FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_________________to___________________
Commission file number 0-18183
G-III APPAREL GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 41-1590959
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 West 37th Street, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 629-8830
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 31, 1996, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant (based on the last sale price for
such shares as quoted by the Nasdaq National Market) was $7,819,461.
The number of outstanding shares of the registrant's Common Stock as of
March 31, 1996 was 6,465,836.
Documents incorporated by reference: Certain portions of the registrant's
definitive Proxy Statement relating to the registrant's Annual Meeting of
Stockholders to be held on or about June 20, 1996, to be filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission, are incorporated by reference into Part III of this Report.
PART I
ITEM 1. BUSINESS
General
G-III Apparel Group, Ltd. (the "Company") designs, manufactures,
imports and markets an extensive range of leather and non-leather apparel
including coats, jackets, pants, skirts and other sportswear items under its
"G-III"`TM', "Siena"`TM', "Siena Studio"`TM', "Colebrook and Co."`TM' and "J.L.
Colebrook"`TM' labels, and under private retail and licensed labels. The Company
commenced operations in 1974, initially selling moderately priced women's
leather coats and jackets under its G-III label. The Company has continuously
expanded its product lines and began selling higher priced, more fashion
oriented women's leather apparel under its Siena and "Cayenne"`TM' (now called
Siena Studio) labels in 1981 and 1988, respectively. In 1988, the Company
introduced a line of men's leather apparel, presently consisting primarily of
jackets and coats sold under the G-III label. In 1990, the Company formed a
textile division, which designs, imports and markets a moderately priced line of
women's textile outerwear and sportswear under the J.L. Colebrook label. The
Company replaced the Cayenne label with the Siena Studio label for its
mid-priced line of women's leather apparel during 1991 and introduced a men's
textile apparel line in the fall of 1992. In 1993, the Company formed a Woolen
Coat Division which designs, manufactures, imports and markets a moderately
priced line of women's coats and rainwear. In 1993, the Company entered into a
licensing agreement with NFL Properties to market a line of outerwear apparel
with NFL team logos. The Company believes that the sale of licensed products
will help it to expand its business and, in 1995, the Company entered into a
licensing agreement with Kenneth Cole Productions to design and market a line of
women's leather and woven outerwear under the Kenneth Cole label.
Sales of moderately priced women's leather apparel accounted for
approximately 44% of the Company's net sales in the fiscal year ended January
31, 1996, compared to 46% in the fiscal year ended January 31, 1995. The Company
sells to approximately 2,500 customers, including nationwide chains of
department and specialty retail stores, price clubs and individual specialty
boutiques.
During 1995, the Company continued the implementation of its
restructuring program started in 1994 which was intended to strengthen the
Company's core product lines, improve long-term profitability and enhance
shareholder value. In 1995, the Company consolidated merchandise divisions,
closed certain manufacturing and other facilities, reduced inventory, decreased
borrowing levels and lowered its personnel and administrative expenses. In
March 1996, the Company sub-leased one of its warehouses to a third party,
thereby consolidating its warehouse operations into one location and reducing
its warehouse and distribution expenses.
In the fiscal year ended January 31, 1996, substantially all the
Company's products were manufactured for the Company by foreign independent
contractors, located principally in South Korea, China and Indonesia and, to a
lesser extent, in India, Philippines, Hong Kong and Eastern Europe. A select
number of garments were also manufactured for the Company by independent
contractors located in the New York City area.
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References to the Company include the operations of all the Company's
subsidiaries.
Products - Development and Design
The Company manufactures and markets a full line of women's leather
apparel in "junior," "missy," and "half sizes" and an outerwear line of men's
leather apparel at a wide range of retail sales prices. The Company's product
offerings also include textile outerwear, woolen coats and sportswear.
The G-III line of women's apparel consists of moderately priced
women's leather apparel, which typically sells at retail prices from $30 for
sportswear items to $400 for coats. The Siena line of apparel, which caters to
the higher priced, more fashion-conscious female consumer, typically has retail
prices from $200 for sportswear items to $1,000 for coats. Siena Studio, the
Company's bridge-priced line of fashion oriented women's leather apparel,
primarily consists of jackets and skirts with retail prices from $100 for skirts
to $500 for outerwear. Products in the men's line of leather outerwear, sold
under the G-III label, typically have retail prices between $75 and $400. The
moderately priced line of women's textile outerwear and sportswear, sold under
the J.L. Colebrook label, has retail prices in the range of $70 to $120. The
men's textile apparel line, consisting of moderately priced outerwear, has
retail prices ranging from $50 to $175. The moderately priced line of women's
coats, sold under the Vision label, has retail prices in the range of $100 to
$200.
The Company works with retail chains in developing product lines sold
under private retail labels. With regard to private label sales, the Company
meets frequently with buyers who custom order products by color, fabric and
style. These buyers may provide samples to the Company or may select styles
already available in the Company's showrooms. The Company has established a
reputation among such buyers for the ability to arrange for manufacture of
apparel on a reliable, expeditious and cost-effective basis.
The Company's in-house designers are responsible for the design and
look of the Company's products. The Company responds to style changes in the
apparel industry by maintaining a continuous program of style, color and type of
leather and fabric selection. In designing new products and styles, the Company
attempts to incorporate current trends and consumer preferences in the Company's
traditional product offerings. The Company seeks to design products in response
to anticipated trends in consumer preferences, rather than to attempt to
establish market trends and styles.
Design personnel meet regularly with the Company's sales and
merchandising departments to review market trends, sales results and the
popularity of the Company's latest products. In addition, representatives of the
Company regularly attend trade and fashion shows and shop at fashion forward
stores in the United States, Europe and the Far East, and present sample items
to the Company along with their evaluation of the styles expected to be in
demand in the United States. The Company also seeks input from selected
customers with respect to product design. The Company believes that its
sensitivity to the needs of its retail customers, coupled with the flexibility
of its production capabilities and its continual monitoring of the retail
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market, enables the Company to modify designs and order specifications in a
timely fashion.
The Company's arrangements with selected overseas factories for
textile apparel enables it to conduct test-marketing, in cooperation with
specialty retailers and department stores, prior to full manufacturing and
marketplace introduction of certain styles and products. Testmarketing typically
involves introducing a new style into approximately 20 to 30 store locations in
certain major markets. If the Company finds acceptance of the product on a
consumer level, the Company proceeds with full-scale manufacturing and market
introduction.
Leather Apparel
Manufacturing
Substantially all the Company's products are imported from independent
manufacturers located primarily in South Korea, Indonesia and China and, to a
lesser extent, in India, the Philippines and Hong Kong. A selected number of
garments are also manufactured for the Company by independent contractors
located in the New York City area. In addition, the Company owns 100% and 39% of
two factories in Asia where leather garments are being manufactured for the
Company.
The Company has a branch office in Seoul, South Korea, which acts as a
liaison between the Company and the various manufacturers located throughout
South Korea, Indonesia and China used to produce the Company's leather and woven
garments. Upon receipt from the Company's headquarters of production orders
stating the number, quality and types of garments needed to be produced, this
liaison office negotiates and places orders with one or more South Korean,
Indonesian and Chinese manufacturers. In allocating production among independent
suppliers, the Company considers a number of criteria, including quality,
availability of production capacity, pricing and ability to meet changing
production requirements. At January 31, 1996, the South Korean office employed
15 persons.
In connection with the foreign manufacture of the Company's leather
apparel, manufacturers purchase skins and necessary "submaterials" (such as
linings, zippers, buttons and trimmings) according to parameters specified by
the Company. Prior to commencing the manufacture of garments, samples of the
skins and submaterials are sent to the South Korean liaison office and the
Company's New York offices for approval. Employees of the liaison office
regularly inspect and supervise the manufacture of the products for the Company
in order to ensure timely delivery, maintain quality control, monitor compliance
with Company manufacturing specifications and inspect finished apparel.
Because of the nature of leather skins, the manufacture of leather
apparel is performed manually. A pattern is used in cutting hides to panels
which are assembled in the factory. All submaterials are also added at this
time. Products are inspected throughout this process to insure that design and
quality specifications of the order, as provided by the Company, are being
maintained as the garment is assembled. After pressing, cleaning and final
inspection, the garment is labeled and hung awaiting shipment. A final random
inspection occurs when the garments are packed for shipment.
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The Company arranges for the production of apparel on a purchase order
basis, with each order to a foreign manufacturer generally backed by an
irrevocable international letter of credit. Substantially all letters of credit
arranged by the Company require as a condition of release of funds to the
manufacturer, among others, that an inspection certificate be signed by a
representative of the Company. Accordingly, if an order is not filled by a
foreign manufacturer, the letter of credit is not paid and the Company does not
bear the risk of liability for the goods being manufactured. The Company assumes
the risk of loss on an F.O.B. basis when goods are delivered to a shipper and is
insured against casualty losses arising during shipping.
As is customary in the leather industry, the Company has not entered
into any long-term contractual arrangement with any contractor or manufacturer.
In order to provide for more efficient communications and operations with
certain of the larger leather apparel manufacturers, in addition to utilizing
its South Korean branch office, the Company has historically placed orders for
leather apparel with two of its largest manufacturers through an established
buying agent located in New York City. The buying agent, under the supervision
of Company personnel located in the United States and South Korea, is
responsible for procuring sufficient contract production capacity from these
manufacturers to meet the forecasted demand for the Company's products. For the
fiscal years ended January 31, 1994, 1995 and 1996, approximately 26%, 16% and
13%, respectively, of the Company's products were produced by manufacturers
working through the Company's buying agent. The Company believes that the
production capacity of foreign manufacturers with which it has developed or is
developing a relationship is adequate to meet the Company's leather apparel
production requirements for the foreseeable future. The Company believes that
alternative foreign leather apparel manufacturers are readily available and that
the loss of any manufacturer or the buying agent would not materially adversely
affect the Company's operations.
The Company's arrangements with foreign manufacturers of its apparel
are subject to the usual risks of doing business abroad, including currency
fluctuations, political instability and potential import restrictions. Although
the Company's operations have not been materially affected by any of such
factors to date, due to the significant portion of the Company's garments which
are produced abroad, any substantial disruption of its relationships with
foreign manufacturers could adversely affect the Company's operations. In
addition, since the Company negotiates its purchase orders with its foreign
manufacturers in United States dollars, if the value of the United States dollar
against local currencies was to go down, these manufacturers might increase the
United States dollar prices charged to the Company for products. Virtually all
the Company's imported leather products and raw materials are subject to United
States Customs duties of approximately 6%.
A majority of all finished goods manufactured abroad are shipped to
the Company's New Jersey warehouse and distribution facility for final
inspection and allocation and reshipment to customers. The goods are delivered
to the Company and its customers by independent shippers, choosing the form of
shipment (principally ship, truck or air) based upon a customer's needs and cost
and time considerations.
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Marketing and Distribution
The Company's products are sold primarily to department, specialty and
mass merchant retail stores in the United States. The Company sells to
approximately 2,500 customers, ranging from national and regional chains of
specialty retail and department stores, whose annual purchases from the Company
exceed $1,000,000, to small specialty stores whose annual purchases from the
Company are less than $1,000. No customer accounted for more than 10% of the
Company's net sales in the fiscal years ended January 31, 1995 or 1996.
Almost all of the Company's sales to date have been made in the United
States. The Company has also marketed its products in Canada and Mexico.
Retail sales of outerwear apparel have traditionally been seasonal in
nature. Although the Company sells its apparel products throughout the year, net
sales in the months of June through November accounted for approximately 74% and
82% of Company net sales during the fiscal years ended January 31, 1995 and
1996, respectively. The June through November time frame is expected to continue
to provide a disproportionate amount of the Company's net sales.
Along with the Company's foreign offices, the Company's trading
company subsidiary, Global International Trading Company, located in Seoul,
Korea, assists in providing services to the Company's customers. As of January
31, 1996, Global International Trading Company employed 26 persons.
The Company's products are sold primarily through a direct employee
sales force which consisted of 22 employees as of January 31, 1996. The
Company's principal executives are also actively involved in sales of its
products. A limited amount of the Company's products are also sold by various
retail buying offices located throughout the country. Final authorization of all
sales of products is solely through the Company's New York showroom, enabling
the Company's management to deal directly with, and be readily accessible to,
major customers, as well as to control more effectively the Company's selling
operations.
The Company primarily relies on its reputation and relationships in
the industry to generate business. The Company believes it has developed a
significant customer following and positive reputation in the industry, as a
result of, among other things, standards of quality control, on-time delivery,
competitive pricing and willingness and ability to assist customers in their
merchandising of the Company's products. In addition, the Company has, to a
limited extent, advertised its products and engaged in cooperative ad programs
with retailers. The Company believes it has developed brand awareness, despite
the absence of general advertising, primarily through its reputation, consumer
acceptance and the fashion press.
In late December 1990, the Company opened its first retail outlet
store in Secaucus, New Jersey. The outlet store was intended to assist the
Company in determining sales trends of various styles, colors and skin and
fabric types and enable the Company to sell damaged merchandise which cannot be
resold at regular prices. During fiscal 1994, the Company opened four new retail
outlet stores and added two additional stores during fiscal 1995. The
performance of these outlet stores has resulted in the decision by the Company
to discontinue operations at several locations. The
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Company expects to close at least three of these locations during fiscal 1997,
one of which was closed in March 1996. The Company believes that there will be
no material affect on the financial statements or operations of the Company
as a result of implementing these actions. No additional stores are planned
to be opened during fiscal 1997. Company product represents approximately 85% of
the products offered in its outlet stores. The balance of the products
offered are accessories.
Licensing
The Company presently has license agreements with Kenneth Cole
Productions, National Football League Properties, NASCAR and several
universities located in the United States. The Company plans to seek other
opportunities to enter into trademark license agreements in order to expand its
product offerings under nationally recognized labels.
Raw Materials
Most products manufactured for the Company are purchased by the
Company on a finished goods basis. Raw materials used in the production of the
Company's leather apparel are available from numerous sources and are in
adequate supply. The Company is not aware of any manufacturer of the Company's
apparel not being able to satisfy its requirements for any such raw materials
due to an inadequacy of supply.
The leather apparel industry competes with manufacturers of other
leather products for the supply of leather. Leather skins are a byproduct.
Accordingly, raw material costs are impacted by changes in meat consumption
worldwide as well as by the popularity of leather products.
Textile Apparel
The Company also produces outerwear from a variety of textiles such as
wools, cottons and synthetic blends, suitable for leisure and active wear. The
Company designs, imports and markets a moderately priced line of women's textile
outerwear and sportswear under the J.L. Colebrook label, with retail prices
ranging from $70 for a spring jacket to $120 for a fall jacket. The Coat
Division markets moderately priced women's woolen coats and raincoats, sold
under the Vision label, with retail prices ranging from $100 to $200. The men's
textile apparel line consists of moderately priced outerwear.
The Company's development and design process as well as its marketing
and distribution strategies for textile apparel are similar to those employed
for its leather apparel. See "Products-Development and Design" and "Leather
Apparel -- Marketing and Distribution" of this Item 1 above. Textile outerwear
is manufactured for the Company by several independent contractors located
primarily in the Far East and Eastern Europe and, to a lesser extent,
domestically. Manufacturers produce finished garments in accordance with
production samples approved by the Company and obtain necessary quota
allocations and other requisite customs clearances.
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To facilitate better service for the Company's textile and leather
apparel customers and accommodate and control the volume of manufacturing in the
Far East, the Company has an office in Hong Kong. Similar to the Seoul office,
the Hong Kong office acts as a liaison between the Company and the various
manufacturers of textile and leather apparel located in Hong Kong and China. The
Company utilizes its domestic and Hong Kong office employees to monitor
production at each manufacturer's facility to ensure quality control, compliance
with the Company's specifications and timely delivery of finished garments to
the Company's distribution facilities or customers. The Hong Kong office
employed 12 persons as of January 31, 1996.
The Company's arrangements with its textile manufacturers and
suppliers are subject to the risks attendant to doing business abroad, including
the availability of quota and other requisite customs clearances for textile
apparel, the imposition of export duties, political and social instability and
currency fluctuations. United States customs duties on the Company's textile
apparel presently range from 5% to 30%, depending upon the type of fabric used
and how the garment is constructed. The Company monitors duty, tariff and
quota-related developments and seeks to minimize its potential exposure to
quota-related risks through, among other measures, geographical diversification
of its manufacturing sources and shifts of production among countries and
manufacturers.
Backlog
A significant portion of the Company's orders are short-term purchase
orders from customers who place orders on an as-needed basis. The amount of
unfilled orders at any time has not been indicative of future sales. Information
relative to open purchase orders at any date may also be materially affected by,
among other things, the timing of the initial showing of apparel to the trade,
as well as by the timing of recording of orders and shipments. As a result, the
Company does not believe that the amount of its unfilled customer orders at any
time is meaningful.
Trademarks
Several trademarks have been granted federal trademark protection
through registration with the U.S. Patent and Trademark Office, including G-III,
Registration No. 1,620,028, Avalanche, Registration No. 1,717,128, J.L.
Colebrook, Registration No. 1,662,115, Laura Renee, Registration No. 1,639,803,
Laura Jeffries, Registration No. 1,760,704, Colebrook Kids, Registration No.
1,769,358, Urban Cowboy, Registration No. 1,814,466, Cayenne, Registration No.
1,573,488, G-III Outerwear Company Store, Registration No. 1,854,354, JLC (&
design), Registration No. 1,916,591, JLC Outerwear (& design), Registration No.
1,936,763, J.L.C. (& design), Registration No. 1,915,105 and Last Resort,
Registration No. 1,656,870.
G-III has applications for registrations pending before the U.S.
Patent and Trademark Office for G-IV.
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The following foreign trademarks have been granted trademark
protection in other countries including G-III in France, Registration No.
93/465340, G-III in Canada, Registration No. 426,770, J.L. Colebrook in Germany,
Registration No. 2,057,353, J.L. Colebrook in Canada, Registration No. 433,107,
J.L. Colebrook, in France, Registration No. 93/465,341, J.L. Colebrook in Great
Britain, Registration No. B1533687, and J.L. Colebrook in Benelux, Registration
No. 530,517.
The following foreign trademark applications are pending including
J.L.C. (& design) in Canada and JLC (& design) in Canada.
Although the Company regards its trademarks as valuable assets and
intends to vigorously enforce its trademark rights, the Company does not believe
that any failure to obtain federal trademark registrations for which it has
applied would have a material adverse effect on the Company.
Competition
The apparel business is highly competitive. The Company has numerous
competitors with respect to the sale of leather and textile apparel, including
distributors that import leather apparel from abroad and domestic retailers with
established foreign manufacturing capabilities. Sales of the Company's products
are affected by style, price, quality and general fashion trends. The Company
may also be deemed to compete with vertically-integrated apparel manufacturers
that also own retail stores. In addition, the Company competes for supplies of
raw materials and manufacturing and tanning capacity.
Employees
As of January 31, 1996, the Company had 275 full-time employees, of
whom 63 worked in executive, administrative or clerical capacities, 101 worked
in design and manufacturing, 68 worked in warehouse facilities, 22 worked in
sales and 21 worked in the Retail Outlet Division. The Company employs both
union and non-union personnel and believes that the Company's relations with
its employees are good. The Company has never experienced any interruption of
any of its operations due to a labor disagreement with its employees.
The Company is a party to an agreement with the Amalgamated Clothing
and Textile Workers Union (the "Union"), covering approximately 59 full-time
employees as of January 31, 1996. This agreement, which is currently in effect
through October 30, 1996, automatically renews on an annual basis thereafter
unless terminated by the Company or the Union prior to August 30 of that year.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers and significant employees of the Company.
Executive
Officer or
Significant
Employee
Name Age Position Since
----- --- -------- -----
Morris Goldfarb 45 President and Chief Executive 1974
Officer, Director
Aron Goldfarb 73 Chairman of the Board, Director 1974
Alan Feller 54 Executive Vice President, Chief 1990
Operating Officer, Treasurer and
Secretary, Director
Carl Katz 55 Executive Vice President of 1981
Siena, Director
Jeanette Nostra-Katz 44 Executive Vice President 1981
Frances Boller-Krakauer 30 Vice President - Men's Sales of 1993
G-III
Edward Goldstein 47 Vice President - JL Colebrook 1994
Division of G-III
Deborah Huffman 41 Vice President - Women's Sales 1989
of G-III
Keith Sutton Jones 47 Vice President - Foreign 1989
Manufacturing of G-III
Michael Laskau 40 Vice President - JL Colebrook 1994
Division of G-III
Karen Wells 31 Vice President - Fashion Design 1990
and Imports of G-III
Morris Goldfarb is the President and Chief Executive Officer of the
Company, as well as one of its directors. He has served as either President or
Vice President of G-III Leather Fashions, Inc. ("G-III") since its formation in
1974 and as President of the Siena division since its formation in 1981. Mr.
Goldfarb is responsible for the foreign manufacture, marketing, merchandising
and financing of the G-III line of apparel. He also has overall responsibility
for developing selling programs, customer relations and administration of the
Company. Mr. Goldfarb is also a director of Grand Casinos, Inc.
Aron Goldfarb is Chairman of the Board of the Company, and its
founder. Mr. Goldfarb served as either President or Vice President of G-III and
as a Vice
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President of Siena since their respective formations and, since January 1995,
has served as a consultant to the Company.
Alan Feller has been employed by the Company as its Chief Financial
Officer since January 1990 and was elected the Vice President of Administration
and Finance, Treasurer and Secretary of the Company in March 1990 and Executive
Vice President and Chief Operating Officer in June 1995. Mr. Feller was elected
a Director of the Company in April 1995.
Carl Katz has been employed as an Executive Vice President of Siena
since August 1989 and, prior thereto, as a Vice President of Siena since 1981.
Mr. Katz supervises the merchandising and designs, as well as production and
pattern and sample making, for the Siena and Licensing divisions. Mr. Katz is
also a director of the Company.
Jeanette Nostra-Katz has been the Executive Vice President of the
Company since March 1992. Ms. Nostra-Katz's responsibilities for the Company
include sales for the Women's Leather Division, marketing, public relations, and
operations as they relate to sales. Since August 1989, she has served as an
Executive Vice President of Siena. Ms. Nostra-Katz has been employed by the
Company since 1981 in various capacities.
Frances Boller-Krakauer is Vice President -- Men's Sales of G-III and
has held the position since February 1993. Prior to February 1993, she held
various sales positions in the Men's Division. Ms. Krakauer joined the Company
in March 1989.
Deborah Huffman is the Vice President -- Women's Sales of G-III. Ms.
Huffman is responsible for sales and marketing of the women's leather apparel
line. She served previously as Vice President, Imports since June 1989,
coordinating production and merchandising.
Edward Goldstein is a Vice President -- JL Colebrook Division of G-III
and has been employed in such capacity since June 1994. His responsibilities
include the coordination of the sales organization as well as product
development and administration of the division. For seven years prior to joining
G-III, Mr. Goldstein was Vice President of the outerwear product line for Lerner
New York, a division of The Limited Inc.
Keith Sutton Jones is the Vice President -- Foreign Manufacturing of
G-III and has been employed in such capacity since January 1989. His
responsibilities include coordinating and controlling all aspects of the
Company's Far Eastern sourcing and production.
Michael Laskau is a Vice President -- JL Colebrook Division of G-III
and has been employed in such capacity since July 1994. His responsibilities
include coordinating the production and merchandising of the Company's textile
apparel. For the 18 years prior to joining the Company, Mr. Laskau was in charge
of production and sourcing at Junior Gallery, an importer of apparel.
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Karen Wells is the Vice President -- Fashion Design and Imports of
G-III and has been employed in such capacity since March 1992. Her
responsibilities include the sourcing of factories, coordination of production
and merchandising and design supervision for the Women's Division. Ms. Wells
also manages the Company's private label and special order programs. For the
four years prior to March 1992, Ms. Wells was the Fashion Designer of women's
apparel for G-III.
Aron Goldfarb and Morris Goldfarb are father and son, respectively.
Carl Katz and Jeanette Nostra Katz are married to each other.
ITEM 2. PROPERTIES
The Company's executive offices and office support departments are
located in a five story 32,000 square foot building at 345 West 37th Street in
New York City. This property is leased pursuant to a sublease from a corporation
owned by Morris Goldfarb and Aron Goldfarb, the Company's President and Chairman
of the Board, respectively, for which the Company pays rent monthly, plus real
estate taxes. For the fiscal years ended January 31, 1995 and 1996, the total
payments for the premises were approximately $334,000 and $327,000,
respectively.
During January 1994, the Company moved its G-III Women's, Siena, Siena
Studio and JL Colebrook showrooms and support staff to two floors at 512 Seventh
Avenue, which is one of the leading outerwear apparel buildings in New York
City. The Men's Leather Division, Colebrook Men's Division and Licensing
Division were also moved to 512 Seventh Avenue in March 1995. The Company leases
an aggregate of approximately 31,800 square feet in this building through
January 31, 2003 at a current aggregate annual rental of approximately $486,000.
The Company's warehouse and distribution facility, located in
Secaucus, New Jersey, contains approximately 107,000 square feet, plus a 3,000
square foot retail outlet store. This facility is leased through March, 2000 at
an annual rent of approximately $482,000. The lease provides for two option
renewal terms of five years each with rental for the renewal term based on
market rates. A majority of the Company's finished goods are shipped to the New
Jersey distribution facilities for final reshipment to customers.
In March 1996, the Company subleased its other warehouse and
distribution facility in Secaucus, New Jersey to an unaffiliated third party and
consolidated all of its warehouse and distribution operations at one location.
The sub-lease is co-extensive with the lease term, which extends through March
2000, although the sub-lessee has the right to terminate the sub-lease at any
time on six months notice. The sub-lease provides for the sub-lessee to pay
rent of approximately $700,000 per year to the Company and for the Company to
pay all operating costs of the facility except for utilities and internal
maintenance. The Company's annual rent obligation to the lessor of this facility
increases from approximately $750,000 to $937,000 during the term of the
sub-lease.
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The Company has a 700 square foot showroom located in the California
Apparel Mart in Los Angeles. The facility is leased through February 28, 1997,
at a rent of approximately $36,000 per year.
The Company leases five retail outlet stores in addition to the store
at its distribution facility. These leases terminate between June 1996 and March
2000 and generally require payment of fixed rent plus a percentage of sales
above a pre-determined level. The Company expects to close three stores during
1996, one of which was closed in March 1996. Aggregate rental expense for the
five retail outlet stores (plus the store closed in March 1996) during the
fiscal year ended January 31, 1996 was approximately $281,000.
Leases with provisions for increasing rents have been expensed and
accrued on a straight-line basis over the life of the lease.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-13-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market For Common Stock
The Common Stock is publicly traded in the over-the-counter market and
is quoted on the Nasdaq National Market System under the trading symbol "G-III".
The following table sets forth, for the fiscal periods shown, the high and low
last sales prices for the Common Stock, as reported by the Nasdaq National
Market.
High Prices Low Prices
----------- -----------
Fiscal 1995
- -----------
Fiscal Quarter ended April 30, 1994 $6 1/2 $4 3/8
Fiscal Quarter ended July 31, 1994 5 3 3/8
Fiscal Quarter ended October 31, 1994 4 3/8 3
Fiscal Quarter ended January 31, 1995 3 1/2 1 1/4
Fiscal 1996
- -----------
Fiscal Quarter ended April 30, 1995 $2 5/16 $1 11/32
Fiscal Quarter ended July 31, 1995 2 9/16 1 1/4
Fiscal Quarter ended October 31, 1995 4 5/8 1 5/8
Fiscal Quarter ended January 31, 1996 3 7/8 2 1/4
Fiscal 1997
- -----------
First Quarter ended April 30, 1996 $ 3 3/16 $ 2 1/4
(through March 31, 1996)
The last sales price of the Common Stock as reported by the
Nasdaq National Market on March 31, 1996 was $2.5625 per share.
On March 31, 1996, there were 98 holders of record and, the Company
believes, approximately 1,600 beneficial owners of the Common Stock.
Dividend Policy
The Board of Directors currently intends to follow a policy of
retaining any earnings to finance the continued growth and development of the
Company's business and does not anticipate paying cash dividends in the
foreseeable future. Any future determination as to the payment of cash dividends
will be dependent upon the Company's financial condition, results of operations
and other factors deemed relevant by the Board of Directors. Certain agreements
related to the financing of the building containing the Company's executive
offices prohibit the payment of cash dividends without consent. In addition, the
Company's loan agreement prohibits the payment of cash dividends without the
consent of the banks. See "Management's Discussion and
-14-
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in Item 7 below.
ITEM 6. SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
In January 1993, the Company and each of its subsidiaries changed
their fiscal year-end from July 31 to January 31. The selected consolidated and
combined financial data set forth below for each of the two years ended July 31,
1992, for the six-month transition period ended January 31, 1993 and the years
ended January 31, 1994, 1995 and 1996 have been derived from the audited
consolidated and combined financial statements of the Company. The audited
financial statements for the years ended July 31, 1991 and 1992 and six months
ended January 31, 1993 are not included in this filing. The information for the
twelve month period ended January 31, 1993 is unaudited and is included for
comparative purposes only. The selected consolidated and combined financial data
set forth below for the twelve months ended January 31, 1993 are unaudited and,
in the opinion of the Company, reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation thereof. The
selected consolidated and combined financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" (Item 7 of this Report) and the audited consolidated financial
statements and related notes thereto included elsewhere herein.
-15-
(In thousands, except share and per share data)
Twelve
Six Months
Months Ended
Ended January
Year Ended July 31,(1) January 31, 31, Year Ended January 31,
-------------------- ---------- ---------- ----------------------------
1991 1992 1993 1993 1994 1995 1996
---------- ---------- ---------- ---------- --------- --------- --------
Income Statement Data:
Net Sales............... $141,973 $175,478 $116,208 $195,731 $208,877 $171,441 $121,663
Cost of goods sold...... 124,628 153,014 98,283 167,660 181,270 146,484 97,769
------- ------- ------- ------- ------- ------- -------
Gross profit............ 17,345 22,464 17,925 28,071 27,607 24,957 23,894
Selling, general &
administrative expenses 13,717 15,555 10,794 18,853 22,869 25,823 21,769
Unusual or non-
recurring charges..... 0 0 0 0 0 11,320 0
------- ------- ------- ------- ------- ------- -------
Operating profit (loss). 3,628 6,909 7,131 9,218 4,738 (12,186) 2,125
Interest expense........ 1,303 1,305 1,019 1,879 2,339 3,959 2,433
------- ------- ------- ------- ------- ------- -------
Income before
income taxes (loss)... 2,325 5,604 6,112 7,339 2,399 (16,145) (308)
Income taxes (benefit).. 982 2,283 2,619 3,081 1,064 (4,087) 89
------- ------- ------- ------- ------- ------- -------
Net income (loss)
before minority interest 1,343 3,321 3,493 4,258 1,335 (12,058) (397)
Minority interest....... 0 0 0 0 0 324 0
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 1,343 $ 3,321 $ 3,493 $ 4,258 $ 1,335 $(11,734) (397)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Primary:
Net income (loss)
per common share(2).. $0.21 $0.51 $0.53 $0.65 $0.20 $(1.82) $(0.06)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Weighted average
shares outstanding(2). 6,451,631 6,511,565 5,574,450 6,514,750 6,600,692 6,459,381 6,459,975
Fully Diluted:
Net income (loss)
per common share(2).. $0.21 $0.51 $0.53 $0.65 $0.20 $(1.82) $(0.06)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Weighted average
shares outstanding(2). 6,451,631 6,511,565 6,662,067 6,529,750 6,600,692 6,459,381 6,459,975
As of July 31,(1) As of January 31,
--------------------------------- ------------------------------
1991 1992 1993 1994 1995 1996
--------- ---------- ----------- ---------- --------- -------
Balance Sheet Data:
Working capital............... $ 29,449 $ 31,882 $ 35,055 $ 31,494 $ 22,602 $22,224
Total assets.................. 60,085 88,837 57,522 67,571 54,572 41,257
Short-term debt............... 19,666 43,874 10,078 13,179 13,480 3,551
Long-term debt,
excluding current portion... 897 1,073 988 794 1,479 919
Total stockholders' equity.... 33,651 36,972 40,465 41,835 30,101 29,716
(1) Effective January 31, 1993, the Company and its subsidiaries adopted a
January 31 fiscal year-end.
(2) Net income per common share for the six and twelve months ended January 31,
1993, and for the years ended July 31, 1991 and 1992, has been calculated
based on a weighted average number of outstanding common shares and common
stock equivalents, and gives effect to a 5% stock dividend paid in February
1993.
-16-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
References to fiscal years refer to the year ended January 31 of that
year.
Results of Operations
The following table sets forth selected operating data of the Company
as a percentage of net sales for the periods indicated below:
Year Ended January 31,
---------------------------------
1994 1995 1996
--------- -------- --------
Net sales.............................................. 100.0% 100.0% 100.0%
Cost of goods sold..................................... 86.8 85.4 80.4
--------- -------- --------
Gross profit........................................... 13.2 14.6 19.6
Selling, general and administrative expenses........... 10.9 15.1 17.9
Unusual or nonrecurring charges........................ 0.0 6.6 0.0
--------- -------- --------
Operating profit (loss)................................ 2.3 (7.1) 1.7
Interest expense....................................... 1.1 2.3 2.0
--------- -------- --------
Income (loss) before income taxes...................... 1.2 (9.4) (0.3)
Income taxes (benefit) before minority interest........ 0.5 (2.4) 0.0
Minority interest...................................... 0.0 .2 0.0
--------- -------- --------
Net income (loss)...................................... 0.7 (6.8) (0.3)
--------- -------- --------
--------- -------- --------
General
As part of the Company's efforts to reduce operating costs, and as a
result of its increasing use of customer letter of credit transactions where
finished goods are shipped directly to the customer, the Company carried lower
levels of inventory during fiscal 1996. Carrying lower levels of inventory
reduced the Company's inventory exposure as retailers remained cautious in their
ordering patterns and resulted in reduced bank borrowings and lower interest
expense during fiscal 1996. The ability to operate with lower inventory levels
enabled the Company to sublet one of its distribution facilities in March 1996,
which will reduce warehouse and distribution expenses.
The weak retail environment adversely impacted the Company's sales
volume in fiscal 1995 and 1996. In addition, a significant portion of the
decrease in net sales was attributable to the recognition by the Company of only
commission income on certain types of sales ("customer letter of credit
transactions") where the Company's
-17-
customer provided a letter of credit which was transferred by the Company
directly to the overseas manufacturer or where the Company's customer provided a
letter of credit directly to the overseas manufacturer. Prior to the middle of
fiscal 1995, the customer usually provided a letter of credit to the Company and
the Company opened a letter of credit to the manufacturer. Accounting rules
require the Company to recognize only commission income with respect to
transactions where the Company does not open a letter of credit. Although
customer letter of credit transactions result in reporting lower net revenues,
the gross margin on such transactions is generally the same as when the
Company's credit is utilized for these types of transactions and the full amount
of the sale is reported. The Company expects that it will increase its
utilization of these types of customer letter of credit transactions in fiscal
1997.
The Company recognized $11.3 million of unusual or non-recurring
charges in fiscal 1995. As a result of the unusually warm fall of 1994, which
adversely affected the sales of outerwear apparel at the retail level, the
Company's receipt of reorders from its customers was below expectations in
fiscal 1995. The Company reviewed its inventory levels and salability as of
October 31, 1994 and determined that its markdown reserve should be increased by
$5.7 million as of that date. In addition, as the result of lower than expected
shipments during the fourth quarter of fiscal 1995, an additional reserve of
$476,000 was provided as of January 31, 1995. In addition, a restructuring
reserve of an aggregate of $5.1 million was established as of January 31, 1995
to provide for the potential loss of the Company's investment in a leather
garment factory ($2.5 million), the write-off of unamortized leasehold fixtures
due to the closing of the Company's domestic factory and relocation of its
showrooms ($1.7 million), certain other fixed asset write-offs ($581,000) and
the severance agreement with the Chairman of the Board who retired January 1,
1995 ($334,000).
Year Ended January 31, 1996 ("fiscal 1996") Compared
to Year Ended January 31, 1995 ("fiscal 1995")
Net sales were $121.7 million in fiscal 1996 compared to $171.4
million in fiscal 1995. Approximately $31.3 million of the decrease in net sales
in fiscal 1996 was due to the continued weakness in the retail business
environment, primarily lower sales of leather outerwear (a decrease of $16.2
million) and non-leather outerwear (a decrease of $10.1 million). The balance of
the decrease (approximately $18.4 million) was the result of the Company
recognizing only commission income with respect to customer letter of credit
transactions. If the Company had recognized the full amount of sales from
customer letter of credit transactions in fiscal 1995 and 1996, net sales would
have been $163.6 million in fiscal 1996 compared to $195.0 million in fiscal
1995.
Gross profit was $23.9 million in fiscal 1996 compared to $25.0
million in fiscal 1995. As a percentage of net sales, gross profit was 19.6% in
fiscal 1996 compared to 14.6% in fiscal 1995. While the use of customer letter
of credit transactions does not impact gross profit dollars, it does affect
gross profit as a percentage of net sales since net revenues recognized from
such transactions are lower. Had the Company recognized the full amount of sales
from customer letter of credit transactions, gross profit as a percentage of net
sales in fiscal 1996 would have been 14.6% compared to 12.8% in fiscal 1995.
This increase in the gross profit percentage
-18-
was a result of improved margins in a majority of product lines, as well as cost
reductions resulting from closure of the Company's domestic manufacturing
facilities.
Selling, general and administrative expenses of $21.8 million in
fiscal 1996 were approximately $4.0 million lower than the $25.8 million in
fiscal 1995. As a percentage of net sales, selling, general and administrative
expenses were 17.9% in fiscal 1996 compared to 15.1% in fiscal 1995. This
increase as a percentage of net sales was attributable to the lower reported net
sales in fiscal 1996. The decrease in selling, general and administrative
expenses was the result of the implementation of a cost reduction program which
began in the second half of fiscal 1995. This program resulted in reduced
expenses from the implementation of a salary reduction for mid-level and senior
executives and a reduction in the number of employees ($1.6 million),
consolidating the operations of certain divisions ($783,000), lower advertising
and other marketing expenditures ($675,000) and lower shipping costs related to
lower warehouse volume ($535,000). The Company will continue to monitor its
levels of selling, general and administrative expenses and expects certain
increases in these expenses in fiscal 1997 primarily related to the increased
offering of licensed product.
Interest expense was $2.4 million in fiscal 1996 compared to $4.0
million in fiscal 1995. This decrease is attributable to lower direct bank debt
balances as the result of lower inventory levels maintained during fiscal 1996.
As a result of the foregoing, the Company incurred a loss before
income taxes of $308,000 in fiscal 1996 compared to $16.1 million in fiscal
1995. As discussed above, fiscal 1995 results included nonrecurring or unusual
charges of $11.3 million.
Despite incurring a loss in fiscal 1996, the Company had tax expense
of $89,000 due to foreign income taxes and resolution of a Federal tax
examination, compared to a tax benefit of $4.1 million in fiscal 1995.
The Company incurred a net loss of $397,000, or $.06 per share, in
fiscal 1996 compared to a net loss of $11.7 million, or $1.82 per share, in
fiscal 1995.
Year Ended January 31, 1995 Compared
to Year Ended January 31, 1994 ("fiscal 1994")
Net sales were $171.4 million in fiscal 1995 compared to $208.9
million in fiscal 1994. Approximately $23.6 million of the decrease in net sales
during fiscal 1995 resulted from the recognition by the Company of only
commission income with respect to customer letter of credit transactions which
were first utilized in the middle of fiscal 1995. If the Company recognized the
full amount of sales from customer letter of credit transactions, net sales in
fiscal 1995 would have been approximately $195.0 million compared to $208.9
million in fiscal 1994. This decrease in net sales was primarily attributable to
a decrease of sales relating to the Company's women's apparel business.
Gross profit was $25.0 million in fiscal 1995 compared to $27.6
million in fiscal 1994. As a percentage of net sales, gross profit was 14.6% in
fiscal 1995
-19-
compared to 13.2% in fiscal 1994. The use of customer letter of credit
transactions caused the increase in gross profit as a percentage of sales since
net sales recognized from such transactions were lower. Had the Company
recognized the full amount of such sales, gross profit as a percentage of net
revenues in fiscal 1995 would have been 12.8% compared to 13.2% in fiscal 1994.
The reduction in the gross margin percentage was the result of lower margins in
the fourth quarter of fiscal 1995 as the Company reduced its selling prices,
both in response to the lack of product demand caused by the unusually mild fall
and early winter seasons and as part of its strategy to reduce inventory levels.
Selling, general and administrative expenses of $25.8 million in
fiscal 1995 were approximately $2.9 million higher than the $22.9 million in
fiscal 1994. As a percentage of net sales, selling, general and administrative
expenses were 15.1% in fiscal 1995 compared to 10.9% in fiscal 1994. In part,
this increase as a percentage of net sales was the result of lower reported net
sales. The increase in these expenses resulted in part from expenses associated
with the Company's new divisions, retail ($934,000), licensing ($501,000) and
woolen coats ($130,000), which were in the start up phase in fiscal 1994, and
three new product lines in fiscal 1995 ($660,000). In addition, increased
overseas operating costs ($350,000) and general and administrative expenses
($900,000) accounted for the balance of the increase. In the second half of
fiscal 1995, the Company began to implement policies to reduce its overall
levels of selling, general and administrative expenses. The Company reduced
personnel levels, implemented a salary reduction for mid-level and senior
executives and discontinued or consolidated several merchandise divisions.
Interest expense of $4.0 million in fiscal 1995 was $1.7 million
higher than the $2.3 million in interest expense in fiscal 1994. The increase is
attributable to higher interest rates charged the Company, as well as higher
loan balances.
The effective income tax benefit rate in fiscal 1995 was 25.3%,
compared to an effective income tax rate of 44.4% in fiscal 1994. The lower tax
benefit rate in 1995 was due to the availability of certain state and local tax
benefits related to the taxable loss in fiscal 1995 and the non-recurring charge
which, in accordance with the criteria set forth in Financial Accounting
Standards Board Statement No. 109, were not recognized.
As a result of the foregoing, including unusual or nonrecurring
charges described in "General" above which resulted in an after-tax charge to
earnings of $8.5 million, the Company incurred a net loss of $11.7 million, or
$1.82 per share, in fiscal 1995 compared to reporting net income of $1.3
million, or $.20 per share, in fiscal 1994.
Liquidity and Capital Resources
The Company has a loan agreement, which expires May 31, 1996,
providing the Company with a collateralized working capital line of credit with
three banks for a maximum amount of $48 million (reduced to $40 million after
January 31, 1996, of which a maximum of $40 million (reduced to $32 million
after January 31, 1996) is available for direct borrowing and bankers'
acceptances and the unused balance
-20-
for letters of credit. Amounts available for borrowing are subject to borrowing
base formulas and over advances specified in the agreement. Direct borrowings
under the line of credit bear interest at the agent bank's prime rate (8.25% as
of April 15, 1996) plus 2.0%. The amount borrowed under the line of credit
varies based on the Company's seasonal requirements. The Company is in
discussions with its banks to extend the loan agreement to May 31, 1997 under
terms similar to the existing loan agreement. The maximum amount outstanding
(i.e., open letters of credit, bankers' acceptances and direct borrowings) under
the Company's loan agreement was approximately $64.0 million, $63.0 million
and $46.7 million during fiscal 1994, 1995 and 1996, respectively. As of
January 31, 1996, there were no outstanding direct borrowings, no bankers'
acceptances and $4.1 million of contingent liability under open letters of
credit, as compared to $10.2 million outstanding in direct borrowings, no
bankers' acceptances and $6.0 million of contingent liability under open
letters of credit as of January 31, 1995. The Company carried lower levels of
inventory in fiscal 1996 compared to fiscal 1995 and, as a result, its borrowing
requirements were lower in fiscal 1996.
In recognition of the highly seasonal nature of the Company's
business, the Company's loan agreement provides for certain loan overadvances in
excess of the borrowing base formulas. As a result of the Company's outstanding
borrowings exceeding the permitted overadvance levels, during fiscal 1995, the
Company's two principal stockholders jointly and severally guaranteed up to $2.5
million of the Company's line of credit obligations. In addition, one of the
principal stockholders has pledged 250,000 shares of Common Stock as additional
security for the loan agreement.
The Company's wholly owned Indonesian subsidiary has a line of credit
with a bank for approximately $3.5 million which is supported by a $2.0 million
stand-by letter of credit issued under the Company's domestic credit facility.
As of January 31, 1996, the borrowing by the Indonesian subsidiary under its
line of credit approximated $3.0 million.
Historically, the Company's business has not required significant
capital expenditures. The Company's capital expenditures were approximately
$1,158,000 and $902,000 for fiscal 1995 and 1996, respectively. Capital
expenditures were used primarily for additional computer upgrades, leasehold
improvements and furniture, fixtures and equipment in fiscal 1995 and 1996.
Impact of Inflation and Foreign Exchange
The results of operations of the Company for the periods discussed
have not been significantly affected by inflation or foreign currency
fluctuation. The Company negotiates its purchase orders with its foreign
manufacturers in United States dollars. Thus, notwithstanding any fluctuation in
foreign currencies, the Company's cost for any purchase order is not subject to
change after the time the order is placed. However, if the value of the United
States dollar against local currencies was to go down, certain manufacturers
might increase their United States dollar prices for products.
-21-
PROSPECTIVE FINANCIAL STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121").
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest) is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of that loss would be based
on the fair value of the asset. SFAS No. 121 also generally requires long-lived
assets and certain identifiable intangibles to be disposed of to be reported at
the lower of the carrying amount or the fair value less cost to sell. SFAS No.
121 is effective for the Company's 1997 fiscal year-end. The Company has made no
assessment of the potential impact of adopting SFAS No. 121 at this time.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option. Fair value of the stock
option is determined considering factors such as the exercise price, the
expected life of the option, the current price of the underlying stock and its
volatility, expected dividends on the stock, and the risk-free interest rate for
the expected term of the option. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period. A company may elect to adopt SFAS No. 123 or
elect to continue accounting for its stock option or similar equity awards using
the intrinsic method, where compensation cost is measured at the date of grant
based on the excess of the market value of the underlying stock over the
exercise price. If a company elects not to adopt SFAS No. 123, then it must
provide pro forma disclosure of net income and earnings per share, as if the
fair value based method has been applied.
SFAS No. 123 is effective for transactions entered into for fiscal years that
begin after December 15, 1995. Pro forma disclosures for entities that elect to
continue to measure compensation cost under the old method must include the
effects of all awards granted in fiscal years that begin after December 15,
1994. It is currently anticipated that the Company will continue to account for
stock-based compensation plans under the intrinsic method and pro forma
disclosures will be made. Therefore, SFAS No. 123 is not expected to have any
effect on the Company's consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required pursuant to this
Item begin on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-22-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Proposal No. 1- Election
of Directors" in the Company's definite Proxy Statement (the "Proxy Statement")
relating to the Company's Annual Meeting of Stockholders to be held on or about
June 20, 1996, to be filed pursuant to Regulation 14A of the Securities Exchange
Act of 1934 with the Securities and Exchange Commission is incorporated herein
by reference. For information concerning the executive officers and other
significant employees of the Company, see "Business-Executive Officers of the
Registrant" in Item 1 above of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation"
in the Company's Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of
Common Stock by Certain Stockholders and Management" in the Company's Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Relationships and
Related Transactions" in the Company's Proxy Statement is incorporated herein by
reference.
-23-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
2. Financial Statement Schedules.
The Financial Statements and Financial Statement Schedules are
listed in the accompanying index to financial statements beginning
on page F-1 of this report.
3. Exhibits:
3.1 Certificate of Incorporation.(1)
3.2 By-Laws of G-III Apparel Group, Ltd. (the "Company").(1)
10.1 Employment Agreement, dated February 1, 1994, between
the Company and Morris Goldfarb.(5)
10.2 Agreement, dated December 19, 1994, between the
Company and Aron Goldfarb.(6)
10.3 Second Amended and Restated Loan Agreement, dated
June 12, 1995, by and among G-III Leather Fashions, Inc.
("G- III"), the banks signatories thereto (the "Banks"),
and National Westminster Bank USA ("NatWest"), as Agent,
Collateral Monitoring Agent and issuing Bank for such
Banks.(7)
10.4 Lease Agreement, dated as of October 20, 1987, between
3738 West Company and G-III.(2)
10.5 Lease Agreement, dated as of September 14, 1989,
between 3738 West Company and G-III.(2)
10.6 Sublease Agreement, dated March 9, 1990, between GWC
Investments and the Company.(3)
10.7 Agreement of Sub-Sublease, dated December 27, 1995,
and First Amendment thereto, dated February 16, 1996,
between the Company and Europe Craft Imports, Inc.
-24-
10.8 Lease, dated September 21, 1993, between Hartz
Mountain Associates and the Company.(4)
10.9 Lease, dated June 1, 1993, between 512 Seventh Avenue
Associates ("512") and the Company.(5)
10.10 Lease, dated January 31, 1994, between 512 and the
Company.(6)
10.11 G-III Apparel Group, Ltd. 1989 Stock Option Plan, as
amended.(5)
10.12 G-III Apparel Group, Ltd. Stock Option Plan for Non-
Employee Directors.(3)
22 Subsidiaries of the Company.(5)
23 Consent of Grant Thornton LLP, dated April 19, 1996.
27 Financial Data Schedule Article 5.
(b) Reports on Form 8-K:
None.
__________________
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (no. 33-31906), which exhibit is incorporated herein by
reference.
(2) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 1989, which exhibit
is incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 1991, which exhibit
is incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 1992, which exhibit
is incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1994, which exhibit
is incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1995, which exhibit
is incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the Quarter ended July 31, 1995, which exhibit is
incorporated herein by reference.
Exhibits have been included in copies of this Report filed with the
Securities and Exchange Commission. The Company will provide, without charge, a
copy of these exhibits to each stockholder upon the written request of any such
stockholder therefor. All such requests should be directed to G-III Apparel
Group, Ltd., 345 West 37th Street, New York, New York 10018, Attention: Mr. Alan
Feller, Secretary.
-25-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
G-III APPAREL GROUP, LTD.
By /s/ Morris Goldfarb
-----------------------------
(Morris Goldfarb), (President
and Chief Executive Officer)
April 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Morris Goldfarb Director, President and Chief April 26, 1996
- ---------------------- Executive Officer (principal executive
(Morris Goldfarb) officer)
/s/ Alan Feller Director, Executive Vice President and April 26, 1996
- ---------------------- Chief Operating Officer (principal
(Alan Feller) financial and accounting officer)
/s/ Aron Goldfarb Director and Chairman of the Board April 26, 1996
- -----------------------
(Aron Goldfarb)
/s/ Lyle Berman Director April 26, 1996
- -----------------------
(Lyle Berman)
/s/ Thomas J. Brosig Director April 26, 1996
- -----------------------
(Thomas J. Brosig)
/s/ Willem van Bokhorst Director April 26, 1996
- -----------------------
(Willem van Bokhorst)
/s/ Sigmund Weiss Director April 26, 1996
- -----------------------
(Sigmund Weiss)
/s/ George J. Winchell Director April 26, 1996
- -----------------------
(George J. Winchell)
/s/ Carl Katz Director April 26, 1996
- ------------------------
(Carl Katz)
-26-
G-III Apparel Group, Ltd.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14(a))
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets - January 31, 1995 and 1996 F-3
Consolidated Statements of Operations - Years Ended
January 31, 1994, 1995 and 1996 F-5
Consolidated Statement of Stockholders' Equity - Years Ended
January 31, 1994, 1995 and 1996 F-6
Consolidated Statements of Cash Flows - Years Ended
January 31, 1994, 1995 and 1996 F-7
Notes to Consolidated Financial Statements F-9
Financial Statement Schedules
II - Valuation and Qualifying Accounts S-1
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, accordingly, are omitted.
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
G-III APPAREL GROUP, LTD.
We have audited the accompanying consolidated balance sheets of G-III Apparel
Group, Ltd. and subsidiaries as of January 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of G-III Apparel
Group, Ltd. and subsidiaries as of January 31, 1995 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended January 31, 1996, in conformity with
generally accepted accounting principles.
We have also audited Schedule II of G-III Apparel Group, Ltd. and subsidiaries
as of January 31, 1995 and 1996, and for the periods then ended. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
GRANT THORNTON LLP
New York, New York
April 19, 1996
F-2
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
(in thousands, except share and per share amounts)
ASSETS 1995 1996
-------- ------
CURRENT ASSETS
Cash $ 1,421 $ 7,617
Accounts receivable 15,269 11,764
Allowance for doubtful accounts and
sales discounts (1,855) (2,769)
Inventories 25,532 14,207
Prepaid income taxes 4,204 502
Prepaid expenses and other current assets 466 968
-------- --------
Total current assets 45,037 32,289
PROPERTY, PLANT AND EQUIPMENT, NET 7,015 6,324
DEFERRED INCOME TAXES 1,717 1,717
OTHER ASSETS 803 927
-------- --------
$54,572 $41,257
====== ======
The accompanying notes are an integral part of these statements.
F-3
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
(in thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
-------- ------
CURRENT LIABILITIES
Notes payable $12,907 $ 2,980
Current maturities of obligations under capital
leases 573 571
Accounts payable 3,947 2,469
Accrued expenses 2,152 1,751
Accrued nonrecurring charges 2,856 2,294
------- -------
Total current liabilities 22,435 10,065
OBLIGATIONS UNDER CAPITAL LEASE 1,479 919
NONRECURRING CHARGES - LONG-TERM 557 557
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized;
no shares issued and outstanding in all periods
Common stock - $.01 par value; authorized,
20,000,000 shares; issued and outstanding,
6,459,381 and 6,465,836 shares on January 31,
1995 and 1996, respectively 65 65
Additional paid-in capital 23,603 23,615
Retained earnings 6,433 6,036
------- -------
30,101 29,716
------ ------
$54,572 $41,257
====== ======
The accompanying notes are an integral part of these statements.
F-4
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year ended January 31,
--------------------------------------
1994 1995 1996
-------- -------- --------
Net sales $208,877 $171,441 $121,663
Cost of goods sold 181,270 146,484 97,769
------- ------- --------
Gross profit 27,607 24,957 23,894
Selling, general and administrative expenses 22,869 25,823 21,769
Nonrecurring or unusual charges 11,320
-------- -------- ---------
Operating profit (loss) 4,738 (12,186) 2,125
Interest and financing charges, net 2,339 3,959 2,433
--------- --------- -------
Income (loss) before income taxes and
minority interest 2,399 (16,145) (308)
Income taxes (benefit) 1,064 (4,087) 89
-------- -------- ---------
Net income (loss) before minority interest 1,335 (12,058) (397)
Minority interest 324
-------- -------- ---------
NET INCOME (LOSS) $ 1,335 $ (11,734) $ (397)
========= ======= ========-
Income (loss) per common share
Primary
Net income (loss) per common share $.20 $(1.82) $(.06)
=== ===== ====
Weighted average number of shares outstanding 6,601 6,459 6,460
========= ========= =========
Fully diluted
Net income (loss) per common share $.20 $(1.82) $(.06)
=== ===== ====
Weighted average number of shares outstanding 6,601 6,459 6,460
========= ========= =========
The accompanying notes are an integral part of these statements.
F-5
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended January 31, 1994, 1995 and 1996
(in thousands)
Additional
Common paid-in Retained
stock capital earnings Total
------ ---------- ------------ ----------
Balance as of January 31, 1993 $65 $23,569 $ 16,832 $40,466
Net income for the year 1,335 1,335
Employee stock options exercised 34 34
---- --------- ------------ ----------
Balance as of January 31, 1994 65 23,603 18,167 41,835
Net loss for the year (11,734) (11,734)
---- ---------- ------- -------
Balance as of January 31, 1995 65 23,603 6,433 30,101
Employee stock options exercised 12 12
Net loss for the year (397) (397)
---- ---------- -------- ---------
BALANCE AS OF JANUARY 31, 1996 $65 $23,615 $ 6,036 $ 29,716
=== ======= ======== ========
The accompanying notes are an integral part of this statement.
F-6
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended January 31,
--------------------------------------
1994 1995 1996
------- -------- -------
Cash flows from operating activities
Net income (loss) $ 1,335 $(11,734) $ (397)
------ ------- -------
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities
Nonrecurring or unusual charges 8,720
Depreciation and amortization 1,013 1,231 1,576
Deferred income tax benefit (61) (214)
Changes in operating assets and liabilities,
net of effect from purchase of PT
Hwakang Indawa
Accounts receivable (1,676) 1,831 4,419
Inventories (1,275) 9,264 11,325
Prepaid income taxes (224) (3,980) 3,702
Prepaid expenses and other current
assets (790) 954 (502)
Other assets 187 178 (48)
Accounts payable and accrued
expenses 5,738 (5,323) (2,441)
Income taxes payable (308)
------ ------- -------
2,604 12,661 18,031
------ ------- -------
Net cash provided by operating
activities 3,939 927 17,634
------ --------- -------
Cash flows from investing activities
Capital expenditures (3,553) (1,158) (902)
Capital dispositions 16 81 17
Investment in foreign subsidiaries (756) (249) (76)
------- --------- ----------
Net cash used in investing activities (4,293) (1,326) (961)
------ -------- ---------
F-7
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Year ended January 31,
----------------------------------------
1994 1995 1996
-------- ---------- ----------
Cash flows from financing activities
Decrease in bankers' acceptances
and notes, net $ (416) $ (93) $ (9,927)
Payments for capital lease obligations (194) (468) (562)
Proceeds from capital lease obligation 1,548
Proceeds from exercise of stock options 34 12
-------- ------------ ----------
Net cash (used in) provided by financing
activities (576) 987 (10,477)
------- --------- -------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (930) 588 6,196
Cash and cash equivalents at beginning of year 1,763 833 1,421
------ --------- --------
Cash and cash equivalents at end of year $ 833 $ 1,421 $ 7,617
======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 1,999 $ 3,037 $ 2,293
Income taxes 1,722 57 227
The accompanying notes are an integral part of these statements.
F-8
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1994, 1995 and 1996
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
1. Business Activity and Principles of Consolidation
As used in these financial statements, the term "Company" refers to G-III
Apparel Group, Ltd. and its wholly-owned subsidiaries. The Company designs,
manufactures, imports and markets an extensive range of leather and textile
apparel which is sold to retailers throughout the United States.
The Company consolidates the accounts of all its majority-owned subsidiaries.
All material intercompany balances and transactions have been eliminated.
2. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Acquisition
Effective April 1, 1993, a wholly-owned subsidiary of the Company acquired,
in exchange for $500,000, a 51% stock ownership interest of PT Hwakang
Indawa, a leather apparel manufacturer located in Indonesia. In May 1995, the
Company acquired the remaining 49% stock ownership for $61,000. The Company
has accounted for the transactions using the purchase method of accounting
and has consolidated the results of operations commencing April 1, 1993. The
cost in excess of fair value of net assets acquired of approximately $94,000
was recorded as other assets and during fiscal 1995 was written off as
part of the Company's intention to close the facility as described in Note B.
The Company initially recorded a minority interest of approximately $342,000.
F-9
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE A (CONTINUED)
The Company entered into a joint venture agreement with a Chinese entity
principally to operate a factory located in the People's Republic of China.
The Company invested $542,000 to obtain a 39% interest in the joint venture
company. The joint venture company has an initial term of twenty years and
proposes to distribute profits, if any, annually. The Company accounts for
the joint venture company using the equity method of accounting commencing in
fiscal 1995.
4. Revenue Recognition
Sales are recognized when merchandise is shipped.
5. Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market.
6. Depreciation and Amortization
Depreciation and amortization are provided by straight-line methods in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives.
The following are the estimated lives of the Company's fixed assets:
Machinery and equipment 5 to 7 years
Transportation equipment 5 years
Furniture and fixtures 5 years
Computer equipment 5 years
Building 20 years
Leasehold improvements are amortized over the lives of the respective leases
or the service lives of the improvements, whichever is shorter.
7. Income Taxes
Deferred income tax asset reflects the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
F-10
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE A (CONTINUED)
8. Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
9. Net Income (Loss) Per Common Share
Net income (loss) per share of common stock is based on the weighted average
number of common shares and the dilutive common equivalent shares outstanding
during each of the periods. Primary and fully diluted earnings per share
include the dilutive effect of unexercised stock options.
10. Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for bank loans
with similar terms and maturities, the fair value of the Company's short-term
debt approximates the carrying value. Furthermore, the carrying value of all
other financial instruments potentially subject to valuation risk
(principally consisting of cash, accounts receivable and accounts payable)
also approximates fair value.
11. Reclassifications
Certain reclassifications have been made to conform to the 1996 presentation.
NOTE B - NONRECURRING OR UNUSUAL CHARGES
During the fourth quarter of fiscal year 1995, the Company formulated plans to
close its domestic manufacturing facility, to sell or liquidate an Asian
factory, to reduce costs and to streamline and consolidate operations. Lost
revenues from these closings are not considered significant. In addition, due to
the unseasonably warm fall and winter in the United States, the Company recorded
significant write-downs of its inventory. These activities resulted in
nonrecurring or unusual charges
F-11
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE B (CONTINUED)
of $11.3 million, of which $5.6 million was recorded in the fourth quarter of
1995. The Company has not anticipated any recoveries through the sale of its
Asian factory. Such recoveries could reduce the accrued charges in the future;
however, the Company cannot be assured that any such recoveries will occur.
Based on current estimates, management believes that existing accruals are
adequate to cover the items presented below.
The status of the components of the nonrecurring charge was:
Balance at Current Balance at
January 31, period January 31,
1995 activity 1996
----------- ----------- ------------
-------------------(000's)---------------------
Severance and related costs $ 334 $(173) $ 161
Closure of domestic and foreign
facilities 3,079 (389) 2,690
------ ----- -----
$3,413 $(562) $2,851
====== ===== =====
NOTE C - FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121").
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest) is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of that loss would be based
on the fair value of the asset. SFAS No. 121 also generally requires long-lived
assets and certain identifiable intangibles to be disposed of to be reported at
the lower of the carrying amount or the fair value less cost to sell. SFAS No.
121 is effective for the Company's 1997 fiscal year-end. The Company has made no
assessment of the potential impact of adopting SFAS No. 121 at this time.
F-12
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE C (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option. Fair value of the stock
option is determined considering factors such as the exercise price, the
expected life of the option, the current price of the underlying stock and its
volatility, expected dividends on the stock, and the risk-free interest rate for
the expected term of the option. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period. A company may elect to adopt SFAS No. 123 or
elect to continue accounting for its stock option or similar equity awards using
the intrinsic method, where compensation cost is measured at the date of grant
based on the excess of the market value of the underlying stock over the
exercise price. If a company elects not to adopt SFAS No. 123, then it must
provide pro forma disclosure of net income and earnings per share, as if the
fair value based method has been applied.
SFAS No. 123 is effective for transactions entered into for fiscal years that
begin after December 15, 1995. Pro forma disclosures for entities that elect to
continue to measure compensation cost under the old method must include the
effects of all awards granted in fiscal years that begin after December 15,
1994. It is currently anticipated that the Company will continue to account for
stock-based compensation plans under the intrinsic method and pro forma
disclosures will be made. Therefore, SFAS No. 123 is not expected to have any
effect on the Company's consolidated financial statements.
NOTE D - INVENTORIES
Inventories consist of:
January 31,
-------------------------
1995 1996
-----------(000's)-------
Finished goods $23,107 $12,112
Work-in-process 52 49
Raw materials 2,373 2,046
------- -------
$25,532 $14,207
======= =======
F-13
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost consist of:
January 31,
------------------------------
1995 1996
------- -----------
-----------(000's)------------
Machinery and equipment $ 1,367 $ 1,259
Leasehold improvements 3,045 3,110
Transportation equipment 199 252
Furniture and fixtures 1,187 1,293
Computer equipment 1,962 2,135
Land and building 1,673 1,821
Property under capital leases (Note G)
Land 55 55
Building 185 185
Computer equipment 465 465
Machinery and equipment 404 404
Leasehold improvement 1,791 1,791
------- -------
12,333 12,770
Less accumulated depreciation and amortization
(including $771,000 and $809,000 on property
under capital leases at January 31, 1995 and
1996, respectively) 5,318 6,446
------- -------
$ 7,015 $ 6,324
======= =======
Property, plant and equipment include assets with a net book value of
$1,737,000 attributable to the Asian operation which are being held for
sale.
F-14
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE F - NOTES PAYABLE
Notes payable consist of the following:
January 31,
------------------------
1995 1996
---- -----
---------(000's)--------
Short-term notes payable $10,200 $ --
Foreign notes payable 2,707 2,980
------- -------
$12,907 $ 2,980
======= =======
The Company has a loan agreement with three banks which expires on May 31,
1996. The agreement provides for $48,000,000 in borrowings through January 30,
1996, and $40,000,000 through May 31, 1996, of which $32,000,000 is available
for direct borrowings and the unused balance for letters of credit. All
amounts available for borrowing are subject to borrowing base formulas.
The Company is currently in discussions with its banks to extend its existing
loan agreement through May 31, 1997 under terms similar to the existing
agreement.
Bankers' acceptances were issued during the year under the existing loan
agreement and bore interest at the prevailing acceptance rate plus 1-3/4%.
Short-term notes payable are payable on demand and bear interest at the
prevailing prime rate (8-1/2% at January 31, 1996), plus 2%. The extended loan
agreement will provide for direct borrowings at the prime rate plus 1-3/4%. All
borrowings are collateralized by the assets of the Company. The principal
stockholders of the Company have issued a personal guarantee for a portion of
the borrowings. In addition, the President of the Company has pledged 250,000 of
his shares of the Company's common stock as collateral. The loan agreement
requires the Company, among other covenants, to maintain certain earnings and
tangible net worth levels, and prohibits the payment of cash dividends.
The weighted average interest rates were 8.7% and 10.36% as of January 31, 1995
and 1996, respectively.
F-15
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE F (CONTINUED)
At January 31, 1995 and 1996, the Company was contingently liable under letters
of credit in the amount of approximately $6,000,000 and $4,100,000,
respectively.
Foreign notes payable represent borrowings by P.T. Hwakang Indawa under a line
of credit of approximately $3.5 million with an Indonesian bank. This is
supported by a $2 million stand-by letter of credit issued under the Company's
domestic line of credit. In conjunction with the Company's intention to close
the facility, the Company has provided for the stand-by letter of credit as
part of its accrued nonrecurring charges (Note B).
NOTE G - CAPITAL LEASE OBLIGATIONS
In September 1986, the New York City Industrial Development Agency ("Agency")
issued $1,442,000 of floating rate Industrial Development Revenue Bonds to a
commercial bank for the purpose of acquiring and renovating real property
located at 345 West 37th Street in New York. The bonds bear interest at 92% of
the bank's prime rate, which was 8.5% at January 31, 1996, plus 1.48% per annum.
Simultaneously, the Agency leased the property to 345 West 37th Corp. ("345
West"), a company under the management and control of two principal
stockholders, for 15 years. 345 West, in turn, subleased the property to G-III
Leather Fashions, Inc. ("G-III"), a subsidiary of the Company, on the same
terms. Concurrent with the execution of the lease and sublease agreements, 345
West, G-III and Siena Leather Ltd. ("Siena"), another subsidiary of the Company,
entered into lease guarantee agreements whereby they jointly and severally
guaranteed the payments and obligations under the lease and the payment of
principal and interest on the bonds. In addition, the two principal stockholders
of the Company have personally guaranteed the debt. The accompanying financial
statements reflect the above lease between G-III and 345 West as a capitalized
lease (Note L).
In fiscal 1995, the Company entered into several agreements for the sale and
leaseback of the renovations of its showroom and warehouse and the computer
system installed for the retail stores. The assets were sold for $1,548,000 (the
book value of the assets).
F-16
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE G (CONTINUED)
The transaction has been accounted for as a capital lease, wherein the property
remains on the books and will continue to be depreciated. A financing obligation
representing the proceeds has been recorded. The Company has the option to
purchase the property at the end of the lease.
In addition, certain equipment leases have been treated as capital leases. The
present values of minimum future obligations are calculated based on interest
rates at the inception of the leases. The following schedule sets forth the
future minimum lease payments under capital leases at January 31, 1996:
Year ending January 31, (000's)
1997 $ 679
1998 430
1999 272
2000 168
2001 104
2002 and thereafter 75
-------
Net minimum lease payments 1,728
Less amount representing interest (238)
-------
Present values of minimum lease payments $1,490
=======
Current portion $ 571
Noncurrent portion 919
-------
$ 1,490
=======
F-17
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE H - INCOME TAXES
Income taxes are provided for under Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes.
The Internal Revenue Service has recently concluded its examination of the
Company's 1990 through 1993 tax returns. The Company has made the additional tax
payments resulting from the exam.
The income tax provision (benefit) is comprised of the following:
Year ended January 31,
-----------------------------------------
1994 1995 1996
-------- -------- -------
------------------(000's)-----------------
Current
Federal $ 745 $ (3,940) $(271)
State and city 268 18 164
Foreign 111 49 196
------- ---------- ----
1,124 (3,873) 89
Deferred (60) (214) -
------- --------- ----
$1,064 $ (4,087) $ 89
======= ========= =====
Earnings (loss) before
income taxes
United States $2,071 $(15,701) $(775)
Non-United States 328 (444) 467
F-18
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE H (CONTINUED)
The significant components of the Company's deferred tax asset at January 31,
1995 and 1996 are summarized as follows:
1995 1996
------- ------
-----------(000's)---------
Provision for bad debts and sales allowances $ 559 $ 626
Depreciation 580 837
Inventory write-downs 482 319
Nonrecurring charges 1,191 1,005
Straight-line lease 248 247
Other 47 (17)
------- -------
3,107 3,017
Deferred tax asset valuation allowance (1,390) (1,300)
------- -------
$ 1,717 $ 1,717
======= =======
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The Company has
established valuation allowances for state and local net operating loss
carryforwards. The valuation allowance at January 31, 1996, reduced the net
deferred tax asset to an amount realizable based upon taxes paid for prior years
and future operating results. The Company has state and local net operating loss
carryforwards of $12,349,000, which will be available to offset its earnings
during the carryforward period. If not used, these carryforwards begin to expire
in 2010.
F-19
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE H (CONTINUED)
The following is a reconciliation of the statutory Federal income tax rate to
the effective rate reported in the financial statements:
Year ended Year ended YEAR ENDED
January 31, 1994 January 31, 1995 JANUARY 31, 1996
---------------------- ---------------------- ---------------------
Percent Percent PERCENT
of of OF
Amount income Amount income AMOUNT INCOME
(000's) (000's) (000'S)
Provision (benefit) for Federal
income taxes at the
statutory rate $ 816 34.0% $(5,489) (34.0)% $ (105) (34.0)%
State and city income taxes, net
of Federal income
tax benefit 177 7.4 11 0.1 98 31.8
Effect of foreign taxable
income (loss) 18 0.7 200 1.2 37 12.0
Valuation allowance for
deferred taxes 1,390 8.6 (90) (29.2)
Effect of tax examination 154 50.0
Other, net 53 2.2 (199) (1.2) (5) (1.7)
------- ---- ------- ---- ------- ----
Actual provision (benefit) for
income taxes $ 1,064 44.3% $(4,087) (25.3)% $ 89 28.9%
======= ==== ======= ==== ======= ====
F-20
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company currently leases warehousing, executive and sales facilities, and
transportation equipment. Leases with provisions for increasing rents have been
expensed and accrued for on a straight-line basis over the life of the lease.
Future minimum rental payments for operating leases having noncancellable lease
periods in excess of one year as of January 31, 1996 are:
Year ending January 31, (000's)
1997 $2,020
1998 1,895
1999 1,927
2000 1,449
2001 571
2002 and thereafter 956
------
$8,818
======
Rent expense on the above operating leases (including amounts leased from 345
West - Note L) for the years ended January 31, 1994, 1995 and 1996 was
approximately $1,954,000, $2,604,000 and $2,060,000, respectively.
In April 1988, 345 West received a loan from the New York Job Development
Authority ("Authority") to assist 345 West in its renovation of the 345 West
property. The loan is for a period of 15 years and is presently repayable in
monthly installments of $11,000, which includes interest at a variable rate
(8.25% at January 31, 1996). The loan is financed by long-term bonds issued by
the Authority. Both G-III and Siena and the two principal stockholders of the
Company have signed corporate and personal guarantees for this loan. The
outstanding principal of this debt was approximately $803,000 and $732,000 as of
the years ended January 31, 1995 and 1996, respectively. In conjunction with the
Company's intention to close this domestic facility (described in Note B),
the Company has reflected $669,000 and $605,000 of the balance of the loan as
an accrued nonrecurring charge at January 31, 1995 and 1996, respectively.
F-21
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE I (CONTINUED)
The Company has an employment agreement with its chief executive officer which
expires on January 31, 1997. Thereafter, the agreement shall automatically be
renewed for successive one-year terms, unless either party shall give the other
not less than 90 days' prior written notice of intent not to renew. The
agreement provides for a base salary and bonus payments that vary between 3% and
6% of pretax income in excess of $2 million. If, after a change in control of
the Company, as defined in the agreement, the chief executive officer's
employment is terminated: (i) by the Company without cause, or (ii) by him
because of a material breach of the agreement by the Company, then the chief
executive officer has the right to receive an amount equal to 2.99 times his
base salary and bonus. The agreement also provides for supplemental pension
payments of $50,000 per year provided that the Company achieves net income, as
defined, in excess of $1,500,000.
NOTE J - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Certain agreements entered into by the Company in connection with loans by the
Agency and Authority relating to the building located at 345 West 37th Street in
New York City and the bank agreements, prohibit the payment of cash dividends
without consent.
Stock Options
The Company's 1989 Stock Option Plan provides for 1,130,000 shares of the
Company's common stock to be reserved for issuance in connection with stock
options. The Board, or a committee thereof, has discretionary authority to
determine the types of stock options to be granted, the persons among those
eligible to whom options will be granted, the number of shares to be subject to
such options and the terms of the options.
F-22
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE J (CONTINUED)
In addition, in connection with the chief executive officer's employment
agreement, the Company granted options to purchase 100,000 shares of common
stock at $4.00 per share exercisable over a ten-year period. The options vest
over a five-year period beginning February 1, 1995. In December 1994, the
Company repriced the above options to $2.00 per share, the current market value
at the date of repricing.
During the 1995 fiscal year, the Company granted 50,000 options to its principal
stockholders in consideration for certain agreements made by the principal
stockholders with the Company's banks. At the time of issuance, the options were
exercisable at a higher price than the current market price. Half of the options
are exercisable at $5.50 per share, the balance of the options are exercisable
at $6.50 per share.
A Non-Employee Directors Stock Option Plan was adopted in 1991 under which
options for a maximum of 31,500 shares of common stock may be issued.
As of January 31, 1996, the following options are granted and outstanding:
Non-Employee Directors
Stock Option Plan (1) Plan (1)
---------------------------- --------------------------
Number Number
of of
shares Option prices (2) shares Option prices
------- ----------------- ------ -------------
Outstanding, January 31, 1993 581,175 8,400
Granted 75,000 $ 4.250 - $ 8.000
Exercised (7,750) 4.405
Cancelled (27,950) 4.405 - 7.619 (2,100) $7.738
-------- ------
Outstanding, January 31, 1994
(carried forward) 620,475 6,300
F-23
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE J (CONTINUED)
Non-Employee Directors
Stock Option Plan (1) Plan (1)
---------------------------- ------------------------
Number Number
of of
shares Option prices (2) shares Option prices
------ ----------------- ------ -------------
Outstanding, January 31, 1994
(carried forward) 620,475 6,300
Granted 257,675 $3.625 - $6.50 5,000 $3.625
Exercised
Cancelled (79,325)
-------- ------
Outstanding, January 31, 1995 798,825 2.00 11,300
Granted 95,000 1.625 - 2.75 5,000 2.25
Exercised (6,455) 2.00
Cancelled (15,350) 2.00
------- ------
OUTSTANDING, JANUARY 31, 1996 872,020 16,300
======= ======
As of January 31, 1996
Exercisable 446,748 $2.00 - $6.50 6,040 $3.625 - $7.738
Available for future grants 257,980 15,200
(1) Except for the options issued in connection with the stockholders'
personal guarantees, as described above, the options vest over a
one-to-five year period and will expire from December 1999 to
December 2005.
(2) In December 1994, the Company repriced certain outstanding options to
$2.00 per share, the current market value at the date of repricing.
F-24
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE K - MAJOR VENDORS AND CUSTOMERS
For the years ended January 31, 1994, 1995 and 1996, the Company purchased 26%,
16% and 13%, respectively, of total purchases through one buying agent. The
Company believes that alternative foreign leather apparel manufacturers are
readily available and that the loss of any manufacturer or the buying agent
would not materially adversely affect the Company's operations.
For the years ended January 31, 1994, 1995 and 1996, no customer accounted for
more than 10% of the Company's net sales. The Company estimates an allowance for
doubtful accounts based on the creditworthiness of its customers as well as
general economic conditions. Consequently, an adverse change in those factors
could affect the Company's estimate.
NOTE L - RELATED PARTY TRANSACTIONS
During the years ended January 31, 1994, 1995 and 1996, G-III leased space from
345 West (Notes G and I). Operating expenses paid by G-III to 345 West during
the years ended January 31, 1994, 1995 and 1996, amounted to approximately
$173,000, $181,000 and $173,000, respectively.
NOTE M - PENSION PLANS
The Company maintains a 401(k) profit-sharing plan and trust for nonunion
employees. The Company matches 50% of employee contributions up to 3% of the
participant's compensation. The Company's matching contributions amounted to
approximately $82,000, $113,000 and $108,000 for the years ended January 31,
1994, 1995 and 1996, respectively.
G-III contributed approximately $65,000, $67,000 and $39,000 for the years ended
January 31, 1994, 1995 and 1996, respectively, to a multi-employer pension plan
for employees covered by a collective bargaining agreement. This plan is not
administered by G-III and contributions are determined in accordance with the
provisions of a negotiated labor contract. Information with respect to G-III's
proportionate share of the excess, if any, of the actuarial computed value by
vested benefits over the total of the pension plan's net assets is not available
from the plan's administrator.
F-25
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE N - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data in thousands except per share numbers for
the fiscal years ended January 31, 1995 and 1996 are as follows:
October January
April 1994 July 1994 1994 1995
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------ ----------- ----------- -----------
January 31, 1995
Net sales $20,157 $48,160 $73,626 $29,498
Gross margin 1,557 8,518 12,928 1,954
Net income (loss) (2,930) 634 (452) (8,986)
Net income (loss) per common share
Primary
Net income (loss) per share $(0.45) $0.10 $(0.07) $(1.40)
Fully diluted
Net income (loss) per share $(0.45) $0.10 $(0.07) $(1.40)
OCTOBER JANUARY
APRIL 1995 JULY 1995 1995 1996
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
JANUARY 31, 1996
NET SALES $ 9,275 $36,032 $57,695 $18,661
GROSS MARGIN 663 9,594 12,237 1,400
NET INCOME (LOSS) (3,035) 1,719 3,353 (2,434)
NET INCOME (LOSS) PER COMMON SHARE
PRIMARY
NET INCOME (LOSS) PER SHARE $(0.47) $0.27 $0.50 $(.38)
FULLY DILUTED
NET INCOME (LOSS) PER SHARE $(0.47) $0.27 $0.50 $(.38)
F-26
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 1994, 1995 and 1996
NOTE N (CONTINUED)
In the fourth quarter of 1995, the Company recorded a nonrecurring charge of
$5,620,000 (see Note B) and additional bad debt expense of approximately
$779,000. Other fluctuations are primarily the result of the seasonality of the
Company's business.
F-27
G-III Apparel Group, Ltd. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------- --------- -------- --------- ---------
Additions
---------------------------
(1) (2)
Balance at Charged to Charged Balance at
beginning costs and to other Deductions end of
Description of period expenses accounts (a) period
----------- ---------- ---------- -------- ---------- ----------
Year ended January 31, 1995
Deducted from asset accounts
Allowance for doubtful accounts $1,364 $ 676 $1,255 $ 785
Allowance for sales discounts 820 3,105 2,855 1,070
------ ----- ----- -----
$2,184 $3,781 $4,110 $1,855
====== ====== ====== ======
YEAR ENDED JANUARY 31, 1996
DEDUCTED FROM ASSET ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 785 $1,644 $ 717 $1,712
ALLOWANCE FOR SALES DISCOUNTS 1,070 2,556 2,569 1,057
------ ----- ----- -----
$1,855 $4,200 $3,286 $2,769
====== ====== ====== ======
(a) Accounts written off as uncollectible.
S-1
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as..........`TM'
AGREEMENT OF SUB-SUBLEASE
This AGREEMENT OF SUB-SUBLEASE (this "Sublease") dated as of December 27,
1995, between G-III APPAREL GROUP, LTD., a Delaware corporation having an office
at 345 West 37th Street, New York, New York 10018-4202 ("Sublandlord") and
EUROPE CRAFT IMPORTS, INC., a New Jersey corporation, having an office at
15 Enterprise Avenue, Secaucus, New Jersey ("Subtenant")
W I T N E S S E T H :
WHEREAS, Sublandlord has subleased certain premises consisting of warehouse
space and an outlet store located at 15 Enterprise Avenue, Secaucus, New Jersey
(the "G-III Premises") from GWC Investments ("GWC") pursuant to a certain
Sublease Agreement dated March 9, 1990 as amended by a certain First Amendment
to Sublease Agreement dated December 21, 1993 (as amended, the "GWC Lease");
WHEREAS, the G-III Premises is a portion of the premises that were leased
to GWC by 15 Enterprise Avenue Associates, L.P. (the "Overlandlord") pursuant to
a certain Lease (the "Main Lease") defined as the "Lease" under the GWC Lease;
and
WHEREAS, Sublandlord desires to sub-sublease to Subtenant the warehouse
portion of the G-III Premises as such portion is shown in hatching on Exhibit A
attached hereto (the "Subleased Premises") which Subleased Premises are intended
to include, without limitation, (i) all portions of the existing building
occupied by Sublandlord or leased by Sublandlord under the GWC Lease except for
the existing outlet store and (ii) the Existing Trucking Area (as defined in the
GWC Lease) leased to Sublandlord and Subtenant desires to sub-sublease from
Sublandlord the Subleased Premises, on the terms and conditions hereinafter set
forth;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Demise and Term. Sublandlord hereby sub-subleases to Subtenant, and
Subtenant hereby sub-subleases from Sublandlord the Subleased Premises.
Notwithstanding the foregoing, Sublandlord and Sublandlord's officers,
representatives, employees, agents, contractors, customers and invitees shall
have the right of ingress and egress on and over the Existing Trucking Area at
all times to these remaining portions of G-III premises not sub-subleased to
Subtenant hereunder. The term of this Sublease shall commence on the date (the
"Commencement Date") which is ten (10) days following the later to occur of (i)
the date which is two (2) business days from the date Sublandlord shall notify
Subtenant that GWC and the Overlandlord shall have consented to this Sublease
and Sublandlord shall have delivered a copy of such consents to Subtenant, or
(ii) the delivery to Subtenant of the Non-Disturbance Agreements as
described in Paragraph 30, below and ending on March 8, 2000 (the "Expiration
Date"), unless sooner terminated or canceled as provided in this Sublease.
Sublandlord shall deliver possession of the Subleased Premises to Subtenant
vacant and broom-clean on the Commencement Date.
2. Subordinate to Main Lease and Sublease. This Sublease is and shall be
subject and subordinate to the GWC Lease and the Main Lease, and to the matters
to which the GWC Lease or the Main Lease are or shall be subject and
subordinate. A copy of the GWC Lease and the Main Lease have been delivered to
and examined by Subtenant.
3. Incorporation by Reference. A. The terms, covenants and conditions of
the GWC Lease, whether or not the same are expressly referred to herein, are
incorporated herein by reference (except to the extent that they are
inapplicable to, or modified by the provisions of, this Sublease). To the extent
that the terms, covenants and conditions of the Main Lease are incorporated into
the GWC Lease (as such terms, covenants and conditions may have been modified by
the GWC Lease), such terms, covenants and conditions are incorporated herein by
reference. For the purpose of incorporation by reference, each and every term,
covenant and condition of the GWC Lease binding upon or inuring to the benefit
of the sublessor thereunder shall, in respect of this Sublease, bind or inure to
the benefit of Sublandlord, and each and every term, covenant and condition of
the GWC Lease binding upon or inuring to the benefit of the sublessee thereunder
shall, in respect of this Sublease, bind or inure to the benefit of Subtenant,
with the same force and effect as if such terms, covenants and conditions were
completely set forth in this Sublease, and as if the words "sublessor" and
"sublessee", or words of similar import, wherever the same appear in the GWC
Lease, were construed to mean, respectively, "Sublandlord" and "Subtenant" in
this Sublease, and as if the words "Demised Premises," or words of similar
import, wherever the same appear in the GWC Lease, were construed to mean
"Subleased Premises" in this Sublease, and as if the word "Sublease," or words
of similar import, wherever the same appear in the GWC Lease, were construed to
mean this "Sublease."
B. The grace periods and time limits contained in the GWC Lease for the
giving of notices, making of demands or performing of any act, condition or
covenant on the part of the tenant thereunder, or for the exercise by the tenant
thereunder of any right, remedy or option, are changed for the purposes of
incorporation herein by reference by shortening the same in each instance by
one-half, so that in each instance Subtenant shall have one-half less time to
observe or perform hereunder than Sublandlord has as the tenant under the GWC
Lease. All notices of default under the Main Lease or the GWC Lease shall be
delivered to Subtenant in accordance with Section 26 hereof and by hand to the
addresses set forth in such section.
C. The following provisions of the GWC Lease shall be deemed deleted
for the purposes of incorporation by reference in this Sublease: Articles 1, 2,
-2-
3(a), 3(b), 4(b), 6(e), 8, 9(a), 10(b) through 10(h), 13, 14, 18, 21, 28(b),
30(n), 31, 34, 36, 40, 43(j), 45, 46C.(1), 46C.(3), 46C.(4), 46G. and 46I. and
Exhibits A and E.
D. Article 11 of the GWC Lease is hereby modified to provide that
Subtenant shall be allocated a total of 94 parking spaces of the 109 spaces
allocated to Sublandlord thereunder on an unreserved basis; provided, however,
that at the request of either party hereto, Sublandlord and Subtenant shall
agree that each party's allocated spaces shall be reserved at reasonable
locations for the conduct of each party's business.
E. If any of the express provisions of this Sublease shall conflict
with any of the provisions of the GWC Lease or the Main Lease incorporated by
reference, such conflict shall be resolved in every instance in favor of the
express provisions of this Sublease.
4. Performance by Sublandlord. A. Subtenant shall not in any event have
any rights in respect of the Subleased Premises greater than Sublandlord's
rights under the GWC Lease. Notwithstanding any provision of this Sublease to
the contrary, as to obligations contained in this Sublease by the incorporation
by reference of the provisions of the GWC Lease or the Main Lease, Sublandlord
shall not be required to make any payment or perform any obligation, and
Sublandlord shall have no liability to Subtenant for any matter whatsoever,
except for Sublandlord's obligation to pay the rent and additional rent due
under the GWC Lease and for Sublandlord's obligation to use reasonable and
diligent efforts, upon request of Subtenant, to cause GWC to observe and perform
its obligations under the GWC Lease. Without limiting Sublandlord's obligations
under Section 10 hereof, Sublandlord shall not be responsible for any failure,
delay or interruption, for any reason whatsoever, of the obligations, services
or facilities to be furnished or performed by the GWC or the Overlandlord, or
otherwise, including, without limitation, heat, air conditioning, electricity,
water, elevator service and cleaning service, if any, or GWC's breach of the
covenant of quiet enjoyment set forth in Article 20 of the GWC Lease; and no
failure to furnish or observe, or delay or interruption of, any such
obligations, services or facilities shall give rise to any (a) abatement,
diminution or reduction of Subtenant's obligations under this Sublease provided,
however, that Subtenant may withhold the Fixed Rent (as hereinafter defined) to
the extent Sublandlord is withholding Basic Rent (as such term is defined under
the GWC Lease) otherwise payable under the GWC Lease, or (b) liability on the
part of Sublandlord. If Sublandlord shall have the right to withhold rent under
the express terms and provisions of the GWC Lease based upon the failure of GWC
to perform its obligations thereunder, Subtenant shall have the right to
withhold rent hereunder to the extent such right applies to the Subleased
Premises.
B. If GWC shall default in any of its obligations to Sublandlord with
respect to the Subleased Premises, Subtenant shall be entitled to participate
with Sublandlord in the enforcement of Sublandlord's rights against GWC (and to
receive 100% of any recovery or relief obtained), but Sublandlord shall have no
obligation to bring any action or proceeding or to take any steps to enforce
Sublandlord's rights
-3-
against GWC. If Subtenant shall request that Sublandlord commence an action or
proceeding against GWC and Sublandlord brings such an action or proceeding, such
action or proceeding so instituted by Sublandlord shall be at the expense of
Subtenant. In lieu of requesting that Sublandlord commence an action or
proceeding against GWC, however, Subtenant shall have the right to take such
action in its own name (including, without limitation, the commencement and
pursuit of an action or proceeding against GWC) and, for that purpose and only
to such extent, all of the rights of Sublandlord to enforce the obligations of
GWC under the Lease are hereby conferred upon and are conditionally assigned to
Subtenant and Subtenant hereby is subrogated to such rights (including, without
limitation, the benefit of any recovery or relief); provided, however, that
Subtenant shall only have such rights if Subtenant shall not be in either
monetary default or material non-monetary default under this Sublease beyond any
applicable grace or cure period. Subtenant shall indemnify and hold Sublandlord
harmless from and against any loss, cost, liability, claim, damage, expense
(including, without limitation, reasonable attorneys' fees), penalties and fines
incurred in connection with or arising out of the taking of any such action by
Subtenant.
5. No Breach of Main Lease. Neither Sublandlord nor Subtenant shall do
or permit to be done any act or thing which may constitute a breach or violation
of any term, covenant or condition of the GWC or the Main Lease, whether or not
such act or thing is permitted under the provisions of this Sublease. As of the
date hereof, Sublandlord has no knowledge, after due inquiry, that any uncured
defaults exist under the GWC Lease or the Main Lease.
6. No Privity of Estate. Nothing contained in this Sublease shall be
construed to create privity of estate or of contract between Subtenant and the
GWC or the Overlandlord.
7. Rent. A. Subtenant shall pay to Sublandlord rent (the "Fixed Rent")
hereunder at the rate per annum, and in such equal monthly installments as is
set forth in Exhibit B attached hereto and made a part hereof, five (5) business
days before the first day of each month during the term of this Sublease,
subject to the grace and cure periods set forth in Articles 26 and 27 of the GWC
Lease as modified by Section 3.B. hereof. If the Commencement Date shall be a
date other than the first day of the calendar month, then the rent for any such
partial calendar month in which the Commencement Date occurs shall be prorated
on a per-diem basis and shall be payable on the Commencement Date. Upon the
execution of this Sublease, Subtenant shall pay to Sublandlord an amount equal
to one monthly installment of Fixed Rent and Sublandlord shall give Subtenant a
credit for such amount against the monthly installment that otherwise would have
been due for the first full month of the term hereof.
B. Fixed Rent and all other amounts payable by Subtenant to Sublandlord
under this Sublease (the "Additional Charges") shall be paid promptly when due,
after any notice and the expiration of any applicable cure period set forth in
Articles 26 and 27 of the GWC Lease as modified by Section 3.B. hereof, and
without
-4-
deduction, abatement, counterclaim or setoff of any amount or for any reason
whatsoever. Fixed Rent and Additional Charges shall be paid to Sublandlord in
lawful money of the United States at the address of Sublandlord set forth at the
head of the Sublease or to such other person or at such other address as
Sublandlord may from time to time designate by notice to Subtenant. No payment
by Subtenant or receipt by Sublandlord of any lesser amount than the amount
stipulated to be paid hereunder shall be deemed other than on account of the
earliest stipulated Fixed Rent or Additional Charges; nor shall any endorsement
or statement on any check or letter be deemed an accord and satisfaction, and
Sublandlord may accept any check or payment without prejudice to Sublandlord's
right to recover the balance due or to pursue any other remedy available to
Sublandlord.
C. In the event that any Additional Charges accrue with respect to any
period that does not occur during the term of this Sublease, then Subtenant
shall have no liability for any Additional Charges accruing during such period.
If any Additional Charges are payable under this Sublease with respect to any
period which is partially included in the term of this Sublease, then such
Additional Charges shall be pro-rated, based on the actual number of days of
such period occurring during the term to the total number of days in such
period.
8. Security Deposit. Subtenant is depositing with Sublandlord
simultaneously herewith, the sum of $120,000 with Sublandlord, which deposit
shall constitute security (the "Security") for the full and timely performance
by Subtenant of all of the terms, covenants and conditions of this sublease on
Subtenant's part to be performed. Sublandlord shall have the right, without
notice to Subtenant, and regardless of the exercise of any other remedy
Sublandlord may have by reason of Subtenant's default, to apply any part of the
Security to cure any default of Subtenant, and, if Sublandlord does so,
Subtenant shall upon demand deposit with Sublandlord the amount so applied so
that Sublandlord shall have on deposit the full amount of the Security at all
times during the term of this Sublease as provided above. In the event of an
assignment or transfer of the leasehold estate under the GWC Lease pursuant to a
bona fide arms-length transaction, Sublandlord shall have the right to transfer
the Security to the assignee and, to the extent the Security is actually
transferred, a Sublandlord shall thereupon be automatically released by
Subtenant from all liability for the return of the Security and Subtenant shall
look solely to the assignee for the return of the Security, and the foregoing
provisions of this sentence shall apply to every transfer made of the Security
to a new assignee of Sublandlord's interest in the GWC Lease. The Security shall
not be assigned or encumbered by Subtenant without the prior written consent of
Sublandlord, and any such assignment or encumbrance without such consent shall
be void.
In lieu of cash, Subtenant shall have the right to deliver to Sublandlord
for the Security an irrevocable, unconditional letter of credit (the "Letter of
Credit") subject to the terms and conditions set forth hereinbelow. The Letter
of Credit shall be a "clean" letter of credit issued by a bank reasonably
satisfactory to Sublandlord, and shall be substantially in the form of Exhibit D
to the GWC Lease. The Letter of Credit
-5-
may have an initial term of no greater than one (1) year and shall be extended
automatically by the issuing bank or replaced by Subtenant with another letter
of credit which complies with the foregoing requirements at least thirty (30)
days prior to its expiration. It is agreed that in the event (i) Subtenant
defaults in the performance of any of the terms, provisions, covenants and
conditions of this Sublease beyond the expiration of any applicable grace or
cure period, or (ii) the Letter of Credit is not extended or replaced by
Subtenant in a manner which complies with the foregoing provisions, Sublandlord
shall have the right but shall not be required to, from time to time without
prejudice to any other remedy Sublandlord may have on account thereof, to
present the Letter of Credit for payment and to retain the proceeds as the
Security in the event of an occurrence under clause (ii) above, or in the event
of an occurrence under clause (i) above, to use, apply or retain the whole or
any part of the proceeds to the extent required for the payment of sum as to
which Subtenant is in default or for any sum which Sublandlord may reasonably
expend or may be reasonably required to expend by reason of Subtenant's default,
and Subtenant shall within thirty (30) days replenish any funds so used, applied
or retained by Sublandlord.
9. Taxes and Utilities, Property Expenses and Insurance Premiums. A. In
addition to the Fixed Rent payable hereunder, Subtenant shall pay to
Sublandlord, 96% of the cost of electricity (but not water or sewer charges)
(pursuant to Article 3(c)(ii) of the GWC Lease), to the extent payable by
Sublandlord under the GWC Lease. Sublandlord shall pay all amounts due for real
estate taxes and insurance premiums under Article 3 and Article 43,
respectively, of the GWC Lease.
B. Subtenant shall pay all amounts due under Section 9A for utilities
within ten (10) days of the delivery to Subtenant by Sublandlord of a demand
therefor, which demand shall include a copy of the statement to Sublandlord from
GWC for such item together with a copy of Sublandlord's check in payment of such
statement.
C. Subtenant's sole obligation to pay rent, additional rent and
Additional Charges under this Sublease is expressly set forth in this Sublease
and Subtenant shall have no obligation to pay additional rent or charges
required under the GWC Lease except for obligations, if any, of Sublandlord that
are deemed additional rent under the GWC Lease provided that such obligations
arise solely from the negligence or wrongful acts of Subtenant and not otherwise
payable in the ordinary course of business.
10. Maintenance and Repairs. A. Sublandlord shall keep the Subleased
Premises in good condition and shall perform all maintenance and make all
repairs and replacements to the structural and non-structural portions of the
Subleased Premises and of the Building of which the Subleased Premises are a
part (including, without limitation, the roof) and the equipment and systems
servicing the Subleased Premises on the date hereof (including, without
limitation, the plumbing, electrical, air-conditioning, heating and sprinkler
systems). In addition, Sublandlord shall perform and pay 100% of the amount
payable by Sublandlord, or to be performed by
-6-
Sublandlord, under Article 10 of the GWC Lease, including, without limitation,
the following items: (i) sprinkler maintenance; (ii) snow removal; (iii) parking
area maintenance, including the fence and exterior lighting; (iv) landscaping
and (v) HVAC maintenance.
B. Subtenant shall perform all maintenance and make all repairs to all
equipment and systems installed by Subtenant in the Subleased Premises, subject
to the provisions set forth in this Section 10.
C. Except as provided herein, Subtenant shall pay the costs and
expenses arising from for all services ordered by Subtenant relating to
Subtenant's use of the Subleased Premises, including, without limitation,
rubbish removal and extermination.
11. Use. Subtenant shall use and occupy the Subleased Premises for the
warehousing and distribution of wearing apparel and accessories for Subtenant's
business and such other purposes as are permitted by the GWC Lease and for no
other purpose. Subtenant shall comply with the certificate of occupancy relating
to the Subleased Premises and with all laws, statutes, ordinances, orders,
rules, regulations and requirements of all federal, state and municipal
governments and the appropriate agencies, officers, departments, boards and
commissions thereof, and the board of fire underwriters or the fire insurance
rating organization or similar organization performing the same or similar
functions, whether now or hereafter in force, applicable to the Subleased
Premises.
12. Failure to Deliver Possession. A. Subject to Article 29, Sublandlord
shall deliver possession of the Subleased Premises to Subtenant on the
Commencement Date, as the same may be extended due to force majeure, as
hereinafter defined (the "Delivery Date"). If Sublandlord is unable to vacate
and deliver possession of any portion of the Subleased Premises on the
Commencement Date, by reason of strike or labor troubles, government preemption
in connection with a National Emergency, any rule, order or regulation of any
department or subdivision thereof of any government agency, the conditions of
supply and demand which have been or are affected by war or other emergency, or
any other cause whatsoever beyond Sublandlord's reasonable control (any of the
foregoing being a "force majeure"), then the Commencement Date shall be deemed
to be extended by the length of time such force majeure shall continue.
Sublandlord shall use reasonable efforts to minimize the effects of any force
majeure.
B. Subject to the provisions of subsection (a) above, if Sublandlord is
unable to give possession of the Subleased Premises on or before the Delivery
Date for any reason, Sublandlord shall not be subject to any liability for
failure to give possession on or before said date and the validity of this
Sublease shall not be impaired under such circumstances, but the Commencement
Date shall be postponed until the date on which the Subleased Premises are
delivered to Subtenant. Notwithstanding anything to the contrary contained
herein, if Sublandlord has not
-7-
delivered possession of the Subleased Premises to Subtenant within 60 days of
the date hereof, Subtenant shall have the right to cancel this Sublease by
notice to Sublandlord whereupon Sublandlord shall return to Subtenant the
Security Deposit together with any interest thereon and any other amounts
theretofore paid by Subtenant to Sublandlord.
13. Condition of Subleased Premises. A. Without limiting the provisions of
Section 10 hereof, Subtenant is leasing the Subleased Premises "AS IS" and
Sublandlord shall have no obligation to furnish, render or supply any work,
labor, services, material, fixtures, equipment or decorations to make the
Subleased Premises ready for Subtenant's occupancy except as herein provided. In
making this Sublease, Subtenant has relied solely on such investigations,
examinations and inspections as Subtenant has chosen to make. Subtenant
acknowledges that Sublandlord has afforded Subtenant the opportunity for full
and complete investigations, examinations, and inspections. Sublandlord shall
remove all of its personal property from the Subleased Premises other than the
items described on Exhibit C attached hereto and made a part hereof. Such items
shall be in "as-is" condition, shall be maintained by Subtenant at its sole cost
such property shall remain the property of Sublandlord, except for the apparel
racking and conveyor system which is the property of GWC and which Subtenant is
using pursuant to Article 37 of the GWC Lease.
B. Sublandlord represents to Subtenant that no filing with the New
Jersey Department of Environmental Protection or any other agency having
jurisdiction under ISRA, is required as a result of this Sublease.
14. Indemnity. A. Subtenant shall indemnify, defend and hold harmless
Sublandlord from and against all losses, costs, damages, expenses and
liabilities, including, without limitation, reasonable attorneys' fees, which
Sublandlord may incur or pay out by reason of (a) any accidents, damages or
injuries to persons or property occurring in, on or about the Subleased Premises
(unless the same shall have been caused by Sublandlord's negligence), (b) any
breach or default hereunder on Subtenant's part, (c) any work done in or to the
Subleased Premises (except for any work done in the Subleased Premises by
Sublandlord) or (d) any act, omission or negligence on the part of Subtenant,
its officers, employees, agents, customers or invitees, or any person claiming
through or under Subtenant. The provisions hereof shall survive the expiration
or sooner termination of this Sublease.
B. Sublandlord shall indemnify, defend and hold harmless Subtenant from
and against all losses, costs, damages, expenses and liabilities, including,
without limitation, reasonable attorneys' fees, which Subtenant may incur or pay
out by reason of (a) any accidents, damages or injuries to persons or property
occurring in, on or about the portions of the G-III Premises occupied by
Sublandlord (unless the same shall have been caused by Subtenant's negligence)
or (b) any work done in or to the Subleased Premises (except for any work done
in the Subleased Premises by Subtenant). The provisions hereof shall survive the
expiration or sooner termination of this Sublease.
-8-
15. Releases. Subtenant hereby releases GWC and the Overlandlord or anyone
claiming through or under the Overlandlord by way of subrogation or otherwise to
the extent that Sublandlord released GWC and the Overlandlord from liability or
responsibility pursuant to the provisions of the GWC Lease, and Subtenant will
cause its insurance carriers to include any clauses or endorsements in favor of
GWC which Sublandlord is required to provide pursuant to the provisions of the
GWC Lease.
16. Consents and Approvals. In any instance when Sublandlord's consent or
approval is required under this Sublease, Sublandlord's refusal to consent to or
approve any matter shall be deemed reasonable if such consent or approval has
not been obtained from GWC under the GWC Lease or the Overlandlord, provided,
however, that if the consent of GWC and the Overlandlord for any request shall
be obtained, the consent of Sublandlord shall be deemed to be given for such
request. Sublandlord shall use diligent efforts to obtain the consent of GWC and
the Overlandlord to such matters as Subtenant may request. If Subtenant shall
seek the approval by or consent of Sublandlord and Sublandlord shall fail or
refuse to give such consent or approval, then, provided such failure or refusal
is not in bad faith, Subtenant shall not be entitled to any damages for any
withholding or delay of such approval or consent by Sublandlord, it being
intended that Subtenant's sole remedy shall be an action for injunction or
specific performance and that said remedy of an action for injunction or
specific performance shall be available only in those cases where Sublandlord
shall have expressly agreed in writing not to unreasonably withhold or delay its
consent.
17. Termination of GWC Lease or Main Lease. Subject to Sections 5 and 30
of this Sublease, if for any reason (i) the term of the Main Lease shall
terminate prior to the expiration date of this Sublease or (ii) the term of the
GWC Lease shall terminate by reason of the termination of the Main Lease or for
any reason other than the negligence or wrongful acts or default of Sublandlord
under the GWC Lease or this Sublease, then this Sublease shall thereupon be
terminated and Sublandlord shall not be liable to Subtenant by reason thereof.
18. Environmental. Sublandlord represents that Sublandlord has not received
any notices of any violations of any Laws (as such term is defined in the GWC
Lease) nor is Sublandlord aware of the existence of any environmental
contamination in the Subleased Premises which constitutes a violation of the
Laws as of the date hereof.
19. Signage. Subtenant shall have the use of the existing sign at the
Subleased Premises and Subtenant may change such sign to display Subtenant's
name thereon provided that Subtenant complies with all of the obligations of
Sublandlord for such sign under the GWC Lease.
20. Alterations. Subtenant shall not make or cause, suffer or permit the
making of any alteration, addition, change, replacement, installation or
addition in
-9-
or to the Subleased Premises without obtaining the prior consent of Sublandlord
in each instance, except in accordance with Section 9(b) of the GWC Lease and
Section 6 of the Main Lease; provided that if the consent of GWC and the
Overlandlord to the foregoing shall not be required under the terms of the GWC
Lease or the Main Lease, respectively, then no such consent of Sublandlord shall
be required. Subtenant shall be obligated to maintain any such alteration,
addition, change, replacement, installation or addition at Subtenant's sole cost
and expense and Subtenant shall remove any of the same at the expiration of the
term hereof to the extent required by GWC or the Overlandlord pursuant to the
terms of the GWC Lease or the Main Lease, respectively.
21. Right to Cure Defaults. A. If Subtenant shall at any time fail to make
any payment or perform any other obligation of Subtenant hereunder, then
Sublandlord shall have the right, but not the obligation, without waiving or
releasing Subtenant from any obligations of Subtenant hereunder, to make such
payment or perform such other obligation of Subtenant in such manner and to such
extent as Sublandlord shall deem necessary, and in exercising any such right, to
pay any incidental costs and expenses, employ attorneys, and incur and pay
reasonable attorneys' fees. Subtenant shall pay to Sublandlord upon demand all
sums so paid by Sublandlord and all incidental costs and expenses of Sublandlord
in connection therewith, together with interest thereon at the rate of one
percent (1%) per calendar month or any part thereof or the then maximum lawful
interest rate, whichever shall be less, from the date of the making of such
expenditures.
B. If Sublandlord shall default in the payment of any Basic Rent under
the GWC Lease after any required notice and the expiration of any applicable
grace period, Subtenant shall have the right to pay such amount directly to GWC
and deduct such amount from the rent payable hereunder.
22. Brokerage. Sublandlord and Subtenant represents to the other that no
broker or other person had any part, or was instrumental in any way, in bringing
about this Sublease. Sublandlord or Subtenant shall pay, and shall indemnify,
defend and hold harmless the other from and against, any claims made by any
broker or other person for a brokerage commission, finder's fee, or similar
compensation, by reason of or in connection with this Sublease, and any loss,
liability, damage, cost and expense (including, without limitation, reasonable
attorneys' fees) in connection with such claims if such broker or other person
claims to have had dealings with such party or its representatives.
23. No Waiver. The failure of Sublandlord to insist in any one or more
cases upon the strict performance or observance of any obligation of Subtenant
hereunder or to exercise any right or option contained herein shall not be
construed as a waiver or relinquishment for the future of any such obligation of
Subtenant or any right or option of Sublandlord. Sublandlord's receipt and
acceptance of Fixed Rent or Additional Charges, or Sublandlord's acceptance of
performance of any other obligation by Subtenant, with knowledge of Subtenant's
breach of any provision of this Sublease, shall not be deemed a waiver of such
breach. No waiver by Sublandlord of any term,
-10-
covenant or condition of this Sublease shall be deemed to have been made unless
expressed in writing and signed by Sublandlord.
24. Complete Agreement. There are no representations, agreements,
arrangements or understandings, oral or written, between the parties relating to
the subject matter of this Sublease which are not fully expressed in this
Sublease. This Sublease cannot be changed or terminated orally or in any manner
other than by a written agreement executed by both parties.
25. Successors and Assigns. The provisions of this Sublease, except as
herein otherwise specifically provided, shall extend to, bind and inure to the
benefit of the parties hereto and their respective personal representatives,
heirs, successors and permitted assigns. In the event of any assignment or
transfer of the leasehold estate under the GWC Lease, pursuant to an arms-length
transaction, the transferor or assignor, as the case may be, shall be and hereby
is entirely relieved and freed of all obligations under this Sublease.
26. Notices. All communications and notices hereunder shall be in writing
and shall be deemed given when delivered by hand or by certified mail, return
receipt requested, addressed as follows or to such other address as either party
may notify the other in accordance with the provisions hereof.
To Sublandlord:
G-III Apparel Group, Ltd.
345 West 37th Street
New York, New York 10018-4202
Attn: Mr. Alan Feller
- with a copy to -
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attn: Neil Gold, Esq.
To Subtenant:
Europe Craft Imports, Inc.
15 Enterprise Avenue
Secaucus, New Jersey
-11-
- with copies to -
Herrick, Feinstein L.L.P.
2 Park Avenue
New York, New York 10016
Attn: Carl F. Schwartz, Esq.
and
Europe Craft Imports, Inc.
475 Fifth Avenue
3rd Floor
New York, New York 10016
Attn: Mr. Charles Ramat
All notices except notice of change of address shall be deemed given when
sent, and notice of change of address shall be deemed given when received.
27. Insurance Policies. Whenever any insurance coverage is required to be
obtained or maintained by Sublandlord under Section 15 of the GWC Lease,
Subtenant shall obtain and maintain such insurance coverage with respect to the
Subleased Premises only, naming as insureds thereunder GWC, Sublandlord and
Subtenant, as their respective interests may appear, and any other party
required to be named under the provisions of the GWC Lease.
28. Interpretation. Irrespective of the place of execution or performance,
this Sublease shall be governed by and construed in accordance with the laws of
the State of New Jersey. If any provision of this Sublease or the application
thereof to any person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Sublease and the application
of that provision to other persons or circumstances shall not be affected but
rather shall be enforced to the extent permitted by law. The table of contents,
captions, headings and titles, if any, in this Sublease are solely for
convenience of reference and shall not affect its interpretation. This Sublease
shall be construed without regard to any presumption or other rule requiring
construction against the party causing this Sublease to be drafted. If any words
or phrases in this Sublease shall have been stricken out or otherwise
eliminated, whether or not any other words or phrases have been added, this
Sublease shall be construed as if the words or phrases so stricken out or
otherwise eliminated were never included in this Sublease and no implication or
inference shall be drawn from the fact that said words or phrases were so
stricken out or otherwise eliminated. Each covenant, agreement, obligation or
other provision of this Sublease shall be deemed and construed as a separate and
independent covenant of the party bound by, undertaking or making same, not
dependent on any other provision of this Sublease unless otherwise expressly
provided in this Sublease. All terms and words used in this Sublease, regardless
of the number or gender in which they are used, shall be deemed to include any
other number and any other gender as the context may
-12-
require. The word "person" as used in this Sublease shall mean a natural person
or persons, a partnership, a corporation or any other form of business or legal
association or entity.
29. Consents. This Sublease shall have no effect until GWC and the
Overlandlord shall have given their respective written consents (the "Consents")
hereto in a form reasonably satisfactory to Subtenant. Sublandlord shall use its
best efforts to obtain the Consents and shall pay all costs, including legal
fees, charged by GWC or the Overlandlord for the review hereof and the granting
of the Consents. If despite such best efforts, the Consents are not given within
sixty (60) days after the date hereof (a) Sublandlord shall not be obligated to
take any further action to obtain such consent, and (b) this Sublease shall be
deemed null and void and of no effect.
30. Non-disturbance Agreements. Simultaneously with the request for the
Consents, Sublandlord shall use its best efforts to obtain from GWC and the
Overlandlord Non-Disturbance Agreements in a form substantially similar to the
form of Exhibit H to the GWC Lease, for Subtenant under this Sublease with such
modifications thereto as Subtenant may reasonably request (including, without
limitation, the right to assert against the new landlord Subtenant's defenses
against Sublandlord). Sublandlord's use of best efforts shall in no event
include the requirement that Sublandlord commence any litigation or similar
proceeding or incur any expenses in excess of those expenses incurred in
obtaining the Consents. If despite such best efforts, the Non-Disturbance
Agreements are not delivered to Subtenant within 60 days from the date hereof
(a) Sublandlord shall not be obligated to take any further actions to obtain
such Non-Disturbance Agreements and (b) unless this condition shall be waived by
Subtenant, this Sublease shall be deemed null and void and of no effect. It is
the intention of the parties that the provisions of this paragraph are intended
for the benefit of Subtenant only and Subtenant shall have the right to waive
the provisions of this paragraph.
31. Termination. Subtenant shall have the right to terminate this Sublease
at any time upon not less than six (6) months notice to Sublandlord, provided
that Subtenant shall not be in default in any of its monetary obligations
hereunder either at the time of the delivery of such notice or on the date of
the termination hereof.
-13-
In Witness Whereof, Sublandlord and Subtenant have executed this
Sublease as of the day and year first above written.
S U B L A N D L O R D:
G-III APPAREL GROUP, LTD.
By: ________________________________
Name:
Title:
S U B T E N A N T:
EUROPE CRAFT IMPORTS, INC.
By: ________________________________
Name:
Title:
-14-
EXHIBIT A
Description of the Subleased Premises
Copy of blueprint layout of subleased premises indicating layout,
dimensions and boundaries.
-15-
EXHIBIT B
Fixed Rent Payments
Annual
Fixed Rent Monthly Installments
---------- --------------------
$720,000 $60,000
-16-
EXHIBIT C
Personal Property to Remain in Subleased Premises
racking and conveyor systems
rails
trolleys
packaging tables
wooden pallets
alarm system
-17-
FIRST AMENDMENT TO AGREEMENT OF SUB-SUBLEASE
This FIRST AMENDMENT TO AGREEMENT OF SUB-SUBLEASE (this "Agreement") dated
as of February 16, 1996, between G-III APPAREL GROUP, LTD., a Delaware
corporation having an office at 345 West 37th Street, New York, New York
10018-4202 ("Sublandlord") and EUROPE CRAFT IMPORTS, INC., a New Jersey
corporation, having an office 15 Enterprise Avenue, Secaucus, New Jersey
("Subtenant")
W I T N E S S E T H :
WHEREAS, Sublandlord and Subtenant have entered into a certain Agreement of
Sub-sublease dated as of December 27, 1995 (the "Sublease") for certain premises
(the "Subleased Premises") located at 15 Enterprise Avenue, Secaucus, New Jersey
as more particularly described in the Sublease;
WHEREAS, the Subleased Premises is a portion of the premises (the "G-III
Premises") subleased to Sublandlord by GWC Investments ("GWC") pursuant to a
certain Sublease Agreement dated March 9, 1990 as amended by a certain First
Amendment to Sublease Agreement dated December 21, 1993;
WHEREAS, the G-III Premises is a portion of the premises that were leased
to GWC by 15 Enterprise Avenue Associates, L.P. (the "Overlandlord") pursuant to
a certain Lease defined as the "Lease" under the GWC Lease; and
WHEREAS, Sublandlord and Subtenant desire to amend the Sublease to provide,
inter alia, for a reduction in the size of the Subleased Premises, on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. All capitalized terms used in this Agreement shall have the respective
meanings ascribed thereto in the Sublease unless otherwise defined herein.
2. The Subleased Space is hereby reduced by an area consisting of an
aggregate of approximately 3,800 square feet (the "G-III Storage Space") in two
locations in the warehouse space consisting of approximately 1,230 square feet
and 2,570 square feet, respectively, as more particularly shown in
cross-hatching on Exhibit A attached hereto. All references in the Sublease to
the Subleased Premises are deemed to be to the Subleased Premises reduced as set
forth in this Agreement.
3. The annual Fixed Rent payable under the Sublease is hereby reduced by
the amount of $22,800 from $720,000 to $697,200. Exhibit B to the Sublease is
hereby deleted in its entirety and Exhibit B hereto is hereby inserted in its
stead.
4. The following language shall be inserted in Section 1 of the Sublease
following the words "Paragraph 30, below": "or (iii) the delivery to Subtenant
of proof reasonably satisfactory to Subtenant that Sublandlord has obtained the
approval of HMDC to the occupancy by Subtenant of the Subleased Premises
(including, without limitation a certificate of continued occupancy)."
5. Section 9 of the Sublease is hereby amended by deleting the percentage
"96%" therefrom and inserting the percentage "93%" in its stead.
6. Prior to the Commencement Date, Sublandlord, at Sublandlord's sole cost
and expense, shall install all necessary barriers to separate the Subleased
Premises from the G-III Storage Space in accordance with (a) applicable laws and
regulations, including, without limitation, the regulations of the Hackensack
Meadowlands Development Commission ("HMDC") and (b) specifications reasonably
requested by Subtenant in order to provide adequate security for Subtenant's
property. Subtenant shall permit Sublandlord reasonable access to the 2,570
square foot portion of the G-III Storage Space located along the northerly wall
of the warehouse provided that Sublandlord shall indemnify and hold Subtenant
harmless for any damage to Subtenant's property arising from Sublandlord's
access to such space.
7. Immediately upon the execution and delivery hereof, Sublandlord shall
request that GWC and the Overlandlord give their respective written consents
hereto at the same time each of GWC and the Overlandlord give their respective
consents to the Sublease. Sublandlord shall obtain such consents in such a form
and in such time period as are specified in Section 29 of the Sublease. If the
consents required hereunder are not obtained by February 27, 1996, (a)
Sublandlord shall not be obligated to take any further action to obtain such
consent, and (b) this Agreement shall be deemed null and void and of no effect.
Subtenant hereby acknowledges that Subtenant has waived any right Subtenant may
have to terminate the Sublease arising from the failure of Sublandlord to obtain
a non-disturbance agreement from Overlandlord as required under Section 30
thereof.
8. Promptly upon the occurrence of the Commencement Date, Sublandlord
intends to apply to the HMDC for the necessary approval to operate the existing
outlet store at the G-III Premises as currently operated (including, without
limitation, maintaining the current size of the outlet store) without the
requirement that Sublandlord occupy any portion of the G-III Storage Space. If
Sublandlord shall obtain such approval, Sublandlord shall have the right to
terminate this Agreement (other than the provisions of Paragraph 4 above) at any
time upon not less than six (6) months' notice to Subtenant, whereupon (a) at
Subtenant's request, Sublandlord shall remove any barriers installed by
Sublandlord to separate the G-III Storage Space from
-2-
the Subleased Premises and restore the Subleased Premises to its condition prior
to the installation of such barriers, (b) this Amendment shall be null and void,
(c) the Subleased Premises shall be deemed to include the G-III Storage Space
and (d) all of the terms and provisions of the Sublease shall govern thereafter.
9. Except as expressly supplemented by this Agreement, the terms and
provisions of the Sublease are hereby ratified and confirmed.
10. This Agreement shall be binding on all parties and their successors and
assigns and may not be modified or amended orally, but only in writing signed by
Sublandlord and Subtenant.
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Agreement
as of the day and year first above written.
S U B L A N D L O R D:
G-III APPAREL GROUP, LTD.
By: ________________________________
Name:
Title:
S U B T E N A N T:
EUROPE CRAFT IMPORTS, INC.
By: ________________________________
Name:
Title:
-3-
EXHIBIT A
Description of the G-III Storage Space
-4-
EXHIBIT A
Description of the G-III Storage Space
Copy of blueprint floorplan of the G-III storage space, indicating
layout dimensions and property line.
EXHIBIT B
Fixed Rent Payments
Annual
Fixed Rent Monthly Installments
---------- --------------------
$697,200 $58,100
-5-
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 19, 1996, accompanying the consolidated
financial statements of G-III Apparel Group, Ltd. and subsidiaries, appearing in
the Annual Report on Form 10-K for the year ended January 31, 1996, which is
incorporated by reference in this registration statement. We consent to the
incorporation by reference in the registration statement of the aforementioned
report and to the use of our name as it appears under the caption, 'Interests of
Named Experts and Counsel.'
GRANT THORNTON LLP
New York, New York
April 19, 1996
5
1,000
Jan-31-1995 Jan-31-1996
Feb-1-1994 Feb-1-1995
Jan-31-1995 Jan-31-1996
12-mos 12-mos
1,421 7,617
0 0
15,269 11,764
(1,855) (2,769)
25,532 14,207
45,037 32,289
12,333 12,770
5,318 6,446
54,572 41,257
22,435 10,065
0 0
65 65
0 0
0 0
30,036 29,651
54,572 41,257
171,441 121,663
171,441 121,663
146,484 97,769
146,484 97,769
11,320 0
0 0
3,959 2,433
(16,145) (308)
(4,087) 89
(12,058) (397)
0 0
0 0
0 0
(11,734) (397)
(1.82) (.06)
(1.82) (.06)
