-----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, K8x8GcoxNSOfNUtJrW1Ya0i586XX7EwFCmkQpshzopaEmIFL1NprQWZtewtkiNFx /rwf0MuJgPjKQu9yrZ9Z7A== /in/edgar/work/20000613/0000950129-00-003039/0000950129-00-003039.txt : 20000919 0000950129-00-003039.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950129-00-003039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000429 FILED AS OF DATE: 20000613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GADZOOKS INC CENTRAL INDEX KEY: 0000924140 STANDARD INDUSTRIAL CLASSIFICATION: [5651 ] IRS NUMBER: 742261048 STATE OF INCORPORATION: TX FISCAL YEAR END: 0127 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26732 FILM NUMBER: 654093 BUSINESS ADDRESS: STREET 1: 4121 INTERNATIONAL PKWY CITY: CARROLLTON STATE: TX ZIP: 75007 BUSINESS PHONE: 9723075555 MAIL ADDRESS: STREET 1: 4121 INTERNTIONAL PKWY CITY: CARROLLTON STATE: TX ZIP: 75007 10-Q 1 0001.txt FORM 10-Q FOR QUARTER ENDED APRIL 29, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 - -------------------------------------------------------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 29, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-26732 ------- GADZOOKS, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-2261048 - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) NUMBER) 4121 INTERNATIONAL PARKWAY CARROLLTON, TX 75007 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 972-307-5555 ---------------------- - -------------------------------------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND 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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of June 8, 2000, the number of shares outstanding of the registrant's common stock is 8,948,813. 2 GADZOOKS, INC. FORM 10-Q For the Quarter Ended April 29, 2000 INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets as of April 29, 2000 3 and January 29, 2000 Condensed Statements of Income for the 4 First Quarter Ended April 29, 2000 and May 1, 1999 Condensed Statements of Cash Flows for the 5 First Quarter Ended April 29, 2000 and May 1, 1999 Notes to Financial Statements 6-7 Item 2. Management's Discussion and Analysis 8-10 of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 10 Market Risk PART II. OTHER INFORMATION 10 SIGNATURE PAGE 11 INDEX TO EXHIBITS 12-14
2 3 PART I - FINANCIAL INFORMATION GADZOOKS, INC. CONDENSED BALANCE SHEETS - -------------------------------------------------------------------------------- (In thousands) (Unaudited)
APRIL 29, JANUARY 29, 2000 2000 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 16,084 $ 18,643 Accounts receivable 1,427 1,217 Inventory 47,327 44,418 Other current assets 2,288 2,149 ---------- ---------- 67,126 66,427 ---------- ---------- Leaseholds, fixtures and equipment, net 30,587 30,235 ---------- ---------- $ 97,713 $ 96,662 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 19,039 $ 20,395 Accrued expenses and other current liabilities 5,916 6,461 Income taxes payable 1,192 911 ---------- ---------- 26,147 27,767 ---------- ---------- Accrued rent 2,780 2,750 ---------- ---------- Shareholders' equity: Common stock 89 89 Additional paid-in capital 42,404 42,282 Retained earnings 26,404 23,910 Treasury stock (111) (136) ---------- ---------- 68,786 66,145 ---------- ---------- $ 97,713 $ 96,662 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 4 GADZOOKS, INC. CONDENSED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- (In thousands, except per share data) (Unaudited)
QUARTER ENDED --------------------------- APRIL 29, MAY 1, 2000 1999 ---------- ---------- Net sales $ 63,260 $ 51,465 Cost of goods sold including buying, distribution and occupancy costs 45,075 37,457 ---------- ---------- Gross profit 18,185 14,008 Selling, general and administrative expenses 14,438 13,199 ---------- ---------- Operating income 3,747 809 Interest income, net 245 144 ---------- ---------- Income before income taxes 3,992 953 Provision for income taxes 1,497 353 ---------- ---------- Net income $ 2,495 $ 600 ========== ========== Earnings per share Basic $ 0.28 $ 0.07 ========== ========== Diluted $ 0.27 $ 0.07 ========== ========== Weighted average shares outstanding Basic 8,927 8,893 ========== ========== Diluted 9,381 8,994 ========== ==========
The accompanying notes are an integral part of these financial statements. 4 5 GADZOOKS, INC. CONDENSED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- (In thousands) (Unaudited)
QUARTER ENDED --------------------------- APRIL 29, MAY 1, 2000 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,495 $ 600 Adjustments to reconcile net income to cash used in operating activities: Depreciation 1,586 1,346 Loss on sale of fixed assets 11 16 Changes in operating assets and liabilities (4,797) (5,047) ---------- ---------- NET CASH USED IN OPERATING ACTIVITIES (705) (3,085) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,001) (1,111) ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (2,001) (1,111) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 86 37 Sale of treasury stock under employee stock purchase plan 61 43 ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 147 80 ---------- ---------- Net decrease in cash and cash equivalents (2,559) (4,116) Cash and cash equivalents at beginning of period 18,643 16,353 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,084 $ 12,237 ========== ==========
The accompanying notes are an integral part of these financial statements. 5 6 GADZOOKS, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- (Unaudited) 1. BASIS OF PRESENTATION The accompanying condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of April 29, 2000 and January 29, 2000, and the results of operations and cash flows for the three months ended April 29, 2000 and May 1, 1999. The results of operations for the three months then ended are not necessarily indicative of the results to be expected for the full fiscal year. The condensed balance sheet as of January 29, 2000 is derived from audited financial statements. The condensed financial statements should be read in conjunction with the financial statement disclosures contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000. Fiscal year: The Company's fiscal year is the 52- or 53-week period that ends on the Saturday closest to the end of January. "Fiscal 2000" is the 53-week period ending February 3, 2001. Reclassification: Certain prior year amounts have been reclassified to conform to the current year's presentation. 2. LONG-TERM OBLIGATIONS On June 1, 2000, the Company renewed and revised its existing credit facility with Wells Fargo Bank. The revised facility provides an unsecured revolving line of credit totaling $15 million. The total amount available to borrow pursuant to the credit agreement is limited to 150% of cash flow (as defined in the credit agreement) for the trailing 12-month period. Amounts borrowed under the revolving line bear interest at the lesser of either the bank's prime rate, or 195 basis points above LIBOR. The Company pays commitment fees of 0.33% on the unused portion of the revolving line of credit. The credit agreement also provides for the issuance of letters of credit that are generally used in connection with international merchandise purchases. Outstanding letters of credit issued by the bank reduce amounts otherwise available for borrowing under the revolving line of credit. The credit facility subjects the Company to various restrictions on the incurrence of additional indebtedness, acquisitions, loans to officers and stock repurchases. The covenants also require the Company to maintain certain tangible net worth, working capital, debt to equity, net income and fixed charge coverage minimums as well as certain other ratios customary in such agreements. Amounts available to borrow under the line of credit, as limited by the cash flow multiple, totaled $14.8 million at June 8, 2000. No borrowings (excluding letters of credit) were outstanding under the revolving line at April 29, 2000. Any amount borrowed under the revolving line of credit will become due on June 1, 2001, the date the credit agreement matures. 6 7 GADZOOKS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Unaudited) 3. PROVISION FOR STORE CLOSING COSTS During fiscal 1999, the Company decided to close eight stores that had been identified as under-performing and, as a result, recognized a $1.2 million pre-tax provision for costs related to closing the facilities and reflecting long-lived assets located at these stores at their respective estimated net realizable values. As of April 29, 2000, six of the eight stores had been closed with the remaining two slated for closure by the end of fiscal 2000. As of April 29, 2000, the costs related to the six stores already closed had been incurred. An analysis of the amounts charged against the accrual since January 29, 2000 is outlined in the table below (in thousands).
BALANCE AT CURRENT PERIOD BALANCE AT JANUARY 29, 2000 ACTIVITY APRIL 29, 2000 ----------------------- ---------------------- ----------------------- Lease termination costs and other $ 119 $ --- $ 119 ----------------------- ---------------------- ----------------------- Total $ 119 $ --- $ 119 ----------------------- ---------------------- -----------------------
Sales and operating losses of the stores closed or slated for closure were $226,992 and ($35,964) and $774,349 and ($244,387) for the quarters ended April 29, 2000 and May 1, 1999, respectively. 4. EARNINGS PER SHARE The following table outlines the Company's calculation of weighted average shares outstanding (in thousands):
QUARTER ENDED -------------------------------------------------- APRIL 29, MAY 1, 2000 1999 --------------------- ----------------------- Weighted average common shares outstanding (basic) 8,927 8,893 Effect of dilutive options 454 101 --------------------- ----------------------- Weighted average common and dilutive potential shares outstanding (diluted) 9,381 8,994 --------------------- -----------------------
The treasury stock method is used to determine dilutive potential common shares outstanding related to stock options. Options which, based on their exercise price, would be antidilutive are not considered in the treasury stock method calculation. Options excluded from the earnings per share calculation due to their antidilutive nature totaled 26,676 and 638,765 for the quarters ended April 29, 2000 and May 1, 1999, respectively. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Gadzooks is a mall-based specialty retailer of casual apparel and related accessories for young men and women principally between the ages of 14 and 18. As of April 29, 2000, the Company had opened three new stores and closed one store since the beginning of the fiscal year and operated 328 stores in 34 states. The Company's business is subject to seasonal influences with higher sales during the Christmas holiday, back-to-school and spring break seasons. Management's discussion and analysis should be read in conjunction with the Company's financial statements and related notes. RESULTS OF OPERATIONS The quarter ended April 29, 2000 compared to the quarter ended May 1, 1999 Net sales Net sales increased approximately $11.8 million, or 22.9 percent, to $63.3 million during the first quarter of fiscal 2000 from $51.5 million during the comparable quarter of fiscal 1999. The total company sales increase was primarily attributable to comparable store sales ($8.6 million) and, to a lesser extent, the 22 new stores not yet included in the comparable store sales base ($3.2 million). Comparable store sales increased 17.1 percent for the first quarter of fiscal 2000. The Company experienced comparable store sales increases in all of its major categories except for footwear. The comparable store sales increase is due to several factors, including a greater concentration of brand-name merchandise, enhancements to the stores' appearance and visual merchandising changes. Retail prices, although up slightly, had relatively little impact on the overall increase in sales. A store becomes comparable after it has been open for 14 full fiscal months. Gross profit Gross profit increased approximately $4.2 million to $18.2 million during the first quarter of fiscal 2000 from $14.0 million during the comparable quarter of fiscal 1999. As a percentage of net sales, gross profit increased 150 basis points to 28.7 percent from 27.2 percent for the comparable quarter of last year. Merchandise margins as a percentage of sales were 73 basis points lower than the prior year. This decrease is primarily attributable to a more aggressive inventory management program, which resulted in an increase in markdowns and, to a lesser extent, the product mix consisting of a higher percentage of nationally-branded merchandise. The decrease in merchandise margins was more than offset, however, by 184 basis point and 39 basis point decreases in occupancy and buying and distribution costs as a percentage of sales, respectively. The decreases in occupancy and buying and distribution costs (which are relatively fixed in nature) as a percentage of sales were primarily the result of comparable store sales increases. Selling, general and administrative expenses Selling, general and administrative expenses ("SG&A") increased approximately $1.2 million to $14.4 million during the first quarter of 2000 from $13.2 million during the comparable quarter of fiscal 1999. The aggregate increase in SG&A is primarily attributable to additional store expenses as a result of the Company's expanded store base during the past year and an increase in administrative costs to support the larger store chain. As a percentage of net sales, SG&A decreased 280 basis points to 22.8 percent during the first quarter of fiscal 2000 from 25.6 percent during the comparable quarter of last year. The decrease in the SG&A percentage is due primarily to the 8 9 Company's ability to leverage corporate overhead and store costs as a result of the comparable store sales increase. Interest The Company's net interest income increased $101,000 to $245,000 during the first quarter of fiscal 2000 from $144,000 in the comparable period of last year due primarily to higher average cash balances. LIQUIDITY AND CAPITAL RESOURCES General The Company's primary uses of cash are financing new store openings and purchasing merchandise inventories. The Company is currently meeting its cash requirements through cash flow from operations and cash and cash equivalents on-hand. Cash Flows At April 29, 2000, cash and cash equivalents were $16.1 million, a decrease of $2.6 million since January 29, 2000. The primary uses of cash were increased inventory levels of $2.9 million, capital expenditures of $2.0 million for new or remodeled stores and outfitting some stores with loss prevention systems, and a decrease in accounts payable of $1.4 million. The Company opened three new stores during the first three months of 2000 as compared with four new stores in the same period of the prior year. Credit facility On June 1, 2000, the Company renewed and revised its existing credit facility with Wells Fargo Bank. The revised facility provides an unsecured revolving line of credit totaling $15 million. The total amount available to borrow pursuant to the credit agreement is limited to 150% of cash flow (as defined in the credit agreement) for the trailing 12-month period. Amounts borrowed under the revolving line bear interest at the lesser of either the bank's prime rate, or 195 basis points above LIBOR. The Company pays commitment fees of 0.33% on the unused portion of the revolving line of credit. The credit agreement also provides for the issuance of letters of credit that are generally used in connection with international merchandise purchases. Outstanding letters of credit issued by the bank reduce amounts otherwise available for borrowing under the revolving line of credit. The credit facility subjects the Company to various restrictions on the incurrence of additional indebtedness, acquisitions, loans to officers and stock repurchases. The covenants also require the Company to maintain certain tangible net worth, working capital, debt to equity, net income and fixed charge coverage minimums as well as certain other ratios customary in such agreements. Amounts available to borrow under the line of credit, as limited by the cash flow multiple, totaled $14.8 million at June 8, 2000. No borrowings (excluding letters of credit) were outstanding under the revolving line at April 29, 2000. Any amount borrowed under the revolving line of credit will become due on June 1, 2001, the date the credit agreement matures. Capital Expenditures The Company began its fiscal 2000 store expansion program with the opening of three new stores during the month of March, and anticipates opening an additional 47 stores during the remainder of the year. Capital expenditures for the remainder of the year are estimated to be approximately $7.8 million to open the remaining stores, update or remodel existing stores and to purchase and/or upgrade information systems. 9 10 Management believes that the Company's working capital, credit facility and cash flows from operating activities will be sufficient to meet the Company's operating and capital requirements through the end of fiscal 2000. NEW ACCOUNTING PRONOUNCEMENTS Accounting for derivatives and hedging activities -- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities." The provisions of SFAS No. 133 are effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company does not believe that the adoption of SFAS. No. 133 will have a significant impact on the Company's financial statements. Revenue recognition -- In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). Questions have arisen regarding the interpretations in SAB 101. The SEC is addressing these questions and is expected to issue further clarifications in June 2000. Based on management's review of SAB 101 to date, we do not believe that the interpretations will materially affect the Company's current revenue recognition policies, and thus will not have a significant impact on its future results of operations or financial position. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in trading market risk sensitive instruments and does not purchase as investments, as hedges, or for purposes "other than trading" instruments that are likely to expose the Company to market risk, whether it be from interest rate, foreign currency exchange, commodity price or equity price risk. The Company has issued no debt instruments, entered into no forward or futures contracts, purchased no options and entered into no swaps. The Company's primary market risk exposure is that of interest rate risk. A change in LIBOR, or the Prime Rate as set by Wells Fargo Bank, would affect the rate at which the Company could borrow funds under its credit facility. STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE Certain sections of this Quarterly Report on Form 10-Q, including the preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, which represent the Company's expectations or beliefs concerning future events. These forward-looking statements involve risks and uncertainties, and the Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, those set forth in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000. PART II - OTHER INFORMATION Items 1-5 - None Item 6 - Exhibits and Reports on Form 8-K (a) See Index to Exhibits. (b) None. 10 11 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. GADZOOKS, INC. Registrant) DATE: June 13, 2000 By: /s/ JAMES A. MOTLEY ----------------------------------------- James A. Motley Vice President / Chief Financial Officer (Chief Accounting Officer and Duly Authorized Officer of the Registrant) 11 12 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION OF DOCUMENTS - ------- ------------------------ 3.1 -- Second Restated Articles of Incorporation of the Company (filed as Exhibit 4.1 to the Company's Form S-8 (No. 33-98038) filed with the Commission on October 12, 1995 and incorporated herein by reference). 3.2 -- Amended and Restated Bylaws of the Company (filed as Exhibit 4.2 to the Company's Form S-8 (No. 33-98038) filed with the Commission on October 12, 1995 and incorporated herein by reference). 3.3 -- First Amendment to the Amended and Restated Bylaws of the Company (filed as Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended August 2, 1997 filed with the Commission on September 16, 1997 and incorporated herein by reference). 4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of the Company (filed as Exhibit 4.1 to the Company's Amendment No. 2 to Form S-1 (No. 33-95090) filed with the Commission on September 8, 1995 and incorporated herein by reference). 4.2 -- Rights Agreement dated as of September 3, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C. (filed as Exhibit 1 to the Company's Form 8-A filed with the Commission on September 4, 1998 and incorporated herein by reference). 10.1 -- Purchase Agreement dated as of January 31, 1992 among the Company, Gerald R. Szczepanski, Lawrence H. Titus, Jr. and the Investors listed therein (filed as Exhibit 10.1 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.2 -- Purchase Agreement dated as of May 26, 1994 among the Company, Gerald R. Szczepanski, Lawrence H. Titus, Jr. and the Investors listed therein (filed as Exhibit 10.2 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.3 -- Credit Agreement dated as of January 30, 1997 between the Company and Wells Fargo Bank (Texas), National Association (filed as Exhibit 10.3 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on April 23, 1997 and incorporated herein by reference). 10.4 -- Form of Indemnification Agreement with a schedule of director signatories (filed as Exhibit 10.5 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.5 -- Employment Agreement dated January 31, 1992 between the Company and Gerald R. Szczepanski, as continued by letter agreement (filed as Exhibit 10.6 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference).
13 10.6 -- 1992 Incentive and Nonstatutory Stock Option Plan dated February 26, 1992, and Amendments No. 1 through 3 thereto (filed as Exhibit 10.8 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.7 -- 1994 Incentive and Nonstatutory Stock Option Plan for Key Employees dated September 30, 1994 (filed as Exhibit 10.9 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.8 -- 1995 Non-Employee Director Stock Option Plan (filed as Exhibit 10.10 to the Company's Form S-1 (No.33-00196) filed with the Commission on January 9, 1996 and incorporated herein by reference). 10.9 -- Gadzooks, Inc. Employees' Savings Plan, as amended and revised (filed as Exhibit 4.5 to the Company's Form S-8 (No. 333-68205) filed with the Commission on December 1, 1998 and incorporated herein by reference). 10.10 -- Severance Protection Agreement dated September 1, 1998 between the Company and Gerald R. Szczepanski (filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q filed with the Commission on December 15, 1998 and incorporated herein by reference). 10.11 -- Form of Severance Agreement with a schedule of executive officer signatories (filed as Exhibit 10.11 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on April 23, 1997 and incorporated herein by reference). 10.12 -- Amendment No. 4 to the Gadzooks, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 10.14 to the Company's Amendment No. 3 to Form S-1 (No. 33-95090) filed with the Commission on September 27, 1995 and incorporated herein by reference). 10.13 -- Amendment No. 5 to the Gadzooks, Inc. 1992 Incentive and Nonstatutory Stock Option Plan dated September 12, 1996 (filed as Exhibit 10.13 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on April 23, 1997 and incorporated herein by reference). 10.14 -- Amendment No. 1 to the 1994 Incentive and Nonstatutory Stock Option Plan for Key Employees dated September 12, 1996 (filed as Exhibit 10.14 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on April 23, 1997 and incorporated herein by reference). 10.15 -- Gadzooks, Inc. Employee Stock Purchase Plan (filed as Exhibit 4.5 to the Company's Form S-8 (No. 333-50639) filed with the Commission on April 21, 1998 and incorporated herein by reference). 10.16 -- Lease Agreement between Gadzooks, Inc. (Lessee) and CB Midway International, LTD. (Lessor) dated August 23, 1996 (filed as Exhibit 10.17 to the Company's 1997 Annual Report on Form 10-K filed with the Commission on April 27, 1998 and incorporated herein by reference). 10.17 -- Gadzooks, Inc. 401(k) Plan and Profit Sharing Plan Adoption Agreement (filed as Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q filed with the Commission on June 9, 1998, and incorporated herein by reference).
14 10.18 -- Amendment No. 1 to the Credit Agreement between the Company and Wells Fargo Bank (Texas), National Association, dated June 11, 1998 (filed as Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q filed with the Commission on September 15, 1998, and incorporated herein by reference). 10.19 -- Amendment No. 2 to the Credit Agreement between the Company and Wells Fargo Bank (Texas) National Association, dated May 14, 1999 (filed as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q filed with the Commission on June 15, 1999 and incorporated herein by reference). 10.20 -- Amendment No. 6 to the Gadzooks, Inc. 1992 Incentive and Non-Statutory Stock Option Plan dated June 18, 1998 (filed as Exhibit 4.8 to the Company's Form S-8 (No. 333-60869) filed with the Commission on August 7, 1998 and incorporated herein by reference). 10.21 -- Amendment No. 1 to the Gadzooks, Inc. 1995 Non-Employee Director Stock Option Plan dated June 18, 1998 (filed as Exhibit 4.10 to the Company's Form S-8 (No. 333-60869) filed with the Commission on August 7, 1998 and incorporated herein by reference). 10.22 -- Severance Protection Agreement dated January 5, 1998 between the Company and James F. Wimpress (filed with the Commission on April 26, 2000 and incorporated herein by reference). 10.23 -- Severance Protection Agreement dated January 11, 1999 between the Company and Paula Y. Masters (filed with the Commission on April 26, 2000 and incorporated herein by reference). 10.24* -- Amendment No. 3 to the Credit Agreement between the Company and Wells Fargo Bank (Texas) National Association, dated June 1, 2000. 27* -- Financial Data Schedule.
- ----------------- * Filed herewith (unless otherwise indicated, exhibits are previously filed). EX-10.24 2 0002.txt AMENDMENT NO. 3 TO THE CREDIT AGREEMENT 1 EXHIBIT 10.24 THIRD AMENDED AND RESTATED REVOLVING LINE OF CREDIT NOTE Dallas, Texas $15,000,000.00 June 1, 2000 FOR VALUE RECEIVED, the undersigned GADZOOKS, INC., a Texas corporation ("Borrower"), promises to pay to the order of WELLS FARGO BANK TEXAS, National Association ("Bank") at its office at Dallas RCBO, 1445 Ross, Suite 300, Dallas, Texas 75202, Attn. Lisa M. Autry, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Fifteen Million Dollars ($15,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: (a) "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in Texas are authorized or required by law to close. (b) "Fixed Rate Term" means a period commencing on a Business Day and continuing for 1, 2, or 3 months as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than One Hundred Thousand Dollars ($100,000.00); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. (c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula: LIBOR = Base LIBOR ------------------------------- 100% - LIBOR Reserve Percentage (i) "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market. 2 (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. (d) "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed, unless such calculation would result in a usurious rate, in which case interest shall be computed on the basis of a 365/366-day year, as the case may be, actual days elapsed) at the lesser of (i) either (A) a fluctuating rate per annum equal to the Prime Rate in effect from time to time, or (B) a fixed rate per annum determined by Bank to be 1.95000% above LIBOR in effect on the first day of the applicable Fixed Rate Term, or (ii) the Maximum Rate. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (b) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone so long as, with respect to each LIBOR selection, (A) Bank receives written confirmation from Borrower not later than three (3) Business Days after such telephone notice is given, and (B) such notice is given to Bank prior to 10:00 a.m., California time, on the first day of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will quote the applicable fixed rate to Borrower at approximately 10:00 a.m., California time, on the first day of the Fixed Rate Term. If Borrower does not immediately accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be subject to a 2 Gadzooks Third Amended and Restated Revolving Line of Credit Note 3 redetermination by Bank of the applicable fixed rate; provided however, that if Borrower fails to accept any such rate by 11:00 a.m., California time, on the Business Day such quotation is given, then the quoted rate shall expire and Bank shall have no obligation to permit a LIBOR option to be selected on such day. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied. (c) Additional LIBOR Provisions. (i) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, then (A) no new LIBOR option may be selected by Borrower, and (B) any portion of the outstanding principal balance hereof which bears interest determined in relation to LIBOR, subsequent to the end of the Fixed Rate Term applicable thereto, shall bear interest determined in relation to the Prime Rate. (ii) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank (A) to make LIBOR options available hereunder, or (B) to maintain interest rates based on LIBOR, then in the former event, any obligation of Bank to make available such unlawful LIBOR options shall immediately be canceled, and in the latter event, any such unlawful LIBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided however, that if any such Change in Law shall permit any LIBOR-based interest rates to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based interest rates shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (iii) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject Bank to any tax, duty or other charge with respect to any LIBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or 3 Gadzooks Third Amended and Restated Revolving Line of Credit Note 4 (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (C) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR options hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (d) Payment of Interest. Interest accrued on this Note shall be payable on the 1st day of each March, June, September and December, commencing September 1, 2000. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided, however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on June 1, 2001. (b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of GERALD SZCZEPANSKI or RONALD SZCZEPANSKI or JAMES A. MOTLEY, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, The holder shall have no obligation to determine whether any such person requesting an advance remains authorized by any Borrower after the date hereof. (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding 4 Gadzooks Third Amended and Restated Revolving Line of Credit Note 5 principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: (a) Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty. (b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of Ten Thousand Dollars ($10,000.00); provided, however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of the date hereof, as amended pursuant to the Third Amendment to Credit Agreement, dated as of the date hereof, as the same may be further amended from time to time (the "Credit Agreement"). Any default in the payment or 5 Gadzooks Third Amended and Restated Revolving Line of Credit Note 6 performance of any obligation under this Note, or any defined Event of Default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and accrued and unpaid interest outstanding hereunder to be immediately due and payable without presentment, demand, or any notices of any kind, including without limitation notice of nonperformance, notice of protest, protest, notice of dishonor, notice of intention to accelerate or notice of acceleration, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder and under the Credit Agreement shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel to the extent permissible), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Texas. (d) Savings Clause. It is the intention of the parties to comply strictly with applicable usury laws. Accordingly, notwithstanding any provision to the contrary in this Note, or in any contract, instrument or document evidencing or securing the payment hereof or otherwise relating hereto (each, a "Related Document"), in no event shall this Note or any Related Document require the payment or permit the payment, taking, reserving, receiving, collection or charging of any sums constituting interest under applicable laws that exceed the maximum amount permitted by such laws, as the same may be amended or modified from time to time (the "Maximum Rate"). If any such excess interest is called for, contracted for, charged, taken, reserved or received in connection with this Note or any Related Document, or in any communication by Bank or any other person to Borrower or any other person, or in the event that all or part of the principal or interest hereof or thereof shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, reserved or received on the amount of principal actually outstanding from time to time under this Note shall exceed the Maximum Rate, then in such event it is agreed that: (i) the provisions of this paragraph shall govern and control; (ii) neither Borrower nor any other person 6 Gadzooks Third Amended and Restated Revolving Line of Credit Note 7 or entity now or hereafter liable for the payment of this Note or any Related Document shall be obligated to pay the amount of such interest to the extent it is in excess of the Maximum Rate; (iii) any such excess interest which is or has been received by Bank, notwithstanding this paragraph, shall be credited against the then unpaid principal balance hereof or thereof, or if this Note or any Related Document has been or would be paid in full by such credit, refunded to Borrower; and (iv) the provisions of this Note and each Related Document, and any other communication to Borrower, shall immediately be deemed reformed and such excess interest reduced, without the necessity of executing any other document, to the Maximum Rate. The right to accelerate the maturity of this Note or any Related Document does not include the right to accelerate, collect or charge unearned interest, but only such interest that has otherwise accrued as of the date of acceleration. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, reserved or received in connection with this Note and any Related Document which are made for the purpose of determining whether such rate exceeds the Maximum Rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading during the period of the full term of this Note or such Related Document, including all prior and subsequent renewals and extensions hereof or thereof, all interest at any time contracted for, charged, taken, reserved or received by Bank. The terms of this paragraph shall be deemed to be incorporated into each Related Document. To the extent that any of the optional interest rate ceilings provided in Chapter 303 of the Texas Finance Code may be available for application to any loan(s) or extension(s) of credit under this Note or the Credit Agreement for the purpose of determining the maximum allowable interest hereunder pursuant to the Texas Finance Code (Vernon's Texas Code Annotated), as amended from time to time (as amended, the "Texas Finance Code"), the applicable "weekly ceiling" (as such term is defined in Chapter 303 of the Texas Finance Code) from time to time in effect shall be used to the extent that it is so available. (e) Right of Setoff; Deposit Accounts. Upon and after the occurrence of an Event of Default, (i) Borrower hereby authorizes Bank, at any time and from time to time, without notice, which is hereby expressly waived by Borrower, and whether or not Bank shall have declared this Note to be due and payable in accordance with the terms hereof, to set off against, and to appropriate and apply to the payment of, Borrower's obligations and liabilities under this Note (whether matured or unmatured, fixed or contingent, liquidated or unliquidated), any and all amounts owing by Bank to Borrower (whether payable in U.S. dollars or any other currency, whether matured or unmatured, and in the case of deposits, whether general or special (except trust and escrow accounts), time or demand and however evidenced), and (ii) pending any such action, to the extent necessary, to hold such amounts as collateral to secure such obligations and liabilities and to return as unpaid for insufficient funds any and all checks and other items drawn against any deposits so held as Bank, in its sole discretion, may elect. Borrower hereby grants to Bank a security interest in all deposits and accounts maintained with Bank and with any other financial institution to secure the payment of all obligations and liabilities of Borrower to Bank under this Note. 7 Gadzooks Third Amended and Restated Revolving Line of Credit Note 8 (f) Business Purpose. Borrower represents and warrants that all loans evidenced by this Note are for a business, commercial, investment, agricultural or other similar purpose and not primarily for a personal, family or household use. (g) Certain Tri-Party Accounts. Borrower and Bank agree that Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not apply to any revolving loan accounts created under this Note or maintained in connection herewith. NOTICE: THIS NOTE AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS EVIDENCED HEREBY CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY. This Note is a renewal, extension and restatement of that certain Revolving Credit Note dated as of January 30, 1997 in the face amount of $10,000,000.00 (the "Original Note"), as amended, extended and restated by that certain First Amended and Restated Revolving Line of Credit Note dated as of June 11, 1998 in the face amount of $20,000,000.00 (the "First Amended Note") and that certain Second Amended and Restated Revolving Credit Note dated as of May 14, 1999 in the face amount of $10,000,000.00 (the "Second Amended Note"), and accordingly, this Note is not intended to be or constitute a repayment, novation or termination of the Original Note, the First Amended Note or the Second Amended Note. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 8 Gadzooks Third Amended and Restated Revolving Line of Credit Note 9 IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. GADZOOKS, INC. By: ---------------------------------- James A. Motley Vice President, Chief Financial Officer, and Secretary 9 Gadzooks Third Amended and Restated Revolving Line of Credit Note EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 1,000 3-MOS FEB-03-2001 JAN-29-2000 APR-29-2000 16,084 0 1,427 0 47,327 67,126 50,400 19,813 97,713 26,147 0 0 0 89 68,697 97,713 63,260 63,260 45,075 14,438 0 0 (245) 3,992 1,497 2,495 0 0 0 2,495 0.28 0.27
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