing Bank, from and including the Effective Date to the date which is three (3) calendar months prior to the then scheduled Final Maturity Date; PROVIDED, HOWEVER, that, after giving effect to such request, the sum of (i) the aggregate Maximum Drawing Amount, (ii) any Unpaid Reimbursement Obligations and (iii) the aggregate Outstanding Advances shall not exceed at any time the Total Commitment in effect at such time, 20 7 and PROVIDED FURTHER that the Maximum Drawing Amount and any Unpaid Reimbursement Obligations with respect to any Standby Letters of Credit shall not exceed $5,000,000 at any time." 5.5. Section 3.01 of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: "Section 3.01. FACILITY FEE. The Borrower agrees to pay to the Agent for the accounts of the Lenders in accordance with their respective Commitment Percentages a facility fee calculated on the basis of a 365/366 day year and at a rate PER ANNUM equal to four-tenths of one percent (.40%) per annum on the average daily Total Commitment (whether used or unused) during each calendar quarter or portion thereof from the date hereof to the Final Maturity Date. The facility fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date after July 31, 1995, with a final payment on the Final Maturity Date or any earlier date on which the Commitments shall terminate." 5.6. Section 6.01(k) of the Loan Agreement is hereby amended by deleting the phrase "during the period commencing December 1 and ending July 1" and inserting in lieu thereof the phrase "commencing during January of". 5.7. Section 6.02(e) of the Loan Agreement is hereby amended by deleting the phrase "Advance Total Commitment" appearing in the sixth and seventh lines thereof and substituting therefore "Total Commitment." 5.8. Section 6.02(g) of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: "(g) CAPITAL EXPENDITURES. Make, or permit any Subsidiary to make, any expenditures for fixed or capital assets which would cause the aggregate amount of such expenditures made by the Borrower and the Subsidiaries to exceed, on a Consolidated basis, (i) $75,000,000 in the Fiscal Year ended July 31, 1995 (ii) $32,000,000 for the Fiscal Year ending July 31, 1996, and (iii) $48,000,000 in any Fiscal Year of the Borrower ending thereafter, PROVIDED that each of the Capital Expenditure limits set forth above shall be reduced to the extent of any loans or other investments permitted to be made by Section 6.02(f)(iv) hereof and actually made by the Borrower in such Fiscal Year, and PROVIDED FURTHER that in the event that in any Fiscal Year, the Capital Expenditure limit set forth above for such Fiscal Year is greater than the sum of After-Tax Income (Excluding Permitted Losses) for the prior Fiscal Year PLUS depreciation for the prior Fiscal Year, the Capital Expenditure limit shall be reduced to eliminate such excess. For purposes of determining compliance with the foregoing covenant, there shall be deducted from Capital Expenditures (to the extent included therein) those amounts comprised of construction allowances by landlords." 21 8 5.9. Section 6.02(i) of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: "(i) FIXED CHARGE RATIO. Permit the ratio of (i) the sum of (A) Consolidated Earnings Before Interest and Taxes for any period of four consecutive fiscal quarters ending on the dates set forth in the table below, (B) depreciation and amortization for such period and (C) Rental Obligations for such period to (ii) the sum of (A) Fixed Charges for such period and (B) Rental Obligations for such period, to be less than the amount set forth opposite such period in the table below.
Four Consecutive Fiscal Minimum Fixed Quarter Period Ending Charges Ratio ----------------------- ------------- October 31, 1995 1.1 to 1 January 31, 1996 1.1 to 1 April 30, 1996 1.2 to 1 Each Fiscal Quarter ending thereafter 1.25 to 1"
5.10. Section 6.02(j) of the Loan Agreement is hereby amended by deleting the phrase "Advance Total Commitment" appearing in the last line thereof and substituting therefore "Total Commitment." 5.11. Section 6.02(h) of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: "(h) LIABILITIES RATIO. Permit the ratio of (i) the sum of (A) Indebtedness (including, without limitation, Subordinated Indebtedness) as of the end of any fiscal quarter and (B) the result of (w) Rental Obligations for the four fiscal-quarter period ending on such date multiplied by (x) eight (8) to (ii) the sum of (A) Consolidated Tangible Net Worth, (B) Indebtedness (including, without limitation, Subordinated Indebtedness) and (C) the result of (y) Rental Obligations for the four fiscal-quarter period ending on such date multiplied by (z) eight (8), to be greater than .85 to 1." 5.12. Section 6.02(l) of the Loan Agreement is hereby amended in its entirety effective as of the date hereof to read as follows: "(l) OPERATIONS OF SUBSIDIARIES. (a) Cause or permit any Subsidiary to have any pre-tax, pre-interest operating loss (Excluding Permitted Losses and Excluding Management Fees) (i) in excess of $11,047,000 for the four consecutive fiscal quarters of such Subsidiary ending April 29, 1995, (ii) in excess of $12,000,000 for the four consecutive fiscal quarters of such Subsidiary ending July 31, 1995, (iii) 22 9 in excess of $15,000,000 for the four consecutive fiscal quarters of such Subsidiary ending October 31, 1995, (iv) in excess of $12,000,000 for the four consecutive fiscal quarters of such Subsidiary ending January 31, 1996 and (v) in excess of $10,000,000 in any period consisting of four consecutive fiscal quarters of such Subsidiary ending on or after February 1, 1996, (b) cause or permit any or all Subsidiaries to have any aggregate pre-tax, pre-interest operating loss (Excluding Permitted Losses and Excluding Management Fees) (i) in excess of $16,016,000 for the four consecutive fiscal quarters of such Subsidiaries ending April 29, 1995, (ii) in excess of $21,600,000 for the four consecutive fiscal quarters of such Subsidiaries ending July 31, 1995, (iii) in excess of $20,000,000 for the four consecutive fiscal quarters of such Subsidiaries ending October 31, 1995 and (iv) in excess of $15,000,000 in any period consisting of four consecutive fiscal quarters of such Subsidiaries ending on or after November 1, 1995 (excluding from the calculations under subsection (b) hereof the financial performance of any Subsidiary which had an operating profit during such period), (c) cause or permit NordicTrack, Inc. to have a pre-tax, pre-interest operating deficit (Excluding Management Fees) for the fiscal quarter of NordicTrack, Inc. ending on July 31, 1995 of greater than $27,500,000, and (d) cause or permit NordicTrack, Inc. to have a pre-tax, pre-interest operating profit (Excluding Management Fees) of less than, or in the case of loss (Excluding Management Fees), greater than, those amounts set forth in the table below:
Profit Not to Loss Not to Four Fiscal be less than be greater than Quarter Period Ending - ------------- --------------- --------------------- N/A ($15,000,000) October 31, 1995 $25,000,000 N/A January 31, 1996 $10,000,000 N/A April 30, 1996 N/A ($15,000,000) July 31, 1996 N/A ($15,000,000) October 31, 1996 $30,000,000 N/A January 31, 1997 $12,500,000 N/A April 30, 1997 N/A ($15,000,000) July 31, 1997"
5.13. Paragraph (m) of Section 6.02 of the Loan Agreement is hereby amended and restated in its entirety to read as follows: "(m) STOCK REPURCHASE. Make, or permit any Subsidiary to make, any repurchase of common stock, subordinated debentures or other equity or subordinated debt securities; PROVIDED that the Borrower may make, or permit any Subsidiary to make, a repurchase of common stock so long as no Default or Event of Default is continuing hereunder or would occur as a result of such repurchase, and further provided that (a) the aggregate amount of such repurchases from and after August 1, 1995 shall not in any event exceed $8,000,000 PLUS, on a cumulative basis, twenty 23 10 five percent (25%) of positive Consolidated Net Income for each fiscal quarter of the Borrower beginning with the fiscal quarter ending October 31, 1995 and (b) the purchase price paid by the Borrower or such Subsidiary to repurchase such common stock shall not in any event exceed $8.25 per share for the first $8,000,000 of such repurchased common stock. It is understood that the Borrower shall be permitted to convert to equity in accordance with the terms thereof the convertible subordinated debentures issued by the Borrower, in the original principal amount of $57,500,000 due 2003." 5.14. AMENDMENTS TO EXHIBIT A. (a) The definition of "Advance Commitment" appearing in EXHIBIT A is hereby deleted. (b) The definition of "Advance Total Commitment" appearing in Exhibit A is hereby deleted. (c) The definition of "Applicable Margin" appearing in EXHIBIT A is hereby amended by deleting the phrase "three-eighths of one percent (3/8%)" appearing in the second and third lines of subsection (a) thereof and substituting therefore "three-quarters of one percent (3/4%)." (d) The definition of "Commitment Percentage" appearing in Exhibit A is hereby amended in its entirety to read as follows: "COMMITMENT PERCENTAGE" means with respect to each Lender, the percentage referred to in Section 1.01(c) as such Lender's percentage of the Total Commitment." (e) The definition of "Consolidated Earnings Before Interest and Taxes" appearing in EXHIBIT A is hereby amended in its entirety to read as follows: "CONSOLIDATED EARNINGS BEFORE INTEREST AND TAXES" means the combined and consolidated earnings (or deficit) from the operations of the Borrower and its Subsidiaries, after all expenses and other proper charges other than interest and taxes, determined in accordance with generally accepted accounting principles, Excluding Permitted Losses." (f) The definition of "Final Maturity Date" appearing in EXHIBIT A is hereby amended by deleting the date "September 30, 1996" in the first line thereof and substituting therefore "July 31, 1997." (g) The definition of "Letter of Credit Commitment" appearing in EXHIBIT A is hereby deleted. (h) The definition of "Total Commitment" appearing in EXHIBIT A is hereby amended in its entirety to read as follows: 24 11 "TOTAL COMMITMENT" means (i) during the period beginning on The Commitment Effective Date and ending on December 29, 1995, $100,000,000 and (ii) during the period beginning on December 30, 1995 and ending on the Final Maturity Date, an amount equal (a) to the Total Commitment as in effect on December 29, 1995 (after giving effect to any and all prior reductions of the Total Commitment) minus (b) the result of (1) $30,000,000 minus (2) Excess Reductions, as the same may thereafter be reduced pursuant to Section 1.05 hereof." (i) The following new definitions are hereby added to EXHIBIT A of the Loan Agreement: "CAPITALIZED LEASES" means leases under which the Borrower or any of its Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. "COMMITMENT EFFECTIVE DATE" means the date on which the conditions precedent set forth in Section 4(b)(i) and (ii) of the Fourth Amendment Agreement to this Agreement dated as of July 31, 1995 are satisfied in full (as evidenced by a written confirmation thereof by the Agent. "DEBT SERVICE" means, for any fiscal period the amount of all principal and Interest Charges, together with fees associated therewith of the Borrower and its Subsidiaries on a consolidated basis in respect of Indebtedness paid or scheduled to be paid during such period. For the purposes of this definition, "principal" shall in include the principal component of payments for such period in respect of Capitalized Leases. "DISTRIBUTION" means the declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Borrower or any of its Subsidiaries, other than dividends payable solely in shares of common stock of the Borrower or such Subsidiary; the purchase, redemption, or other retirement of any shares of any class of capital stock of the Borrower or any Subsidiary, directly or indirectly through a Subsidiary of the Borrower, such Subsidiary or otherwise; the return of capital by the Borrower or any Subsidiary to its respective shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of the Borrower or any Subsidiary. "EXCESS REDUCTIONS" means an amount equal to the lesser of (a) $30,000,000 and (b) the aggregate reductions of the Total Commitment required pursuant to the operation of Section 1.05(a)(iv) on or prior to December 29, 1995 in excess of $7,000,000. "EXCLUDING MANAGEMENT FEES" means, with respect to a specified calculation of income, the exclusion of Management Fees therefrom. "EXCLUDING PERMITTED LOSSES" means, with respect to a specified calculation of income, the exclusion of Permitted Losses therefrom. 25 12 "FIRST TIER COMPANIES" means NordicTrack, the Nature Company, a California corporation and Smith & Hawken, Ltd., a Delaware corporation. "FIXED CHARGES" means, for any fiscal period, the sum for the Borrower and its Subsidiaries on a consolidated basis with respect to (i) Debt Service for such period, (ii) taxes paid during such period and (iii) Distributions made during such period. "MANAGEMENT FEES" means those management fees paid by any Subsidiary of the Borrower to the Borrower or any other Subsidiary of the Borrower. "PERMITTED LOSSES" means pre-tax losses of up to $60,000,000 in the aggregate associated with the planned sale of Britches of Georgetowne, Inc. and its Subsidiaries, PROVIDED THAT, the aggregate amount of such losses shall be comprised of (i) up to $45,000,000 of losses recognized by the Borrower and its Subsidiaries in the third fiscal quarter of the Borrower's 1995 Fiscal Year and (ii) up to $15,000,000 of losses recognized by the Borrower and its Subsidiaries after the third fiscal quarter of the Borrower's 1995 Fiscal Year. "RENTAL OBLIGATIONS" means all present or future obligations of the Borrower or any of its Subsidiaries under any rental agreements or leases of real or personal property, other than (i) obligations that can be terminated by the giving of notice without liability to the Borrower or such Subsidiary in excess of the liability for rent due as of the date on which such notice is given and under which no penalty or premium is paid as a result of any such termination, (ii) obligations in respect of Capitalized Leases and (iii) those obligations of the Borrower and its Subsidiaries to pay rents which are calculated solely as a percentage of retail store sales revenues. Section 6. EXPENSES. The Borrower agrees to pay to the Agent upon demand (a) an amount equal to any and all out-of-pocket costs or expenses (including reasonable legal fees and disbursements and appraisal expenses) incurred or sustained by the Agent in connection with the preparation of this Amendment Agreement and related matters and (b) from time to time any and all out-of-pocket costs or expenses (including commercial examiner fees and legal fees and disbursements) hereafter incurred or sustained by the Agent and Lenders in connection with the administration of credit extended by the Agent and Lenders to the Borrower or the preservation of or enforcement of the Lenders' and Agent's rights under the Loan Agreement, the Notes or the other Loan Documents. Section 7. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly provided by this Amendment Agreement, all of the respective terms, conditions and provisions of the Loan Agreement remain the same. It is declared and agreed by each of the parties hereto that the Loan Agreement and the other Loan Documents, each as amended hereby, shall continue in full force and effect, and that this Amendment Agreement and the Loan Agreement and the other Loan Documents, as applicable, be read and construed as one instrument, and all references in the Loan Documents shall hereafter refer to the Loan Agreement and the other Loan Documents, each as amended hereby. The Loan Agreement and the other Loan Documents, each as amended hereby, shall continue to 26 13 be secured (and the holders of the Obligations shall continue to have the benefit of) the continuing liens and security interests and guarantees, created by the Collateral Agreements. (b) This Amendment Agreement is intended to take effect under, and shall be construed according to and governed by, the laws of the State of New York. (c) This Amendment Agreement may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment Agreement it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. 27 14 IN WITNESS WHEREOF, each of the parties hereto have caused this Amendment Agreement to be executed in its name and behalf by its duly authorized officer as of the date first written above. CML GROUP, INC. By: /s/Robert J. Samuelson ------------------------ Its: Senior Vice President ------------------------ CITIBANK, N.A., Individually, As Agent and Issuing Bank By: /s/Thomas D. Stott ------------------------ Its: Vice President ------------------------ BAYBANK BOSTON, N.A By: /s/Tracy J. Burlock ------------------------ Its: Loan Officer (Special) ------------------------ THE FIRST NATIONAL BANK OF BOSTON By: /s/Thomas F. Farley, Jr. ------------------------ Its: Director ------------------------ 28 EX-11 3 STATEMENT REGARDING COMPUTATION OF EARNINGS 1 Exhibit 11 CML GROUP, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE For the periods ended October 28, 1995 and October 29, 1994
Three Months Ended --------------------------------- Oct. 28, 1995 Oct. 29, 1994 ------------- ------------- Primary earnings (loss) per share: Weighted average number of shares outstanding: Common 49,224,104 49,985,787 Shares deemed outstanding from the assumed exercise of stock options and from deferred compensation awards 547,128 818,650 ------------ ----------- Total 49,771,232 50,804,437 ============ =========== Net income (loss) $(15,018,000) $ 881,000 ============ =========== Primary earnings (loss) per share $ (0.30) $ 0.02 ============ =========== Fully diluted earnings (loss) per share: Weighted average number of shares outstanding, as above 49,771,232 50,804,437 Shares deemed outstanding from the assumed conversion of convertible subordinated debentures 1,604,877 2,218,649 Additional shares deemed outstanding from the assumed exercise of stock options --- --- ------------ ----------- Total 51,376,109 53,023,086 ============ =========== Additional income from the elimination of the interest cost of the convertible subordinated debentures, net of income tax effect $ 374,067 $ 512,407 Fully diluted earnings (loss) per share $ (0.30) $ 0.02 ============ ===========
29 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF CML GROUP, INC. FOR THE THREE MONTHS ENDED OCTOBER 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS JUL-31-1996 AUG-01-1995 OCT-28-1995 2,099,000 0 47,965,000 1,988,000 89,033,000 217,757,000 184,634,000 70,461,000 358,912,000 82,831,000 41,593,000 5,208,000 0 0 165,981,000 358,912,000 108,865,000 108,865,000 48,595,000 48,595,000 0 1,633,000 532,000 (24,301,000) (9,283,000) (15,018,000) 0 0 0 (15,018,000) (0.30) (0.30)
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