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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended May 2, 2020.

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 0-18640

 

APEX GLOBAL BRANDS INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-4182437

(State or other jurisdiction of Incorporation or organization)

 

(IRS employer identification number)

 

 

 

5990 Sepulveda Boulevard, Sherman Oaks, CA

 

91411

(Address of principal executive offices)

 

Zip Code

 

Registrant’s telephone number, including area code  (818) 908-9868 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.06 per share

 

APEX

 

The Nasdaq Capital Market

 

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   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer 

 

Accelerated filer                  

 

 

 

Non-accelerated filer   

 

Smaller reporting company 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

As of May 29, 2020, there were approximately 5,570,530 million shares of the Registrant’s Common Stock outstanding.

 

 

 


 

APEX GLOBAL BRANDS INC.

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

    

3

 

 

 

ITEM 1. Financial Statements (unaudited):

 

3

 

 

 

Condensed Consolidated Balance Sheets
May 2, 2020 and February 1, 2020

 

3

 

 

 

Condensed Consolidated Statements of Operations
Three months ended May 2, 2020 and May 4, 2019

 

4

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity
Three months ended May 2, 2020 and May 4, 2019

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows
Three months ended May 2, 2020 and May 4, 2019

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

13

 

 

 

ITEM 4. Controls and Procedures

 

20

 

 

 

PART II. OTHER INFORMATION

 

21

 

 

 

ITEM 1. Legal Proceedings

 

21

 

 

 

ITEM 1A. Risk Factors

 

21

 

 

 

ITEM 5. Other Information

 

23

 

 

 

ITEM 6. Exhibits

 

23

 

 

 

SIGNATURES

 

25

 

2


 

PART 1. FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

APEX GLOBAL BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

May  2,

2020

 

 

February 1,

2020

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

1,259

 

 

$

 

1,209

 

Accounts receivable, net

 

 

 

3,319

 

 

 

 

4,962

 

Income tax and other receivables

 

 

 

8,869

 

 

 

 

157

 

Prepaid expenses and other current assets

 

 

 

1,077

 

 

 

 

1,431

 

Total current assets

 

 

 

14,524

 

 

 

 

7,759

 

Property and equipment, net

 

 

 

316

 

 

 

 

319

 

Intangible assets, net

 

 

 

54,547

 

 

 

 

59,110

 

Goodwill

 

 

 

6,752

 

 

 

 

12,152

 

Accrued revenue and other assets

 

 

 

3,505

 

 

 

 

3,582

 

Total assets

 

$

 

79,644

 

 

$

 

82,922

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

 

5,225

 

 

$

 

6,282

 

Current portion of long-term debt

 

 

 

56,786

 

 

 

 

56,044

 

Deferred revenue—current

 

 

 

2,580

 

 

 

 

3,551

 

Total current liabilities

 

 

 

64,591

 

 

 

 

65,877

 

Long-term liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

491

 

 

 

 

 

Deferred income taxes

 

 

 

8,781

 

 

 

 

9,515

 

Long-term lease liabilities

 

 

 

1,309

 

 

 

 

1,389

 

Other liabilities

 

 

 

792

 

 

 

 

794

 

Total liabilities

 

 

 

75,964

 

 

 

 

77,575

 

Commitments and Contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

Preferred stock, $.02 par value, 1,000,000 shares authorized, none issued

 

 

 

 

 

 

 

 

Common stock, $.02 par value, 10,000,000 shares authorized, shares issued

   5,570,530 (May 2, 2020) and 5,570,530 (February 1, 2020)

 

 

 

111

 

 

 

 

111

 

Additional paid-in capital

 

 

 

78,723

 

 

 

 

78,541

 

Accumulated deficit

 

 

 

(75,154

)

 

 

 

(73,305

)

Total stockholders’ equity

 

 

 

3,680

 

 

 

 

5,347

 

Total liabilities and stockholders’ equity

 

 

 

79,644

 

 

$

 

82,922

 

 

See notes to condensed consolidated financial statements.

3


 

APEX GLOBAL BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

May 2,

2020

 

 

May 4,

2019

 

Revenues

 

$

 

4,034

 

 

$

 

5,052

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 

2,896

 

 

 

 

3,855

 

Stock-based compensation

 

 

 

150

 

 

 

 

208

 

Business acquisition and integration costs

 

 

 

 

 

 

 

66

 

Restructuring charges

 

 

 

 

 

 

 

42

 

Intangible assets and goodwill impairment charges

 

 

 

9,800

 

 

 

 

 

Depreciation and amortization

 

 

 

202

 

 

 

 

257

 

Total operating expenses

 

 

 

13,048

 

 

 

 

4,428

 

Operating (loss) income

 

 

 

(9,014

)

 

 

 

624

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

(2,181

)

 

 

 

(2,245

)

Other (expense) income, net

 

 

 

(34

)

 

 

 

1

 

Total other expense, net

 

 

 

(2,215

)

 

 

 

(2,244

)

Loss before income taxes

 

 

 

(11,229

)

 

 

 

(1,620

)

(Benefit) provision for income taxes

 

 

 

(9,380

)

 

 

 

638

 

Net loss

 

$

 

(1,849

)

 

$

 

(2,258

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

Basic loss per share

 

$

 

(0.33

)

 

$

 

(0.44

)

Diluted loss per share

 

$

 

(0.33

)

 

$

 

(0.44

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

5,571

 

 

 

 

5,128

 

Diluted

 

 

 

5,571

 

 

 

 

5,128

 

 

See notes to condensed consolidated financial statements.

4


 

APEX GLOBAL BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

 

Balance, February 1, 2020

 

 

5,571

 

 

 

 

111

 

 

 

 

78,541

 

 

 

 

(73,305

)

 

$

 

5,347

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

150

 

Stock Warrants

 

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

32

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,849

)

 

 

 

(1,849

)

Balance, May 2, 2020

 

 

5,571

 

 

$

 

111

 

 

$

 

78,723

 

 

$

 

(75,154

)

 

$

 

3,680

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

 

Balance, February 2, 2019

 

 

4,900

 

 

$

 

98

 

 

$

 

76,829

 

 

$

 

(61,805

)

 

$

 

15,122

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

208

 

 

 

 

 

 

 

 

208

 

Equity issuances, net of tax

 

 

415

 

 

 

 

8

 

 

 

 

615

 

 

 

 

 

 

 

 

623

 

Stock Warrants

 

 

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

28

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,258

)

 

 

 

(2,258

)

Balance, May 4, 2019

 

 

5,315

 

 

$

 

106

 

 

$

 

77,680

 

 

$

 

(64,063

)

 

$

 

13,723

 

 

5


 

APEX GLOBAL BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

May 2,

2020

 

 

May 4,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

 

(1,849

)

 

$

 

(2,258

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

202

 

 

 

 

257

 

Restructuring charges

 

 

 

 

 

 

 

42

 

Intangible assets and goodwill impairment charge

 

 

 

9,800

 

 

 

 

 

Amortization of deferred financing costs

 

 

 

579

 

 

 

 

575

 

Interest expense paid in kind

 

 

 

680

 

 

 

 

 

Deferred income taxes and noncurrent provisions

 

 

 

(734

)

 

 

 

387

 

Stock-based compensation and stock warrant charges

 

 

 

182

 

 

 

 

236

 

Changes in operating assets and liabilities, net of effects from business

   combinations:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

1,643

 

 

 

 

242

 

Income tax and other receivables

 

 

 

(8,712

)

 

 

 

46

 

Prepaid expenses and other current assets

 

 

 

354

 

 

 

 

212

 

Accrued revenue and other assets

 

 

 

77

 

 

 

 

(233

)

Accounts payable and other current liabilities

 

 

 

(1,059

)

 

 

 

(1,957

)

Long- term lease liabilities

 

 

 

(80

)

 

 

 

 

Deferred revenue

 

 

 

(971

)

 

 

 

(484

)

Net cash provided by (used in) operating activities

 

 

 

112

 

 

 

 

(2,935

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

Capital investments

 

 

 

(37

)

 

 

 

(38

)

Net cash used in investing activities

 

 

 

(37

)

 

 

 

(38

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

Proceeds from promissory note payable

 

 

736

 

 

 

 

 

Payments on term loan and line of credit

 

 

 

(350

)

 

 

 

(250

)

Debt issuance costs

 

 

 

(411

)

 

 

 

(28

)

Issuance of common stock

 

 

 

 

 

 

 

623

 

Net cash (used in) provided by financing activities

 

 

 

(25

)

 

 

 

345

 

Increase (decrease) in cash and cash equivalents

 

 

 

50

 

 

 

 

(2,628

)

Cash and cash equivalents, beginning of period

 

 

 

1,209

 

 

 

 

4,284

 

Cash and cash equivalents, end of period

 

$

 

1,259

 

 

$

 

1,656

 

Cash paid for:

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

 

231

 

 

$

 

276

 

Interest

 

$

 

861

 

 

$

 

1,646

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

Interest paid in kind

 

$

 

680

 

 

$

 

 

 

See notes to condensed consolidated financial statements.

6


 

APEX GLOBAL BRANDS INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation.  Cherokee Inc. changed its name to Apex Global Brands Inc. effective June 27, 2019.  These financial statements include the accounts of Apex Global Brands Inc. and its consolidated subsidiaries (the “Company”) and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and the results of operations for the periods presented.  The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended February 1, 2020 included in the Company’s Annual Report on Form 10-K.  Interim results are not necessarily indicative of results to be expected for the full year.

 

Liquidity and Going Concern

 

The accompanying condensed consolidated financial statements have been prepared on the going concern basis of accounting, which assumes the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  Under the Company’s senior secured credit facility, the Company is required to maintain specified levels of Adjusted EBITDA as defined. The Company’s operating results for the twelve months ended November 2, 2019 and twelve months ended February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report received from the Company’s senior secured lender during the first quarter of Fiscal 2021 indicated that the Company’s borrowing base is less than the outstanding term loan balance.   Beginning in the quarter ended May 2, 2020, the Company’s business has been materially adversely affected by the effects of the global pandemic of COVID-19 and the related protective public health measures.  The Company’s business depends upon purchases and sales of products bearing the Company’s brands by the Company’s licensees, and the prevalence of shelter in place and similar orders in the regions where these products are sold, together with the closure of many retail stores of the Company’s licensees, have resulted in significant declines in the Company’s royalties, which will likely continue for some period of time.  In response to the decline in revenues, the Company has implemented cost savings measures, such as pay reductions and employee furloughs among other things. The Company has classified its term loans and junior notes as current obligations because its financial projections, which now reflect the impact of the COVID-19 pandemic, indicate that there is a significant risk of further violations of the minimum Adjusted EBITDA covenant and borrowing base requirements beyond the forbearance period agreed to with the Company’s senior lender.

The Company’s senior lender has agreed to forbear from enforcing its rights under the senior secured credit facility with respect to these defaults through July 27, 2020. Beginning with May 1, 2020 and continuing through the term of the forbearance agreement, interest and loan amortization payments will not be paid in cash, but an equivalent amount will be added to the principal amount of the term loans to be repaid in future periods.  During the forbearance period, the Adjusted EBITDA covenant was reduced, the required minimum cash balance to be maintained by the Company was reduced, and the borrowing base requirement was suspended. The Company is required during the forbearance period to evaluate strategic alternatives designed to provide liquidity to repay the term loans under the senior secured credit facility.  In exchange for these concessions, the senior lender will receive an additional fee totaling 2% of the then outstanding loan balance when the debt is repaid.  The Company’s Junior Notes holders also agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020.

7


 

Future compliance failures under the senior secured credit facility would subject the Company to significant risks, including the right of its senior lender to terminate its obligations under the senior secured credit facility, declare all or any portion of the borrowed amounts then outstanding to be accelerated and due and payable, and/or exercise any other right or remedies it may have under applicable law, including foreclosing on the Company’s and/or its subsidiaries’ assets that serve as collateral for the borrowed amounts.  If any of these rights were to be exercised, the Company’s financial condition and ability to continue operations would be materially jeopardized.  If the Company is unable to meet obligations to lenders and other creditors, the Company may have to significantly curtail or even cease operations.  The Company is evaluating potential sources of working capital, including the disposition of certain assets, and believes that the NOL carryback provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by the U.S. Congress in March 2020 will result in additional liquidity, although the timing of these future cash receipts is uncertain.  NOL carryback claims are expected to result in federal income tax refunds of approximately $9.0 million.  Management’s plans also include the evaluation of strategic alternatives to enhance shareholder value.  There is no assurance that the Company will be able to execute these plans.  Because of this uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern.

     

2.

New Accounting Pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update (“ASU”) to simplify the accounting for income taxes. The new guidance removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This guidance will be effective for the first quarter of the Company’s Fiscal 2023, which will end on January 28, 2023. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (“Topic 326”).  This standard requires a forward-looking expected loss model for trade receivables rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.  The Company adopted this standard as of the beginning of its fiscal year ending January 30, 2021 (‘‘Fiscal 2021’’).  The impact of adoption was not material.

 

 

  

3.

Intangible Assets

Intangible assets consists of the following:

 

 

 

May 2, 2020

 

 

February 1, 2020

 

(In thousands)

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Amortizable trademarks

 

$

 

30,186

 

 

 

 

(20,796

)

 

$

 

9,390

 

 

$

 

30,153

 

 

 

 

(20,600

)

 

$

 

9,553

 

Indefinite lived trademarks

 

 

 

45,157

 

 

 

 

 

 

 

 

45,157

 

 

 

 

49,557

 

 

 

 

 

 

 

 

49,557

 

 

 

$

 

75,343

 

 

$

 

(20,796

)

 

$

 

54,547

 

 

$

 

79,710

 

 

$

 

(20,600

)

 

$

 

59,110

 

 

Intangible assets include trademarks that are classified as indefinite lived and not subjected to amortization.  Other indefinite lived trademarks include certain Cherokee brand trademarks that were acquired in historical transactions.  The Company's revenues have been adversely impacted by the COVID-19 pandemic and its effect on the Company’s licensees.  This was identified as an interim impairment indicator for the related indefinite lived trademarks during the preparation of the Company’s interim financial statements, and management performed an interim impairment test based on updated cash flow projections and discounted cash flows based on estimated weighted average costs of capital (income approach).   The Company determined that the fair values of its Hi-Tec and Magnum trademarks were not in excess of their carrying values, and as a result, an impairment charge of $4.4 million was recorded during the three months ended May 2, 2020 to adjust these trademarks to their estimated fair value.  The forcasted impact of the COVID-19 pandemic on the Company’s future revenues is subject to change as additional information becomes available.  Further impairments may be required if management’s revenue forecasts for Hi-Tec and Magnum are further reduced in future reporting periods. The Company has acquired other trademarks that are being amortized over their estimated useful lives, which average 10.0 years with no residual values.  Amortization of intangible assets was $0.2 million for both the three months ended May 2, 2020 and May 4, 2019.

8


 

The Company’s goodwill of $16.3 million arose from the Hi-Tec Acquisition that occurred during Fiscal 2017.  Goodwill is tested at least annually for impairment in the Company’s fourth quarter, and because the Company has one reporting unit, the impairment test is based primarily on the relationship between the Company’s market capitalization and the book value of its equity adjusted for an estimated control premium.  The annual goodwill impairment test in the fourth quarter of the fiscal year ended February 1, 2020 indicated that the Company’s goodwill was impaired, and an impairment charge of $4.1 million was recorded to reduce goodwill to $12.2 million.  The Company’s market capitalization was adversely affected during the three months ended May 2, 2020 as a result of the COVID-19 pandemic.  This was identified as an interim impairment indicator for goodwill during the preparation of the Company’s interim financial statements, and management performed an interim impairment test, which indicated that the Company’s goodwill was impaired.  Accordingly, an impairment charge of $5.4 million was recorded during the quarter ended May 2, 2020 to reduce goodwill to $6.8 million.

4.

Accounts Payable and Other Current Liabilities

Accounts Payable and other current liabilities consist of the following:

 

(In thousands)

 

May 2,

2020

 

 

February 1,

2020

 

Accounts payable

 

$

 

2,881

 

 

$

 

2,814

 

Accrued employee compensation and benefits

 

 

 

159

 

 

 

 

413

 

Restructuring plan liabilities

 

 

 

1,214

 

 

 

 

1,677

 

Income taxes payable

 

 

 

289

 

 

 

 

291

 

Other liabilities

 

 

 

682

 

 

 

 

1,087

 

 

 

$

 

5,225

 

 

$

 

6,282

 

 

5.

Restructuring Plans

The Company incurred restructuring charges in Fiscal 2018 and Fiscal 2017 related to the Hi-Tec Acquisition and its integration into the Company’s ongoing operations (the “Hi-Tec Plan”).  Restructuring charges were also incurred during Fiscal 2019 as the Company took additional steps designed to improve its organizational efficiencies by eliminating redundant positions and unneeded facilities, and by terminating various consulting and marketing contracts (the “FY19 Plan”).         

Payments against the restructuring plan obligations were as follows:

 

(In thousands)

 

FY19 Plan

 

 

Hi-Tec Plan

 

 

Total

 

Balance, February 1, 2020

 

 

 

1,649

 

 

 

 

28

 

 

 

 

1,677

 

Payments during the period

 

 

 

(463

)

 

 

 

 

 

 

 

(463

)

Balance, May 2, 2020

 

$

 

1,186

 

 

$

 

28

 

 

$

 

1,214

 

 

6.

Debt

On August 3, 2018, the Company entered into a senior secured credit facility, which provided a $40.0 term loan, and $13.5 million of subordinated promissory notes (the “Junior Notes”). The credit facility was amended on January 30, 2019 to provide an additional term loan of $5.3 million. The term loans mature in August 2021 and generally require quarterly principal payments and monthly interest payments based on LIBOR plus a margin.  The additional $5.3 million term loan also requires interest of 3.0% payable in kind with such interest being added to the principal balance of the loan.  The term loans are secured by substantially all the assets of the Company and are guaranteed by the Company’s subsidiaries.  The Junior Notes mature in November 2021, and they are secured by a second priority lien on substantially all of the assets of Company and guaranteed by the Company’s subsidiaries.  Interest is generally payable monthly on the Junior Notes, but no periodic amortization payments are required.  The Junior Notes are subordinated in rights of payment and priority to the term loans but otherwise have economic terms substantially similar to the term loans.  The weighted-average interest rate on both the term loans and Junior Notes at May 2, 2020 was 10.8%.

9


 

The term loans are generally subject to a borrowing base and include financial covenants and obligations regarding the operation of the Company’s business that are customary in facilities of this type, including limitations on the payment of dividends.  Financial covenants include the requirement to maintain specified levels of Adjusted EBITDA, as defined in the agreement, and maintain a specified level of cash on hand. The Company is required to maintain a borrowing base comprising the value of the Company’s trademarks that exceeds the outstanding balance of the term loans.  If the borrowing base is less than the outstanding term loans at any measurement period, then the Company would be required to repay a portion of the term loans to eliminate such shortfall.  Events of default include, among other things, the occurrence of a change of control of the Company, and a default under the term loans agreement would also trigger a default under the Junior Notes agreements.

The Company’s operating results for the twelve months ended November 2, 2019 and February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report received from the Company’s senior secured lender during the first quarter of Fiscal 2021 indicated that the Company’s borrowing base is less than the outstanding term loan balance.  However, the Company’s senior secured lender has agreed to forbear from enforcing its rights under the senior secured credit facility in response to these events of default and borrowing base shorfall through July 27, 2020. (See Note 1, Liquidity and Going Concern.)  In conjunction with this forbearance agreement, the senior secured credit facility was amended to (i) reduce the Adjusted EBITDA requirement to $6.5 million for the twelve-months ending with the Company’s first quarter of Fiscal 2021, (ii) reduce the minimum cash requirement to $150,000 during the forbearance period, (iii) defer the quarterly principal payment otherwise due May 1, 2020 and (iv) accept interest payments in the form of additional principal rather than in cash during the forbearance period.  At the conclusion of the forbearance period, these amended items revert to the original terms of the senior secured credit facility.  The forbearance agreement also provides for a fee to be paid to the senior secured lender when the debt is repaid, and that a portion of the federal income tax refunds expected based on recent loss carryback claims filed by the Company will be used to pay the deferred amortization and interest paid in kind during the forbearance period.  The Company’s Junior Notes holders agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020.

Outstanding borrowings under the term loans were $44.4 million at May 2, 2020 with associated unamortized debt issuance costs of $1.5 million. Outstanding Junior Notes were $14.0 million at May 2, 2020 with associated unamortized debt issuance costs of $0.3 million. As a result of the covenant violations and the short-term nature of the forbearance agreement referred to above, the total amount of the Company’s long-term debt is reflected as a current obligation in the Company’s May 2, 2020 consolidated balance sheet.

During the three months ended May 2, 2020 the company obtained a Paycheck Protection Program loan under the CARES Act totaling $0.7 million.   The Paycheck Protection Program loan bears interest at 1.0% per annum, is repayable monthly starting in October 2020, and matures in April 2022.  In addition, a portion of the loan may be forgiven under provisions under the CARES Act based on payments for payroll, rent and utilities during the period subsequent to obtaining the loan.

 

7.

Commitments and Contingencies

 

The Company indemnifies certain customers against liability arising from third‑party claims of intellectual property rights infringement related to the Company’s trademarks.  These indemnities appear in the licensing agreements with the Company’s customers, are not limited in amount or duration and generally survive the expiration of the contracts.  The Company is unable to determine a range of estimated losses that it could incur related to such indemnities since the amount of any potential liabilities cannot be determined until an infringement claim has been made.

 

The Company is involved from time to time in various claims and other matters incidental to the Company’s business, the resolution of which is not presently expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity.  Estimated reserves for contingent liabilities, including threatened or pending litigation, are recorded as liabilities in the financial statements when the outcome of these matters is deemed probable and the liability is reasonably estimable.

The Company has non-cancelable operating lease agreements with various expiration dates for office space and equipment.  Certain lease agreements include options to renew, which are not reasonably certain to be exercised and therefore are not factored into our determination of the present value of lease obligations.

10


 

Operating lease costs are included as a component of selling, general and administrative expense and were $0.1 million and $0.2 million, excluding variable lease costs and sublease income, for the three months ended May 2, 2020 and May 4, 2019, respectively.  Cash paid for operating lease obligations is consistent with operating lease costs for the period.     

As of May 2, 2020, the weighted-average remaining lease term is 4.4 years, and the weighted-average IBR is 8.8%.  The right-of-use assets as of May 2, 2020 was $1.5 million.  Future minimum commitments under non-cancelable operating leases as of May 2, 2020 are as follows:

 

(In thousands)

 

Operating

Leases

 

Remainder of Fiscal 2021

 

$

 

323

 

Fiscal 2022

 

 

 

442

 

Fiscal 2023

 

 

 

425

 

Fiscal 2024

 

 

 

434

 

Fiscal 2025

 

 

 

333

 

Total future minimum lease payments

 

 

 

1,957

 

Less imputed interest

 

 

 

(345

)

Present value of operating lease liabilities

 

$

 

1,612

 

 

 

 

 

8.

Revenues and Concentrations of Risk

 

Revenues by geographic area based upon the licensees’ country of domicile comprise the following:

 

 

 

Three Months Ended

 

(In thousands)

 

May 2,

2020

 

 

May 4,

2019

 

U.S. and Canada

 

$

 

1,027

 

 

$

 

1,342

 

EMEA (1)

 

 

 

1,132

 

 

 

 

1,349

 

Asia-Pacific

 

 

 

1,270

 

 

 

 

1,682

 

Latin America

 

 

 

605

 

 

 

 

679

 

Total

 

$

 

4,034

 

 

$

 

5,052

 

(1) EMEA includes Europe, Middle East and Africa

 

 

 

 

 

 

 

 

 

 

 

Long‑lived assets located in the United States and outside the United States amount to $0.2 million and $0.1 million, respectively, at May 2, 2020 and $0.2 million and $0.2 million, respectively, at February 1, 2020.

 

Deferred revenue totaled $2.9 million and $3.8 million at May 2, 2020 and February 1, 2020, respectively.  Revenue recognized in the three months ended May 2, 2020 and May 4, 2019 that was previously included in deferred revenue was $1.3 million and $0.7 million, respectively.        

 

Five licensees accounted for approximately 60% of accounts receivable at May 2, 2020, and two licensees accounted for approximately 35%  of revenues for the three months ended May 2, 2020, respectively.  Four licensees accounted for approximately 45% of accounts receivable at February 1, 2020.  Two licensees accounted for approximately 28% of revenues for the three months ended May 4, 2019. 

9.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing the net (loss) income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, while diluted EPS additionally includes the dilutive effect of outstanding stock options and warrants as if such securities had been exercised at the beginning of the period.  The computation of diluted common shares outstanding excludes outstanding stock options and warrants that are anti‑dilutive.

11


 

10.

Taxes on Income

Each reporting period, the Company evaluates the realizability of its deferred tax assets, and in recent years has maintained a full valuation allowance against its deferred tax assets in the United States and the foreign subsidiaries acquired in the Hi-Tec Acquisition.  However, the CARES Act allows the Company’s historical net operating loss in Fiscal 2018 to be carried back two years and the Company’s net operating losses for Fiscal 2019, Fiscal 2020 and Fiscal 2021 to be carried back five years.  The Company recognized an income tax benefit of $9.0 million in the three months ended May 2, 2020 based on estimated tax refunds expected to result from these carryback claims.  The Company continues to maintain a full valuation allowance against its other deferred tax assets.  These valuation allowances will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that these other deferred tax assets will be realized.

The Company’s deferred tax liabilities related to its indefinite lived Hi-Tec and Magnum trademarks cannot be used as a source of taxable income to support the realization of the Company’s deferred tax assets.  Accordingly, the valuation allowance reserves for the deferred tax assets in these foreign jurisdictions and results in a “naked credit” for these indefinite-lived trademarks.  The impairment charge recorded during the quarter ended May 2, 2020 for these indefinite-lived trademarks reduced the naked credit, which resulted in a $0.7 million income tax benefit during the quarter.

 

     

12


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this discussion and analysis, “Apex Global Brands”, the “Company”, “we”, “us” and “our” refer to Apex Global Brands Inc. and its consolidated subsidiaries, unless the context indicates or requires otherwise.  Additionally, “Fiscal 2021” refers to our fiscal year ending January 30, 2021 and “Fiscal 2020” refers to our fiscal year ended February 1, 2020.  The following discussion and analysis should be read together with the unaudited condensed consolidated financial statements and the related notes included in this report.  The information contained in this quarterly report on Form 10‑Q is not a complete description of our business or the risks associated with an investment in our securities.  For additional context with which to understand our financial condition and results of operations, refer to management’s discussion and analysis of financial condition and results of operations (“MD&A”) contained in our Annual Report on Form 10‑K, for the fiscal year ended February 1, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on April 30, 2020, as well as the consolidated financial statements and notes contained therein (collectively, our “Annual Report”).  In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual Report pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S‑K.  The section entitled “Risk Factors” set forth in Item 1A of our Annual Report and similar disclosures in our other SEC filings discuss some of the important risk factors that may affect our business, results of operations and financial condition.  

In addition to historical information, this discussion and analysis contains “forward‑looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements are statements other than historical facts that relate to future events or circumstances or our future performance.  The words “anticipates”, “believes”, “estimates”, “plans”, “expects”, “objectives”, “goals”, “aims”, “hopes”, “may”, “might”, “will”, “likely”, “should” and similar words or expressions are intended to identify forward‑looking statements, but the absence of these words does not mean that a statement is not forward-looking.  Forward‑looking statements in this discussion and analysis include statements about, among other things, our future financial and operating performance, our future liquidity and capital resources, our business and growth strategies and anticipated trends in our business and our industry.  Forward-looking statements are based on our current views, expectations and assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, achievements or stock prices to be materially different from any future results, performance, achievements or stock prices expressed or implied by the forward‑looking statements.  Such risks, uncertainties and other factors include, among others, those described in Item 1A, “Risk Factors” in this report and in our Annual Report.  In addition, we operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations.  As a result of these and other potential risks and uncertainties, forward-looking statements should not be relied on or viewed as predictions of future events because some or all of them may turn out to be wrong.  Forward-looking statements speak only as of the date they are made and, except as required by law, we undertake no obligation to update any of the forward‑looking statements we make in this discussion and analysis to reflect future events or developments or changes in our expectations or for any other reason.

Overview

Apex Global Brands is a global marketer and manager of a portfolio of fashion and lifestyle brands that we own, brands that we create, and brands that we elevate for others.  Company-owned brands, which are licensed in multiple consumer product categories and retail channels around the world, include Cherokee, Hi-Tec, Magnum, 50 Peaks, Interceptor, Hawk Signature, Tony Hawk, Everyday California, Carole Little, Sideout and others.  As part of our business strategy, we also regularly evaluate other brands and trademarks for acquisition into our portfolio.  We believe the strength of our brand portfolio and platform of design, product development and marketing capabilities has made us one of the leading global licensors of style-focused lifestyle brands for apparel, footwear, accessories and home products.

13


 

We have licensing relationships with recognizable retail partners in their global locations to provide them with the rights to design, manufacture and sell products bearing our brands.  We refer to this strategy as our “Direct to Retail” or “DTR” licensing model.  We also have license agreements with manufacturers and distributors for the manufacture and sale of products bearing our brands, which we refer to as “wholesale” licensing. In addition, we have relationships with other retailers that sell products we have developed and designed.  As a brand marketer and manager, we do not directly sell product ourselves.  Rather, we earn royalties when our licensees sell licensed products bearing the trademarks that we own or that we have designed and developed.

For certain of our key legacy brands, including Cherokee, Hawk Signature and Tony Hawk, we have shifted our strategy for U.S. sales from DTR licensing to wholesale licensing. In addition, we are primarily pursuing a wholesale licensing strategy for global sales for our Hi-Tec, Magnum, Interceptor and 50 Peaks brands.  We believe wholesale licensing arrangements help to diversify our sources of revenue and licensee or other partner relationships, and may provide additional avenues to obtain brand recognition and grow our Company

We derive revenues primarily from licensing our trademarks to retailers and wholesalers all over the world, and we are continually pursuing relationships with new retailers, wholesalers and others in order to expand the reach of our existing brands into new geographic and customer markets and new types of stores and other selling mediums. As of May 2, 2020, we had 42 continuing license agreements in approximately 144 countries. These arrangements include relationships with Walmart, Soriana, Comercial Mexicana, TJ Maxx, Tottus, Arvind, Reliance Retail, Tharanco, Martes Sports, Hi-Tec Europe, Hi-Tec South Africa, JD Sports, Black’s and Lidl. As of May 2, 2020, we had contractual rights to receive $55.2 million of forward facing minimum royalty revenues, excluding any revenues that may be guaranteed in connection with contract renewals.

The terms of our royalty arrangements vary for each of our licensees.  We receive quarterly royalty statements and periodic sales and purchasing information from our licensees.  However, our licensees are generally not required to provide, and typically do not provide, information that would enable us to determine the specific reasons for period‑to‑period fluctuations in sales or purchases.  As a result, we do not typically have sufficient information to determine the effects on our operations of changes in price, volume or mix of products sold.

Recent Developments

COVID-19 Global Pandemic

Our business has been materially adversely affected by the effects of the global pandemic of COVID-19 and the related protective public health measures that began in earnest in March 2020.  Our business depends upon purchases and sales of our branded products by our licensees, and the prevalence of shelter-in-place and similar orders in the regions where our products are sold, together with the closure of many of our licensees’ or their customers’ stores, have resulted in significant declines in our royalties, which will likely continue for some period of time, and various licensees of ours have requested extensions of time for them to pay royalties due to us.  Our licensees manufacture and distribute goods that carry our brands, and the temporary closures of the facilities used by our licensees to perform these functions could cause further or extended declines in sales and royalties.  These shelter-in-place orders have begun to be lifted in various regions where our products are sold, which is expected to ease the negative effect of the pandemic on our licensees’ businesses and accordingly ease the negative effect on our royalty revenues and cash flows.  However, it is uncertain whether the relaxing of these orders will result in renewed COVID-19 infections and reinstatement of shelter-in-place orders, which would extend the adverse effects of the pandemic on our financial results.

In response to the decline in revenues, we have implemented cost savings measures, including pay reductions, employee furloughs and other measures.  We can provide no assurance that these cost savings measures will not cause our business operations and results to suffer.  Our current forecasts indicate that we will generally be able to maintain our profit margins as a result of these efforts, even though the amount of anticipated profit is lower.  It is not possible to predict with certainty the impact that the shelter-in-place orders and other business restrictions will have on our licensees and, therefore, our royalty revenues in the future.  The ultimate impact will be greater the longer these restrictions remain in place.

14


 

The decline and anticipated decline in our revenues also exposes us to the risk that we will remain non-compliant with the covenants in our credit facility, which creates risk that our lender will exercise its rights to accelerate the amounts payable and foreclose on our assets.  For further information, refer to the credit facilities and CARES Act benefits section below under the caption, Liquidity and Capital Resources.

We have not been designated as an essential business, and therefore our offices in Sherman Oaks, California and Amsterdam in the Netherlands have been closed.  However, the nature of the work performed by our employees does not require us to assemble in our facilities, and we have successfully implemented work-from-home strategies using technologies that we generally had in place before the onset of the pandemic.  These strategies may result in inefficiencies and lost opportunities, but they are not expected to materially affect our internal control over financial reporting.  In previous years, we have successfully implemented cloud-based accounting systems that provide for remote access.  We are also unable to travel to meetings with our licensees or their customers, which historically has been an important component of our business strategy.  Our use of video conferencing technologies has been expanded and has proven effective, yet business opportunities may be diminished or lost due to the lack of in-person contact.

In March 2020, the federal government passed the CARES Act, which has several provisions that have been, and are expected to be, beneficial to us.  During the three months ended May 2, 2020, we received a $0.7 million loan under the Paycheck Protection Program that is being implemented by the Small Business Administration and numerous commercial banks across the country.  We anticipate that a substantial portion of this loan will be forgiven based on the amount we incur for payroll, rent and utilities in the weeks following the grant date of the loan.  The portion of the loan that is not forgiven will bear interest at 1.0% per annum and will mature two years from the date of funding.

The CARES Act also modified federal income tax regulations related to the carryback of net operating losses.  We incurred net operating losses in Fiscal 2018, Fiscal 2019, Fiscal 2020, and thus far in Fiscal 2021, which can be carried back either two or five years to receive refunds of federal income taxes previously paid.  Our current estimate of federal income tax refunds available to us is approximately $9.0 million, which is subject to change, and is expected to be received in various installments as our carryback claims and amended return are received and processed by the Internal Revenue Service.  The timing of such refunds cannot be assured.

Revenue Overview

We typically enter into license agreements with retailers and wholesalers for a certain brand in specific product categories over explicit territories, which can include one country or groups of countries and territories.  Our revenues by geographic territory are as follows:

 

 

 

Three Months Ended

 

 

(In thousands, except percentages)

 

May 2, 2020

 

 

 

May 4, 2019

 

 

U.S. and Canada

 

$

 

1,027

 

 

 

25.5

 

%

 

$

 

1,342

 

 

 

26.6

 

%

EMEA

 

 

 

1,132

 

 

 

28.0

 

%

 

 

 

1,349

 

 

 

26.7

 

%

Asia-Pacific

 

 

 

1,270

 

 

 

31.5

 

%

 

 

 

1,682

 

 

 

33.3

 

%

Latin America

 

 

 

605

 

 

 

15.0

 

%

 

 

 

679

 

 

 

13.4

 

%

Total

 

$

 

4,034

 

 

 

100.0

 

%

 

$

 

5,052

 

 

 

100.0

 

%

 

 

United States and Canada.  A substantial portion of our royalty revenues in the U.S. and Canada come from wholesale license arrangements for the sale of footwear bearing our Hi-Tec, Magnum and Interceptor brands.   Our royalty revenues from these categories have decreased as our licensees adapt to the new tariff environment.  Furthermore, our wholesale licensees in the United States experienced sales decreases, and hence our royalty revenues decreased, during the three months ended May 2, 2020 from the impact of the various shelter-in-place orders related to the COVID-19 pandemic.

EMEA.  Sales of products by our licensees that operate in Europe, the Middle East and Africa were negatively affected by shelter-in-place orders related to the COVID-19 pandemic, which had a corresponding negative impact on our royalty revenues during the three months ended May 2, 2020.

15


 

Asia-Pacific.  Our Cherokee licensee in Japan opted to not renew their license at the end of Fiscal 2020.  This resulted in a decrease in our royalty revenues during the three months ended May 2, 2020 and is expected to result in lower royalty revenues for the full year of Fiscal 2021.

Latin America.  Our royalty revenues in Latin America resulted primarily from our Cherokee Brand and Everyday California licensees in Mexico, Peru and Chile.  Our Hi-Tec and Magnum brands are also distributed in various other countries in Latin America.

Sales of products by most of our licensees are being negatively affected by the numerous shelter-in-place orders related to the COVID-19 pandemic, which have depressed wholesale and retail sales of footwear, apparel and related accessories. This had a corresponding negative impact on our royalty revenues in the three months ended May 2, 2020.  This trend is expected to continue into future quarters until the shelter-in-place orders are lifted and consumer demand is restored to pre-pandemic levels.  

Results of Operations

The table below contains certain information about our continuing operations from our condensed consolidated statements of operations along with other data and percentages.  Historical results are not necessarily indicative of results to be expected in future periods.  

 

 

 

Three Months Ended

 

 

(In thousands, except percentages)

 

May 2, 2020

 

 

 

May 4, 2019

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cherokee

 

$

 

830

 

 

 

21

 

%

 

$

 

1,534

 

 

 

30

 

%

Hi-Tec, Magnum, Interceptor and 50 Peaks

 

 

 

2,242

 

 

 

56

 

%

 

 

 

2,526

 

 

 

50

 

%

Hawk

 

 

 

99

 

 

 

2

 

%

 

 

 

103

 

 

 

2

 

%

Other brands

 

 

 

863

 

 

 

21

 

%

 

 

 

889

 

 

 

18

 

%

Total revenues

 

 

 

4,034

 

 

 

100

 

%

 

 

 

5,052

 

 

 

100

 

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and, administrative expenses

 

 

 

2,896

 

 

 

72

 

%

 

 

 

3,855

 

 

 

76

 

%

Stock-based compensation

 

 

 

150

 

 

 

4

 

%

 

 

 

208

 

 

 

4

 

%

Business acquisition and integration costs

 

 

 

 

 

 

 

%

 

 

 

66

 

 

 

1

 

%

Restructuring charges

 

 

 

 

 

 

 

%

 

 

 

42

 

 

 

1

 

%

Intangible assets and goodwill impairment charges

 

 

 

9,800

 

 

 

243

 

%

 

 

 

 

 

 

 

%

Depreciation and amortization

 

 

 

202

 

 

 

5

 

%

 

 

 

257

 

 

 

5

 

%

Total operating expenses

 

 

 

13,048

 

 

 

323

 

%

 

 

 

4,428

 

 

 

88

 

%

Operating income (loss)

 

 

 

(9,014

)

 

 

(223

)

%

 

 

 

624

 

 

 

12

 

%

Interest expense

 

 

 

(2,215

)

 

 

(55

)

%

 

 

 

(2,244

)

 

 

(44

)

%

Loss before income taxes

 

 

 

(11,229

)

 

 

(278

)

%

 

 

 

(1,620

)

 

 

(32

)

%

(Benefit) provision for income taxes

 

 

 

(9,380

)

 

 

(233

)

%

 

 

 

638

 

 

 

13

 

%

Net loss

 

$

 

(1,849

)

 

 

(46

)

%

 

$

 

(2,258

)

 

 

(45

)

%

Non-GAAP data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA(1)

 

$

 

1,138

 

 

 

 

 

 

 

$

 

1,197

 

 

 

 

 

 

 

(1)

We define Adjusted EBITDA as net income before (i) interest expense, (ii) other (income) expense, net, (iii) (benefit) provision for income taxes, (iv) depreciation and amortization, (v) gain on sale of assets, (vi) intangible assets and goodwill impairment charges (vii) restructuring charges, (viii) business acquisition and integration costs and (ix) stock-based compensation charges.  Adjusted EBITDA is not defined under generally accepted accounting principles (“GAAP”) and it may not be comparable to similarly titled measures reported by other companies.  We use Adjusted EBITDA, along with GAAP measures, as a measure of profitability, because Adjusted EBITDA helps us compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ

16


 

depending on the book value of assets and the accounting methods used to compute depreciation, amortization and impairments, and the cost of acquiring or disposing of businesses and restructuring our operations.  We believe it is useful to investors for the same reasons.  Adjusted EBITDA has limitations as a profitability measure in that it does not include the interest expense on our long-term debt, non-operating income or expense items, our provision for income taxes, the effect of our expenditures for capital assets and certain intangible assets, or the costs of acquiring or disposing of businesses and restructuring our operations, or our non-cash charges for stock-based compensation and stock warrants.  A reconciliation from net loss from continuing operations as reported in our condensed consolidated statement of operations to Adjusted EBITDA is as follows:

 

 

 

Three Months Ended

 

(In thousands)

 

May 2, 2020

 

 

May 4, 2019

 

Net loss

 

$

 

(1,849

)

 

$

 

(2,258

)

(Benefit) provision for income taxes

 

 

 

(9,380

)

 

 

 

638

 

Interest expense

 

 

 

2,181

 

 

 

 

2,245

 

Other (income) expense, net

 

 

 

34

 

 

 

 

(1

)

Depreciation and amortization

 

 

 

202

 

 

 

 

257

 

Intangible assets and goodwill impairment charges

 

 

 

9,800

 

 

 

 

 

Restructuring charges

 

 

 

 

 

 

 

42

 

Business acquisition and integration costs

 

 

 

 

 

 

 

66

 

Stock-based compensation

 

 

 

150

 

 

 

 

208

 

Adjusted EBITDA

 

$

 

1,138

 

 

$

 

1,197

 

 

Three Months Ended May 2, 2020 Compared to Three Months Ended May 4, 2019

The decrease in royalty revenues in the three months ended May 2, 2020 compared to the three months ended May 4, 2019 was primarily due to the decrease in sales by our licensees related to the COVID-19 shelter-in-place orders and the non-renewal of our Cherokee license in Japan.

Selling, general and administrative expenses decreased 25% to $2.9 million in the three months ended May 2, 2020 from $3.9 million in the three months ended May 4, 2019.  These ongoing expenses include payroll, employee benefits, marketing, sales, legal, rent, information systems and other administrative costs that are part of our current operations.  This $1.0 million decrease reflects our restructuring plans that are continuing in Fiscal 2021 and the impact of cost-savings measures undertaken in response to the COVID-19 pandemic and related shortfall in revenues.

Stock-based compensation in the three months ended May 2, 2020 was $0.2 million and comprises charges related to stock options and restricted stock grants.

We own various trademarks that are considered to have indefinite lives, while others are being amortized over their estimated useful lives.  We also have furniture, fixtures and other equipment that are being amortized over their useful lives.  Our royalty revenues were re-projected in consideration of the negative impact on our licensee’s sales from the COVID-19 pandemic and related shelter-in-place orders.  These re-projections indicated that the fair values of our Hi-Tec and Magnum indefinite-lived trademarks were not in excess of their carrying values.  As a result, a non-cash impairment charge of $4.4 million was recorded during the three months ended May 2, 2020 to adjust these trademarks to their estimated fair value.  The forecasted impact of the COVID-19 pandemic on our future revenues is subject to change as additional information becomes available.  Further impairments may be required if our revenue forecasts for our indefinite-lived trademarks are further reduced in future reporting periods.

Our assessment of the fair value of goodwill is based primarily on the relationship between our market capitalization and the book value of our equity.  Our market capitalization was adversely affected during the three months ended May 2, 2020 because of the COVID-19 pandemic.  As a result of this impairment indicator, we performed an interim impairment test, which indicated that our goodwill was impaired.  As a result, we recorded a $5.4 million non-cash impairment charge to reduce the book value of goodwill.

17


 

Interest expense was $2.2 million in the three months ended May 2, 2020 and the three months ended May 4, 2019.  Our term loans and Junior Notes are based on LIBOR, but we are not benefitting from declining LIBOR rates because our interest rates are subject to a 2.0% LIBOR floor.

We reported an income tax benefit of $9.4 million in the three months ended May 2, 2020 compared to a provision of $0.6 million in the three months ended May 4, 2019.  Congress passed the CARES Act during the three months ended May 2, 2020 which changed the federal regulations regarding the carryback of net operating losses.  Our Fiscal 2018 net operating loss can now be carried back two years, and our net operating losses in Fiscal 2019, Fiscal 2020 and Fiscal 2021 can be carried back five years.  We estimate these carryback claims will result in refunds of approximately $9.0 of previously paid federal income taxes.  The timing of these future cash receipts is uncertain since it is based on when the Internal Revenue Service processes our refund claims and amended returns.  Even though we generated pretax losses in the three months ended May 4, 2019, we did not recognize tax benefits during that period, but we recorded an income tax provision, primarily as a result of deferred tax valuation allowances.  

Our net loss was $1.8 million in the three months ended May 2, 2020 and $2.3 million in the three months ended May 4, 2019. Our Adjusted EBITDA decreased 5% to $1.1 million in the three months ended May 2, 2020, from $1.2 million in the three months ended May 4, 2019.

 

Liquidity and Capital Resources

We generally finance our working capital needs and capital investments with operating cash flows, term loans, subordinated promissory notes and lines of credit. On August 3, 2018, we entered into a $40.0 million term loan and $13.5 million of subordinated promissory notes, and on January 30, 2019, we obtained an incremental $5.3 million term loan. On December 31, 2019 we issued a $0.3 million subordinated promissory note to our former landlord as partial consideration for an early lease termination.

Cash Flows

Our operating activities provided $0.1 million of cash in the three months ended May 2, 2020, compared to $2.9 million used in the three months ended May 4, 2019.  This $3.0 million decrease in cash used in operating activities resulted primarily from a $1.6 million increase in cash flows from the change in accounts receivable and a $1.1 million increase in cash flows from using less cash to fund accounts payable and other current liabilities.

 

Our investing activities used minimal cash to fund trademark investments in both the three months ended May 2, 2020 and the three months ended May 4, 2019.

We received $0.7 million from the proceeds of a promissory note as part of the Paycheck Protection Program of the CARES Act in the three months ended May 2, 2020, which is being used to fund payroll expenses, employee benefits, rent and utilities.  We used $0.8 million of cash in the three months ended May 2, 2020 to make a principal payment on our term loan and pay for certain costs related to the forbearance agreement with our senior secured lender.  The principal payment on our term loan in the three months ended May 4, 2019 was more than offset by $0.6 million of cash received from the exercise of stock warrants.

Credit Facilities and CARES Act Benefits

On August 3, 2018, we replaced our previous credit facility with a combination of a new senior secured credit facility, which provided a $40.0 million term loan, and $13.5 million of subordinated secured promissory notes.  On January 30, 2019, the credit facility was amended to provide an additional $5.3 million term loan. The term loans mature in August 2021 and generally require quarterly principal payments and monthly interest payments based on LIBOR plus a margin.  The additional $5.3 million term loan also requires interest of 3.0% payable in kind with such interest being added to the principal balance of the loan.  The term loans are secured by substantially all of our assets and are guaranteed by our subsidiaries.  The subordinated promissory notes mature in November 2021, and they are secured by a second priority lien on substantially all of our assets and guaranteed by our subsidiaries.  Interest is generally payable monthly on the subordinated promissory notes, but no periodic amortization payments are required.  The subordinated promissory notes are subordinated in rights of payment and priority to the term loan but otherwise have economic terms substantially similar to the term loans.  In the three months ended May 2, 2020, we borrowed $0.7 under the Paycheck Protection Program of the CARES Act.  The Paycheck Protection Program loan bears interest at 1.0% per annum, is repayable monthly starting October 2020, and matures in April 2022.  In addition, a portion of the loan may be forgiven under provisions under the CARES Act based on payments for payroll, rent and utilities during the period subsequent to obtaining the loan.

18


 

Excluding the interest payable in kind, the weighted-average interest rate on the term loans, the subordinated promissory notes and the Paycheck Protection Program loan at May 2, 2020 was 10.8%.  Outstanding borrowings under the senior secured credit facility were $44.4 million at May 2, 2020, outstanding subordinated secured promissory notes were $14.0 million, and the outstanding Paycheck Protection Program loan was $0.7 million.

The term loans are subject to a borrowing base and include financial covenants and obligations regarding the operation of our business that are customary in facilities of this type, including limitations on the payment of dividends.  Financial covenants include the requirement to maintain specified levels of Adjusted EBITDA, as defined in the credit agreement, and maintain a minimum cash balance.  We are also required to maintain a borrowing base comprising the value of our trademarks that exceeds the outstanding balance of the term loans.  If the borrowing base is less than the outstanding term loans at any measurement period, then we would be required to repay a portion of the term loan to eliminate such shortfall.

Our operating results for the twelve months ended November 2, 2019 and twelve months ended February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report we received from our senior secured lender during the three months ended May 2, 2020 indicated that our borrowing base is less than the outstanding balance of the term loans. However, our senior lender has agreed to forbear from enforcing its rights under the senior secured credit facility through July 27, 2020.  In conjunction with the forbearance agreement, the senior secured credit facility was amended to reduce the Adjusted EBITDA requirement from $9.5 million to $6.5 million for the twelve-months ending with our first quarter of Fiscal 2021 and reduce our minimum cash requirement to $150,000 during the forbearance period.  The quarterly principal payment otherwise due May 1, 2020 was deferred, and interest payments due May 1, June 1 and July 1 will be paid in the form of additional principal rather than in cash.  At the conclusion of the forbearance period, these amended items revert to the original terms of the senior secured credit facility.  The forbearance agreement also provides for a fee to be paid to the senior secured lender when the debt is repaid, and that a portion of the federal income tax refunds expected based on recent loss carryback claims filed by the Company will be used to pay the deferred amortization and interest paid in kind during the forbearance period.  The Company’s Junior Notes holders agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020. We are required during the forbearance period to evaluate strategic alternatives designed to provide liquidity to repay the term loans under the senior secured credit facility. 

Our latest financial projections, which have been revised to account for the current information we have regarding the potential impact of the COVID-19 global pandemic, indicate that there is a significant risk of further violations of the minimum Adjusted EBITDA covenant beyond the forbearance period agreed to with our senior lender.  Future compliance failures would subject us to significant risks, including the right of our senior lender to terminate their obligations under the senior secured credit facility, declare all or any portion of the borrowed amounts then outstanding to be accelerated and due and payable, and/or exercise any other right or remedies they may have under applicable law, including foreclosing on our assets that serve as collateral for the borrowed amounts.  If any of these rights were to be exercised, our financial condition and ability to continue operations would be materially jeopardized.  If we are unable to meet our obligations to our lenders and other creditors, we may have to significantly curtail or even cease operations.  Because of this uncertainty, there is substantial doubt about our ability to continue as a going concern.  We are evaluating potential sources of working capital, including the disposition of certain assets, and we believe that the NOL carryback provisions of the CARES Act will result in additional liquidity, although the timing of these cash inflows is uncertain.  Our NOL carryback claims are expected to result in federal income tax refunds of approximately $9.0 million.  We estimated that receipt of these tax refunds could range from two to 12 months from the date of this filing.  Our plans also include the evaluation of strategic alternatives to enhance shareholder value.  There is no assurance that we will be able to execute these plans or continue to operate as a going concern.

19


 

Critical Accounting Policies and Estimates

This MD&A is based upon our condensed consolidated financial statements, which are included in this report.  The preparation of these condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Refer to Note 3 of our condensed consolidated financial statements filed herewith regarding our indefinite lived trademarks and goodwill, and our Annual Report on Form 10-K for a discussion of our critical accounting policies and recent accounting pronouncements.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined under Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management carried out an evaluation of the effectiveness of our disclosure controls and procedures.  Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 2, 2020.

Changes in Internal Control over Financial Reporting

During the most recently completed fiscal quarter, no changes in our internal control over financial reporting materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Disclosure Controls and Procedures and Internal Control Over Financial Reporting

In designing our disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of our controls and procedures must reflect that resource constraints exist, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  Because of these inherent limitations, our disclosure and internal controls may not prevent or detect all instances of fraud, misstatements or other control issues.  In addition, projections of any evaluation of the effectiveness of disclosure or internal controls to future periods are subject to risks, including, among others, that controls may become inadequate because of changes in conditions or that compliance with policies or procedures may deteriorate.

20


 

PART II—OTHER INFORMATION

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of our business.  The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that could harm our business.  We are not currently aware of any such legal proceedings or claims to which we are a party or to which our property is subject that we believe will have, individually or in the aggregate, a material effect on our business, financial condition or results of operations.

ITEM 1A. RISK FACTORS

The occurrence of any of the risks, uncertainties and other factors described in this report, our Annual Report and the other documents we file with the SEC could have a material adverse effect on our business, financial condition, results of operations and stock price, and could cause our future business, financial condition, results of operations and stock price to differ materially from our historical results and the results contemplated by any forward-looking statements we may make herein, in any other document we file with the SEC or in any press release or other written or oral statement we may make.  You should carefully consider all of these risks and the other information in this report and the other documents we file with the SEC before making any investment decision with respect to our securities.  The risks described are not the only ones we face. The risks described below and elsewhere in this report are not the only ones we face.  Additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business, financial condition and results of operations or cause our stock price to decline.  The following disclosure only describes our material risks that have undergone material changes since the date on which our Annual Report was filed with the SEC. As a result, you should carefully review Item 1A. “Risk Factors” in our Annual Report for descriptions of additional material risks and uncertainties to which our business and our common stock are subject.

We face risks related to the impact of the COVID-19 pandemic and the related protective public health measures.

In March 2020, the World Health Organization recognized the outbreak of a novel coronavirus, COVID-19, as a pandemic.  Our business has been materially adversely affected by the effects of COVID-19 and the related protective public health measures.  Our business depends upon purchases and sales of our branded products by our licensees, and the prevalence of shelter-in-place and similar orders in the regions where our products are sold, together with the closure of many of our licensees’ or their customers’ stores, have resulted in significant declines in our royalties, which will likely continue for some period of time.  In response to the decline in revenues, we have implemented cost savings measures, including pay reductions, employee furloughs and other measures.  We can provide no assurance that these cost savings measures will not cause our business operations and results to suffer.  The decline and anticipated decline in our revenues also exposes us to the risk that we will remain non-compliant with the covenants in our credit facility, which creates risk that our lender will exercise its rights to accelerate the amounts payable and foreclose on our assets.  Our employees have limited access to our offices and are mostly working remotely, which may result in inefficiencies and lost opportunities.  In addition, the responses of the federal, international, state and regional governments to the pandemic, including the shelter-in-place and similar orders and the allocation of healthcare resources to treating those infected with the virus, has caused, and may continue to cause, a significant decline in retail sales, including sales of our branded products by our licensees.  Other adverse effects of the pandemic on our business could include disruptions or restrictions on our employees’ ability to travel, as well as temporary closures of the facilities of the manufacturers and distributors of our branded products, which could cause further or extended declines in sales and royalties.  In addition, the continued spread of COVID-19, or the occurrence of other epidemics, could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our branded products and further adversely impact our results of operations.

There are numerous uncertainties associated with the coronavirus outbreak, including the number of individuals who will become infected, whether a vaccine or cure that mitigates the effect of the virus will be synthesized, and, if so, when such vaccine or cure will be ready to be used, and the extent of the protective and preventative measures that have been put in place by both governmental entities and other businesses and those that may be put in place in the future.  Any, or all, of the foregoing uncertainties could have a material adverse effect on our results of operations, financial position and/or cash flows.

21


 

We have incurred a significant amount of indebtedness, our level of indebtedness and restrictions under our indebtedness could adversely affect our operations and liquidity, and we are currently in violation of certain financial covenants under our credit facility.

On August 3, 2018, we entered into a senior secured credit facility that provided a $40.0 million term loan, and $13.5 million of subordinated promissory notes.  The credit facility was amended on January 30, 2019 to provide an additional term loan of $5.3 million.  As of February 1, 2020, outstanding borrowings under the term loans were $44.4 million, and outstanding borrowings under subordinated promissory notes were $14.0 million.  The term loans mature in August 2021 and generally require quarterly principal payments and monthly interest payments based on LIBOR plus a margin.  The subordinated promissory notes mature in November 2021.  Interest is generally payable monthly on the subordinated promissory notes, but no periodic amortization payments are required. On April 14, 2020, the company obtained a Paycheck Protection Program loan under the CARES Act totaling $0.7 million.   The Paycheck Protection Program loan bears interest at 1.0% per annum, is repayable monthly starting in October 2020, and matures in April 2022.  In addition, a portion of the loan may be forgiven under provisions under the CARES Act based on payments for payroll, rent and utilities during the period subsequent to obtaining the loan.

The senior secured credit facility imposes various restrictions and covenants regarding the operation of our business, including covenants that require us to obtain the lender’s consent before we can, among other things and subject to certain limited exceptions: (i) incur additional indebtedness or additional liens on our property; (ii) consummate acquisitions, dispositions, mergers or consolidations; (iii) make any change in the nature of our business; (iv) enter into transactions with our affiliates; or (v) repurchase or redeem any outstanding shares of our common stock or pay dividends or other distributions, other than stock dividends, to our stockholders.  The senior secured credit facility also imposes financial covenants that set financial standards we are required to maintain, including the requirement to maintain specified levels of Adjusted EBITDA, as defined in the credit agreement, and maintain a minimum cash balance.  We are also required to maintain a borrowing base comprising the value of our trademarks that exceeds the outstanding balance of the term loan.  If the borrowing base is less than the outstanding term loan at any measurement period, then we would be required to repay a portion of the term loan to eliminate such shortfall.  Further, as collateral for the credit facility, we have granted a first priority security interest in favor of the lender in substantially all of our assets (including trademarks), and our indebtedness is guaranteed by our subsidiaries. If we do not comply with these requirements or if there is a change of control of the Company, it would be an event of default.

Our operating results for the twelve months ended November 2, 2019 and February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report we received from our senior secured lender during the three months ended May 2, 2020 indicated that our borrowing base is less than the outstanding balance of the term loans.  However, our senior lender has agreed to forbear from enforcing its rights with respect to certain events of default under the senior secured credit facility through July 27, 2020.  In conjunction with the forbearance agreement, the senior secured credit facility was amended to reduce the Adjusted EBITDA requirement from $9.5 million to $6.5 million for the twelve-months ending with our first quarter of Fiscal 2021 and reduce our minimum cash requirement to $150,000 during the forbearance period.  The quarterly principal payment otherwise due May 1, 2020 was deferred, and interest payments due May 1, June 1 and July 1 will be paid in the form of additional principal rather than in cash.  At the conclusion of the forbearance period, these amended items revert to the original terms of the senior secured credit facility.  The forbearance agreement also provides for a fee to be paid to the senior secured lender when the debt is repaid, and that a portion of the federal income tax refunds expected based on recent loss carryback claims filed by the Company will be used to pay the deferred amortization and interest paid in kind during the forbearance period.  The Company’s Junior Notes holders agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020.  We are required during the forbearance period to evaluate strategic alternatives designed to provide liquidity to repay the term loans under the senior secured credit facility.  Our financial projections indicate that there is a significant risk of further violations of the minimum Adjusted EBITDA covenant or minimum cash covenant beyond the forbearance period agreed to with our senior lender.  If any such future violation or other event of default occurs under the credit facility that is not forborne, cured or waived in accordance with the terms of the credit facility, we would be subject to significant risks, including the right of our lender to terminate its obligations under the credit facility, declare all or any portion of the borrowed amounts then outstanding to be accelerated and due and payable, and/or exercise any other right or remedies it may have under applicable law, including foreclosing on our and/or our subsidiaries’ assets that serve as collateral for the borrowed amounts.  Furthermore, a default under our term loan agreement would also trigger a default under our subordinated

22


 

promissory note agreements, which would give those lenders the right to terminate their obligations under the subordinated promissory note agreements and accelerate the payment of those promissory notes.  If any of these rights were to be exercised, our financial condition and ability to continue operations would be materially jeopardized.  If we are unable to meet obligations to lenders and other creditors, we may have to significantly curtail or even cease operations.  We are evaluating potential sources of working capital, including the disposition of certain assets, and we believe that certain provisions of the CARES Act passed by the U.S. Congress in March 2020 will result in additional liquidity.  We received proceeds of $0.7 million in the three months ended May 2, 2020 from a promissory note issued by one of our banks under the Paycheck Protection Program included in the CARES Act, and the NOL carryback provisions of the CARES Act are expected to result in federal refund claims of approximately $9.0 million.  Our plans also include the evaluation of strategic alternatives to enhance shareholder value.  However, there is no assurance that we will be able to execute these plans or continue to operate as a going concern.

Additionally, even if we are able to avoid a further event of default under the credit facility, the amount of our outstanding indebtedness, which is substantial, could have an adverse effect on our operations and liquidity, including by, among other things: (i) making it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions, because we may not have sufficient cash flows to make our scheduled debt payments; (ii) causing us to use a larger portion of our cash flows to fund interest and principal payments, thereby reducing the availability of cash to fund working capital, product development, capital expenditures and other business activities; (iii) making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities or other strategic transactions, and to react to changes in market or industry conditions; and (iv) limiting our ability to borrow additional monies in the future to fund the activities and expenditures described above and for other general corporate purposes as and when needed, which could force us to suspend, delay or curtail business prospects, strategies or operations.

ITEM 5.  OTHER INFORMATION

On June 11, 2020, the compensation committee of our board of directors approved the payment of accrued fees for the third and fourth quarters of Fiscal 2020 and the first quarter of Fiscal 2021 to our non-employee directors by the issuance of promissory notes.  The amounts of the promissory notes equate to the amounts currently due to each non-employee director under the current compensation arrangement previously approved by our compensation committee.  The promissory notes mature on October 31, 2020 and bear interest at the applicable federal rate published by the Internal Revenue Service.  We anticipate asking our stockholders to approve an increase in the shares available for grant under our Amended and Restated 2013 Stock Incentive Plan.  If such approval is obtained, the promissory notes can be settled in shares of our stock at our discretion; otherwise, they will be settled in cash.  Payment of the promissory notes accelerate upon (i) a separation from service, (ii) the death or disability of the note holder or (iii) a change in control of the Company.

 

ITEM 6.  EXHIBITS

The information required by this Item 6 is set forth on the Exhibit Index that immediately precedes the signature page to this report and is incorporated herein by reference.

23


 

EXHIBIT INDEX

 

Exhibit

Number

 

Description of Exhibit

 

 

 

3.1

 

Amended and Restated Bylaws of the Company (filed as Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed with the SEC on June 27, 2019).

3.2

 

Certificate of Amendment of the Company’s Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 27, 2019).

3.3

 

Certificate of Correction to Certificate of Amendment of the Company (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 27, 2019).

3.4

 

Certificate of Amendment of the Company’s Certificate of Incorporation (filed as Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed with the SEC on June 27, 2019).

3.5

 

Certificate of Amendment of the Company’s Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 26, 2019).

10.1*

 

Amendment to Forbearance Period dated February 28, 2020 by and between the Company and Gordon Brothers Finance Company and Gordon Brothers Brands, LLC.

10.2*

 

Amendment to Forbearance Period dated April 10, 2020 by and bewteen the Company and Gordon Brothers Finance Company and Gordon Brothers Brands, LLC.

10.3*

 

Promissory Note dated April 14, 2020 by and between the Company and Bank of America.

10.4*

 

Fourth Amendment to Financing Agreement and Forbearance Agreement dated April 30, 2020 by and between the Company and Gordon Brothers Finance Company and Gordon Brothers Brands, LLC.

10.5*

 

Form of Promissory Note issued by the Company to each of Jess Ravich, Patti Johnson, Dwight Mamanteo and Evan Hengel.

31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

 

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

*

Filed herewith.

**

Furnished herewith.

24


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: June 16, 2020

 

 

 

APEX GLOBAL BRANDS INC.

 

 

 

 

 

 

By:

/s/ Henry Stupp

 

 

 

Henry Stupp

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

By:

/s/ Steven L. Brink

 

 

 

Steven L. Brink

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

25

apex-ex101_99.htm

Exhibit 10.1

EXECUTION

AMENDMENT TO FORBEARANCE PERIOD

This AMENDMENT TO FORBEARANCE PERIOD, dated as of February 28, 2020 (this “Amendment”), is entered into by and among Apex Global Brands Inc. (formerly known as Cherokee Inc.), a Delaware corporation (the “Parent” and the “U.S. Borrower”), Irene Acquisition Company B.V., a private company with limited liability incorporated under the laws of the Netherlands, having its statutory seat (statutaire zetel) in Amsterdam, the Netherlands and registered with the Dutch trade register under number 67160921 (the “Dutch Borrower” and, together with the U.S. Borrower, each a “Borrower” and collectively, the “Borrowers”), each Guarantor party hereto, the Lenders party hereto which constitute all of the Lenders party to the Financing Agreement as of the date hereof, Gordon Brothers Finance Company, a Delaware corporation (“GBFC”), as collateral agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the “Collateral Agent”), and GBFC, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the “Administrative Agent” and together with the Collateral Agent, each an “Agent” and collectively, the “Agents”).

W I T N E S S E T H:

WHEREAS, the Parent, the Borrowers, the Guarantors, the lenders from time to time party thereto (collectively, the “Lenders” and each individually, a “Lender”) and the Agents are parties to that certain Financing Agreement, dated as of August 3, 2018 (as amended by that certain First Amendment to Financing Agreement, dated as of December 28, 2018, as further amended by that certain Second Amendment to Financing Agreement, dated as of January 29, 2019, as further amended by that certain Third Amendment to Financing Agreement and Forbearance Agreement, dated as of December 20, 2019 (the “Forbearance Agreement”), and as further amended, modified or otherwise supplemented from time to time prior to the date hereof, the “Financing Agreement”);

WHEREAS, an Event of Default has occurred and is continuing under the Financing Agreement pursuant to Section 9.01(c) as a result of the Borrowers breach of Section 7.03(b) for the period ended October 31, 2019 (the “Existing Event of Default”).  The Borrowers requested the Agents and Lenders forbear from exercising the Agents rights and remedies granted pursuant to the Financing Agreement and other Loan Documents in order to provide the Borrowers an opportunity to consider various business alternatives.  The Agents and Lenders agreed to forbear from exercising their rights and remedies solely in accordance with the terms and conditions of the Forbearance Agreement; and

WHEREAS, the Borrowers have requested that the Agents and the Lenders extend the forbearance period under the Forbearance Agreement, and the Agents and the Lenders are willing, as applicable, to extend such forbearance period on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and between the Agents, the Lenders, the Borrowers and the Guarantors, as follows:

9631270


 

1.Defined Terms.  Except as otherwise defined in this Amendment, capitalized terms used herein that are not otherwise defined shall have the meanings given to those terms in the Financing Agreement.

2.Effect on Loan Documents; Ratification and Reaffirmation.  The Financing Agreement and the other Loan Documents, after giving effect to this Amendment, shall be and remain in full force and effect in accordance with their terms and hereby are ratified and confirmed in all respects.  Except as expressly set for the herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of any right, power, or remedy of the Agents or any other Secured Party under the Financing Agreement or any other Loan Document.  Each Loan Party party hereto hereby ratifies and confirms in all respects all of its obligations under the Loan Documents to which it is a party and each Loan Party party hereto hereby ratifies and confirms in all respects any prior grant of a security interest under the Loan Documents to which it is party and acknowledges that all of such security interests, and all collateral heretofore pledged as security for such indebtedness, continues to be and remains collateral for such indebtedness from and after the date hereof.  Each Loan Party further acknowledges and agrees that none of the Loan Parties have any defense (whether legal or equitable), set-off or counterclaim to the payment or performance of the Obligations in accordance with the terms of the Loan Documents.

3.Representations and Warranties.  Each Loan Party hereby represents and warrants to the Agents and the Lenders as follows:

a.other than the Existing Event of Default, no Default or Event of Default has occurred and is continuing on the date hereof.

b.the execution, delivery and performance by each Loan Party of this Amendment (i) have been duly authorized by all necessary action, (ii) do not and will not contravene (A) any of its Governing Documents, (B) any applicable material Requirement of Law or (C) any material Contractual Obligation binding on or otherwise affecting it or any of its properties, and (iii) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties, except (solely for the purposes of subclause (iii)), to the extent where such contravention, default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal could not reasonably be expected to have a Material Adverse Effect;

c.no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required in connection with the due execution, delivery and performance by any Loan Party of this Amendment;

d.this Amendment has been duly executed and delivered by each Loan Party and this Amendment constitutes a legal, valid and binding obligation of each such Loan Party, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity; and

-2-

9631270


 

e.all representations and warranties contained in the Financing Agreement and each other Loan Document are true and correct in all material respects (except for those representations and warranties that (i) are conditioned by materiality, which shall be true and correct in all respects and (ii) expressly relate to an earlier date or to the Existing Event of Default) on and as of the date hereof.

4.Acknowledgment of Indebtedness.  Each Loan Party acknowledges and agrees that, as of February 28, 2020, the Loan Parties are indebted, jointly and severally, (a) to the Tranche A Term Loan Lenders for the Tranche A Term Loans in an aggregate outstanding principal amount equal to $4,812,500.00 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents, (b) the Tranche B Term Loan Lenders for the Tranche B Term Loans in an aggregate outstanding principal amount equal to $33,687,500.00 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents; (c) the Tranche C Term Loan Lenders for the Tranche C Term Loans in an aggregate outstanding principal amount equal to $773,261.77 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents; (d) the Tranche D Term Loan Lenders for the Tranche D Term Loans in an aggregate outstanding principal amount equal to $4,639,570.56 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents and (e) for accrued and unpaid fees and expenses of Agents and Lenders (and any other amounts due under the Financing Agreement and the other Loan Documents, including but not limited to reasonable fees and disbursements of counsel).

5.Acknowledgment of Existence of Event of Default. Each Loan Party acknowledges and agrees that the Existing Event of Default has occurred and is continuing.  Each Loan Party acknowledges and agrees that the Agents and the Lenders have not waived the Existing Event of Default or any other Event of Default existing on the date hereof.  Each Loan Party further acknowledges and agrees that, as a result of the occurrence of the Existing Event of Default: (a) all of such Loan Party’s obligations, liabilities and indebtedness to the Agents and the Lenders under the Financing Agreement and the other Loan Documents may at any time, subject to the terms of the Forbearance Agreement, as amended by this Amendment, the Financing Agreement and the other Loan Documents, be declared due and payable in full, (b) the Agents and the Lenders have no further commitment to extend credit to the Borrowers and (c) the Agents and the Lenders, subject to the terms of the Forbearance Agreement, as amended by this Amendment, are entitled to proceed to enforce any and all of their rights and remedies under the terms of the Financing Agreement and the other Loan Documents.

6.Conditions to Effectiveness.  This Amendment shall not be effective until each of the following conditions precedent have been satisfied:

a.The Agents shall have received this Amendment, duly executed by each of the parties hereto.

b.Each of the representations and warranties set forth in Section 3 hereof shall be true and correct on and as of the date hereof.

-3-

9631270


 

c.The Borrowers shall have paid in full all invoiced cost and expenses incurred in connection with the preparation, execution, delivery and administration of this Amendment.

d.All action on the part of the Loan Parties necessary for the valid execution, delivery and performance by the Loan Parties of this Amendment shall have been duly and effectively taken.

7.Amendments to Forbearance Agreement.  Subject to the satisfaction of the conditions precedent specified in Section 6 above, the Forbearance Agreement is hereby amended by:

a.amending and restating Section 7(a) in its entirety as follows:

“a.Budget.  The Borrowers shall, not later than 12 noon (Boston time) on (i) December 27, 2019, deliver to the Agents a budget through January 31, 2020 prepared by the Administrative Borrower, (ii) January 3, 2020, deliver to the Agents a budget through March 27, 2020 prepared by the Administrative Borrower, in each case, which budget shall include a weekly cash budget, including information on a line item basis as to (w) projected cash receipts, (x) projected disbursements (including ordinary course operating expenses, capital expenditures, asset sales, credit party expenses and any other fees and expenses relating to the Loan Documents), (y) a calculation of the Borrowing Base and (z) the amount of Qualified Cash, which shall be in form and substance acceptable to the Agents (a “Budget”) and (iii) March 6, 2020, deliver to the Agents an updated Budget through May 1, 2020.  Each Budget may be updated, modified or supplemented (with the consent of the Agents and/or at the reasonable request of the Agents) from time to time, and each such updated, modified or supplemented budget shall be approved by, and in form and substance satisfactory to, the Agents and no such updated, modified or supplemented budget shall be effective until so approved and once so approved shall be deemed a Budget.”

b.deleting “January 31, 2020” from Section 7(c) and inserting “March 27, 2020” in lieu thereof; and

c.deleting “February 28, 2020” from Section 8 and inserting “April 10, 2020” in lieu thereof.

8.Release.  Each Loan Party hereby releases and forever discharges the Agents, the Lenders and each of their parents, subsidiaries and affiliates, past or present, and each of them, as well as each of Agents’ and Lenders’ directors, officers, agents, servants, employees, shareholders, representatives, attorneys, administrators, executors, heirs, assigns, predecessors and successors in interest, and all other persons, firms or corporations with whom any of the former have been, are now, or may hereafter be affiliated, and each of them (collectively, the “Releasees”), from and against any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action in law or equity, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, whether known or

-4-

9631270


 

unknown, fixed or contingent, suspected or unsuspected by any Loan Party, and whether concealed or hidden (collectively, “Claims”), which any Loan Party now owns or holds or has at any time heretofore owned or held, which are based upon or arise out of or in connection with any matter, cause or thing existing at any time prior to the date hereof or anything done, omitted or suffered to be done or omitted at any time prior to the date hereof in connection with the Financing Agreement, the other Loan Documents or this Amendment (collectively the “Released Matters”).  Each Loan Party represents, warrants and agrees that in executing and entering into this release, they are not relying and have not relied upon any representation, promise or statement made by anyone which is not recited, contained or embodied in this Amendment or the Loan Documents.  Each Loan Party has reviewed this release with the Loan Parties’ legal counsel, and understands and acknowledges the significance and consequence of this release and of the specific waiver thereof contained herein.  Each Loan Party understands and expressly assumes the risk that any fact not recited, contained or embodied therein may turn out hereafter to be other than, different from, or contrary to the facts now known to any Loan Party or believed by any Loan Party to be true.  Nevertheless, each Loan Party intends by this release to release fully, finally and forever all Released Matters and agrees that this release shall be effective in all respects notwithstanding any such difference in facts, and shall not be subject to termination, modification or rescission by reason of any such difference in facts.

9.No Novation; Entire Agreement.  This Amendment evidences solely the specified terms and obligations of the Loan Parties under the Financing Agreement and is not a novation or discharge of any of the other obligations of the Loan Parties under the Financing Agreement.  There are no other understandings, express or implied, among the Loan Parties, the Agents and the Lenders regarding the subject matter hereof or thereof.

10.Severability.  Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

11.Headings.  Headings and captions used in this Amendment are included for convenience of reference only and shall not be given any substantive effect.

12.Counterparts.  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of this Amendment by telecopier or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Amendment.  Any party delivering an executed counterpart of this Amendment by telecopier or electronic mail also shall deliver an original executed counterpart of this Amendment but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.

13.Miscellaneous.  The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns.

14.Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK

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9631270


 

APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.

15.WAIVER OF JURY TRIAL, ETC.  EACH LOAN PARTY, EACH AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AMENDMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.  EACH LOAN PARTY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF ANY AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS.  EACH LOAN PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AMENDMENT.

16.Informed Execution.  Each of the Loan Parties represents and warrants to the Agents and Lenders that:

a.Each Loan Party has read and understands all of the terms and conditions of this Amendment;

b.The Loan Parties intend to be bound by the terms and conditions of this Amendment; and

c.The Loan Parties are executing this Amendment freely and voluntarily, without duress, after consultation with independent counsel of the Loan Parties own selection.

[Remainder of Page Intentionally Left Blank; Signature Pages Follow]

 

-6-

9631270


 

IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.

 

BORROWERS:

 

 

 

 

 

APEX GLOBAL BRANDS, INC. (f/k/a Cherokee Inc.), as U.S. Borrower

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

Chief Executive Officer

 

 

 

 

 

 

IRENE ACQUISITION COMPANY B.V., as Dutch Borrower

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

Director A

 

 

 

 

 

By:

 

/s/ Kimberly Doyle

 

Name:

 

Kimberly Doyle

 

Title:

 

Director B

 

 

GUARANTORS:

 

 

 

 

 

CHEROKEE INC.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

SPELL C. LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

[Signature Page to Amendment to Forbearance Period]

 


 

 

 

CHEROKEE BRANDS LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HAWK 900 BRANDS LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

EDCA LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

FFS HOLDINGS, LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

FLIP FLOP SHOES FRANCHISE COMPANY, LLC

 

 

 

 

 

By: FFS HOLDINGS, LLC, its sole member

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

[Signature Page to Amendment to Forbearance Period]

 


 

 

 

HI-TEC SPORTS INTERNATIONAL HOLDINGS B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC SPORTS PLC

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC INTERNATIONAL HOLDINGS B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC SPORTS UK LIMITED

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC NEDERLAND B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 


[Signature Page to Amendment to Forbearance Period]

 


 

 

 

COLLATERAL AGENT AND

 

ADMINISTRATIVE AGENT:

 

 

 

GORDON BROTHERS FINANCE COMPANY

 

 

 

 

 

By:

 

/s/ Felicia Galeota

 

Name:

 

Felicia Galeota

 

Title:

 

Vice President

 

 

 

 

 

 

 

LENDERS:

 

 

 

GORDON BROTHERS FINANCE COMPANY, LLC

 

 

 

 

 

By:

 

/s/ Felicia Galeota

 

Name:

 

Felicia Galeota

 

Title:

 

Vice President

 

 

 

 

 

 

GORDON BROTHERS BRANDS, LLC

 

 

 

 

 

By:

 

/s/ Patricia E. Parent

 

Name:

 

Patricia E. Parent

 

Title:

 

VP, Asst. Secretary

 

 

 

 

 

 

 

[Signature Page to Amendment to Forbearance Period]

 

apex-ex102_8.htm

Exhibit 10.2

EXECUTION

 

AMENDMENT TO FORBEARANCE PERIOD

This AMENDMENT TO FORBEARANCE PERIOD, dated as of April 10, 2020 (this “Amendment”), is entered into by and among Apex Global Brands Inc. (formerly known as Cherokee Inc.), a Delaware corporation (the “Parent” and the “U.S. Borrower”), Irene Acquisition Company B.V., a private company with limited liability incorporated under the laws of the Netherlands, having its statutory seat (statutaire zetel) in Amsterdam, the Netherlands and registered with the Dutch trade register under number 67160921 (the “Dutch Borrower” and, together with the U.S. Borrower, each a “Borrower” and collectively, the “Borrowers”), each Guarantor party hereto, the Lenders party hereto which constitute all of the Lenders party to the Financing Agreement as of the date hereof, Gordon Brothers Finance Company, a Delaware corporation (“GBFC”), as collateral agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the “Collateral Agent”), and GBFC, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the “Administrative Agent” and together with the Collateral Agent, each an “Agent” and collectively, the “Agents”).

W I T N E S S E T H:

WHEREAS, the Parent, the Borrowers, the Guarantors, the lenders from time to time party thereto (collectively, the “Lenders” and each individually, a “Lender”) and the Agents are parties to that certain Financing Agreement, dated as of August 3, 2018 (as amended by that certain First Amendment to Financing Agreement, dated as of December 28, 2018, as further amended by that certain Second Amendment to Financing Agreement, dated as of January 29, 2019, as further amended by that certain Third Amendment to Financing Agreement and Forbearance Agreement, dated as of December 20, 2019 (the “Forbearance Agreement”), and as further amended, modified or otherwise supplemented from time to time prior to the date hereof, the “Financing Agreement”);

WHEREAS, Events of Default have occurred and are continuing under the Financing Agreement pursuant to Section 9.01(c) as a result of the Borrowers breach of Section 7.03(b) for the periods ended October 31, 2019 and January 31, 2020 (the “Existing Events of Default”).  The Borrowers requested the Agents and Lenders forbear from exercising the Agents rights and remedies granted pursuant to the Financing Agreement and other Loan Documents in order to provide the Borrowers an opportunity to consider various business alternatives.  The Agents and Lenders agreed to forbear from exercising their rights and remedies solely in accordance with the terms and conditions of the Forbearance Agreement; and

WHEREAS, the Borrowers have requested that the Agents and the Lenders extend the forbearance period under the Forbearance Agreement, and the Agents and the Lenders are willing, as applicable, to extend such forbearance period on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and between the Agents, the Lenders, the Borrowers and the Guarantors, as follows:

9687378


 

1.Defined Terms.  Except as otherwise defined in this Amendment, capitalized terms used herein that are not otherwise defined shall have the meanings given to those terms in the Financing Agreement.

2.Effect on Loan Documents; Ratification and Reaffirmation.  The Financing Agreement and the other Loan Documents, after giving effect to this Amendment, shall be and remain in full force and effect in accordance with their terms and hereby are ratified and confirmed in all respects.  Except as expressly set for the herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of any right, power, or remedy of the Agents or any other Secured Party under the Financing Agreement or any other Loan Document.  Each Loan Party party hereto hereby ratifies and confirms in all respects all of its obligations under the Loan Documents to which it is a party and each Loan Party party hereto hereby ratifies and confirms in all respects any prior grant of a security interest under the Loan Documents to which it is party and acknowledges that all of such security interests, and all collateral heretofore pledged as security for such indebtedness, continues to be and remains collateral for such indebtedness from and after the date hereof.  Each Loan Party further acknowledges and agrees that none of the Loan Parties have any defense (whether legal or equitable), set-off or counterclaim to the payment or performance of the Obligations in accordance with the terms of the Loan Documents.

3.Representations and Warranties.  Each Loan Party hereby represents and warrants to the Agents and the Lenders as follows:

a.other than the Existing Events of Default, no Default or Event of Default has occurred and is continuing on the date hereof.

b.the execution, delivery and performance by each Loan Party of this Amendment (i) have been duly authorized by all necessary action, (ii) do not and will not contravene (A) any of its Governing Documents, (B) any applicable material Requirement of Law or (C) any material Contractual Obligation binding on or otherwise affecting it or any of its properties, and (iii) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties, except (solely for the purposes of subclause (iii)), to the extent where such contravention, default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal could not reasonably be expected to have a Material Adverse Effect;

c.no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required in connection with the due execution, delivery and performance by any Loan Party of this Amendment;

d.this Amendment has been duly executed and delivered by each Loan Party and this Amendment constitutes a legal, valid and binding obligation of each such Loan Party, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity; and

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9687378


 

e.all representations and warranties contained in the Financing Agreement and each other Loan Document are true and correct in all material respects (except for those representations and warranties that (i) are conditioned by materiality, which shall be true and correct in all respects and (ii) expressly relate to an earlier date or to the Existing Events of Default) on and as of the date hereof.

4.Acknowledgment of Indebtedness.  Each Loan Party acknowledges and agrees that, as of April 10, 2020, the Loan Parties are indebted, jointly and severally, (a) to the Tranche A Term Loan Lenders for the Tranche A Term Loans in an aggregate outstanding principal amount equal to $4,812,500.00 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents, (b) the Tranche B Term Loan Lenders for the Tranche B Term Loans in an aggregate outstanding principal amount equal to $33,687,500.00 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents; (c) the Tranche C Term Loan Lenders for the Tranche C Term Loans in an aggregate outstanding principal amount equal to $777,132.91 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents; (d) the Tranche D Term Loan Lenders for the Tranche D Term Loans in an aggregate outstanding principal amount equal to $4,662,797.38 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents and (e) for accrued and unpaid fees and expenses of Agents and Lenders (and any other amounts due under the Financing Agreement and the other Loan Documents, including but not limited to reasonable fees and disbursements of counsel).

5.Acknowledgment of Existence of Event of Default.  Each Loan Party acknowledges and agrees that the Existing Events of Default have occurred and are continuing.  Each Loan Party acknowledges and agrees that the Agents and the Lenders have not waived the Existing Events of Default or any other Event of Default existing on the date hereof.  Each Loan Party further acknowledges and agrees that, as a result of the occurrence of the Existing Events of Default: (a) all of such Loan Party’s obligations, liabilities and indebtedness to the Agents and the Lenders under the Financing Agreement and the other Loan Documents may at any time, subject to the terms of the Forbearance Agreement, as amended by this Amendment, the Financing Agreement and the other Loan Documents, be declared due and payable in full, (b) the Agents and the Lenders have no further commitment to extend credit to the Borrowers and (c) the Agents and the Lenders, subject to the terms of the Forbearance Agreement, as amended by this Amendment, are entitled to proceed to enforce any and all of their rights and remedies under the terms of the Financing Agreement and the other Loan Documents.

6.Conditions to Effectiveness.  This Amendment shall not be effective until each of the following conditions precedent have been satisfied:

a.The Agents shall have received this Amendment, duly executed by each of the parties hereto.

b.Each of the representations and warranties set forth in Section 3 hereof shall be true and correct on and as of the date hereof.

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9687378


 

c.All action on the part of the Loan Parties necessary for the valid execution, delivery and performance by the Loan Parties of this Amendment shall have been duly and effectively taken.

7.Amendments to Forbearance Agreement.  Subject to the satisfaction of the conditions precedent specified in Section 6 above, the Forbearance Agreement is hereby amended by:

a.deleting “April 10, 2020” from Section 7(c) and inserting “April 17, 2020” in lieu thereof;

b.adding the following clause (d) to Section 7 of the Forbearance Agreement:

“d.Qualified Cash.  Commencing as of April 10, 2020 and until the earlier to occur of (i) the Termination Date or (ii) a Termination Event, Section 7.03(c) of the Financing Agreement shall be amended by deleting “$700,000” and inserting “$500,000” in lieu thereof.”; and

c.deleting “April 10, 2020” from Section 8 and inserting “April 24, 2020” in lieu thereof.

8.Release.  Each Loan Party hereby releases and forever discharges the Agents, the Lenders and each of their parents, subsidiaries and affiliates, past or present, and each of them, as well as each of Agents’ and Lenders’ directors, officers, agents, servants, employees, shareholders, representatives, attorneys, administrators, executors, heirs, assigns, predecessors and successors in interest, and all other persons, firms or corporations with whom any of the former have been, are now, or may hereafter be affiliated, and each of them (collectively, the “Releasees”), from and against any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action in law or equity, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, whether known or unknown, fixed or contingent, suspected or unsuspected by any Loan Party, and whether concealed or hidden (collectively, “Claims”), which any Loan Party now owns or holds or has at any time heretofore owned or held, which are based upon or arise out of or in connection with any matter, cause or thing existing at any time prior to the date hereof or anything done, omitted or suffered to be done or omitted at any time prior to the date hereof in connection with the Financing Agreement, the other Loan Documents or this Amendment (collectively the “Released Matters”).  Each Loan Party represents, warrants and agrees that in executing and entering into this release, they are not relying and have not relied upon any representation, promise or statement made by anyone which is not recited, contained or embodied in this Amendment or the Loan Documents.  Each Loan Party has reviewed this release with the Loan Parties’ legal counsel, and understands and acknowledges the significance and consequence of this release and of the specific waiver thereof contained herein.  Each Loan Party understands and expressly assumes the risk that any fact not recited, contained or embodied therein may turn out hereafter to be other than, different from, or contrary to the facts now known to any Loan Party or believed by any Loan Party to be true.  Nevertheless, each Loan Party intends by this release to release fully, finally and forever all Released Matters and agrees that this release shall be effective in all respects notwithstanding any such difference in facts, and shall not be subject to termination, modification or rescission by reason of any such difference in facts.

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9687378


 

9.No Novation; Entire Agreement.  This Amendment evidences solely the specified terms and obligations of the Loan Parties under the Financing Agreement and is not a novation or discharge of any of the other obligations of the Loan Parties under the Financing Agreement.  There are no other understandings, express or implied, among the Loan Parties, the Agents and the Lenders regarding the subject matter hereof or thereof.

10.Severability.  Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

11.Headings.  Headings and captions used in this Amendment are included for convenience of reference only and shall not be given any substantive effect.

12.Counterparts.  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of this Amendment by telecopier or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Amendment.  Any party delivering an executed counterpart of this Amendment by telecopier or electronic mail also shall deliver an original executed counterpart of this Amendment but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.

13.Miscellaneous.  The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns.

14.Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.

15.WAIVER OF JURY TRIAL, ETC.  EACH LOAN PARTY, EACH AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AMENDMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.  EACH LOAN PARTY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF ANY AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS.  EACH LOAN PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AMENDMENT.

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9687378


 

16.Informed Execution.  Each of the Loan Parties represents and warrants to the Agents and Lenders that:

a.Each Loan Party has read and understands all of the terms and conditions of this Amendment;

b.The Loan Parties intend to be bound by the terms and conditions of this Amendment; and

c.The Loan Parties are executing this Amendment freely and voluntarily, without duress, after consultation with independent counsel of the Loan Parties own selection.

[Remainder of Page Intentionally Left Blank; Signature Pages Follow]

 

 

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IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.

 

 

BORROWERS:

 

 

 

 

 

APEX GLOBAL BRANDS, INC. (f/k/a Cherokee Inc.), as U.S. Borrower

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

Chief Executive Officer

 

 

 

 

 

 

IRENE ACQUISITION COMPANY B.V., as Dutch Borrower

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

Director A

 

 

 

 

 

By:

 

/s/ Kimberly Doyle

 

Name:

 

Kimberly Doyle

 

Title:

 

Director B

 

 

GUARANTORS:

 

 

 

 

 

CHEROKEE INC.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

SPELL C. LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

[Signature Page to Amendment to Forbearance Period]


 

 

 

CHEROKEE BRANDS LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HAWK 900 BRANDS LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

EDCA LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

FFS HOLDINGS, LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

FLIP FLOP SHOES FRANCHISE COMPANY, LLC

 

 

 

 

 

By: FFS HOLDINGS, LLC, its sole member

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

[Signature Page to Amendment to Forbearance Period]


 

 

 

HI-TEC SPORTS INTERNATIONAL HOLDINGS B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC SPORTS PLC

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC INTERNATIONAL HOLDINGS B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC SPORTS UK LIMITED

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC NEDERLAND B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

[Signature Page to Amendment to Forbearance Period]


 

 

 

COLLATERAL AGENT AND

 

ADMINISTRATIVE AGENT:

 

 

 

GORDON BROTHERS FINANCE COMPANY

 

 

 

 

 

By:

 

/s/ Felicia Galeota

 

Name:

 

Felicia Galeota

 

Title:

 

Vice President

 

 

 

 

 

 

LENDERS:

 

 

 

GORDON BROTHERS FINANCE COMPANY, LLC

 

 

 

 

 

By:

 

/s/ Felicia Galeota

 

Name:

 

Felicia Galeota

 

Title:

 

Vice President

 

 

 

 

 

 

GORDON BROTHERS BRANDS, LLC

 

 

 

 

 

By:

 

/s/ Patricia E. Parent

 

Name:

 

Patricia E. Parent

 

Title:

 

VP, Asst. Secretary

 

 

 

 

 

[Signature Page to Amendment to Forbearance Period]

apex-ex103_101.htm

 

Exhibit 10.3

 

BANK OF AMERICA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Promissory Note

 

 

 

 

 

 

 

 

Date

Loan Amount

 

Interest Rate after Deferment Period

 

Deferment Period

April 14, 2020

$735,552.00

 

1.00% fixed per annum

 

6 months

 

 

 

 

 

 

 

This Promissory Note ("Note") sets forth and confirms the terms and conditions of a term loan to Apex Global Brands Inc (whether one or more than one, "Borrower") from Bank of America, NA, a national banking association having an address of P.O. Box 15220, Wilmington, DE 19886 -5220 (together with its agents, affiliates, successors and assigns, the " Bank") for the Loan Amount and at the Int e rest Rate stated above (the "Loan"). The Loan is made pursuant to the Paycheck Protection Program under r the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The funding of the Loan is conditioned upon approval of Borrower's application for the Loan and Bank' s receiving confirmation from the SBA that Bank may proceed with the Loan. The date on which the funding of the Loan takes place is referred to as the "Funding Date".  If the Funding Date is later than the date of this Note, the Deferment Period commences on the Funding Date and ends six month s from the Funding Date. After sixty (60) days from the date the Loan is funded, but not more than ninety (90) days from the date the Loan is funded, Borrower shall apply to Bank for loan forgiveness. If the SBA confirms full and complete forgiveness of the unpaid balance of the Loan, and reimburses Bank for the total outstanding balance, principal and interest, Borrower's obligation s under the Loan will be deemed fully satisfied and paid in full. If the SBA does not confirm forgiveness of the Loan, or only partly confirms forgiveness of the Loan, or Borrower fails to apply for loan forgiveness, Borrower will be obligated to repay to the Bank the total outstanding balance remaining due under the Loan, including principal and interest (the " Loan Balance"), and in such case, Bank will establish the terms for repayment of the Loan Balance in a separate letter to be provided to Borrower, which letter will set forth the Loan Balance, the amount of each monthly payment, the interest rate (not in excess of a fixed rate of one per cent (1.00 %) per annum), the term of the Loan, and the maturity date of two (2) years from the funding date of the Loan. No principal or interest payments will be due prior to the end of the Deferment Period. Borrower promises, covenants and agrees with Bank to repay the Loan in accordance with the terms for repayment as set forth in that letter (the "Repayment Letter''). Payments greater than the monthly payment or additional payments may be made at any time without a prepayment penalty but shall not relieve Borrower of its obligations to pay the next succeeding monthly payment.

 

In consideration of the Loan received by Borrower from Bank, Borrower agrees as follows:

 

1.

DEPOSIT ACCOUNT/USE OF LOAN PRO CEEDS: Borrower is required to maintain a deposit account with Bank of America, N.A. (the "Deposit Account") until the Loan is either forgiven in full or the Loan is fully paid by Borrower. Borrower acknowledges and agrees that the proceeds of the Loan shall be deposited by Bank into the Deposit Account. The Loan proceeds are to not be used by Borrower for any illegal purpose and Borrower represents to the Bank that it will derive material benefit, directly and indirectly, from the making of the Loan.

 

2.

DIRECT DEBIT. If the Loan is not forgiven and a Loan Balance remains, Borrower agrees that on the due date of any amount due as set forth in the Repayment Letter, Bank will debit the amount due from the Deposit Account established by Borrower in connection with this Loan. Should there be insufficient funds in the Deposit Account to pay all such sums when due, the full amount of such deficiency be shall be immediately due and payable by Borrower.

 

3.

INTEREST RATE: Bank shall charge interest on the unpaid principal balance of the Loan at the interest rate set forth above under "Interest Rate" from the date the Loan was funded until the Loan is paid in full.

 

4.

REPRESENTATIONS, WARRANTIES AND COVENAN TS. (l) Borrower represents and warrants to Bank, and covenants and agrees with Bank, that: (i) Borrower has read the statements included in the Application, including the Statements Required by Law and Executive Orders, and Borrower understands them. (ii) Borrower  was and  remains eligible  to  receive a  loan  under  the  rules  in effect at  the  time Borrower submitted to Bank its Paycheck Protection Program Application Form (the "Application") that have been issued  by  the  SBA  implementing  the  Paycheck Protection Program under Division A, Title I of the CARES Act (the " Paycheck Protection Program Rule"). (iii) Borrower (a) is an independent contractor, eligible self-employed individual, or sole proprietor or (b) employs no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by the SBA in 13 C.F.R. 121.2 0 I for Borrower's industry. (iv) Borrower will comply whenever applicable, with the civil rights and other limitations in the Application.  (v) All proceeds of the Loan will be used only for business-related purposes as specified in the Application and consistent with the Paycheck Protection Program Rule.  (vi) To the extent feasible, Borrower will purchase only American-made equipment and products. (vii) Borrower is not engaged in any activity that is illegal under federal, state or local law. (viii) Borrower certifies that any loan received by Borrower under Section 7(b)(2)  of  the Small  Business  Act  between  January  

 


 

31, 2020  and  April  3, 2020 that will remain outstanding after funding of this Loan  was for a purpose  other than  paying payroll costs and  other allowable  uses  loans under the Paycheck Protection Program Rule. (ix) Borrower was in operation on February I5, 2020 and bad employees for whom Borrower paid salaries and payroll taxes or paid independent contractors (as reported on Form(s) 1099- MISC). (x) The current economic uncertainty makes the request for the Loan necessary to support the ongoing operations of Borrower. (xi) All proceeds of the Loan  will be used  to retain  workers and  maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule and Borrower acknowledges that if the funds are knowingly used for unauthorized purposes, the  federal  government  may  bold  Borrower  and/or Borrower's authorized representative legally liable, such as for charges of fraud. (xii) Borrower has provided Bank true, correct and complete information demonstrating that Borrower had employees for whom Borrower paid salaries and payroll taxes on or around February 15, 2020. (xiii) Borrower has provided to Bank all documentation available to Borrower on a  reasonable  basis verifying  the dollar amounts  of  average  monthly payroll costs for the calendar year 2019, which documentation shall include, as applicable, copies of payroll processor records,  payroll  tax filings and/or Form 1099-MISC. (xiv) Borrower will promptly provide to Bank (a) any additional  documentation  that  Bank  requests  in  order  to  verify payroll costs and (b) documentation verifying the number of  full-time  equivalent  employees on  payroll  as  well  as  the  dollar amounts of  payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for  the  eight  wee k  period  following  the  Loan.  (xv) Borrower acknowledges that (a) loan forgiveness will be provided by the SBA for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities , and not more than  25%  of  the Forgivable  Amount  may  be for  non-payroll costs  (xvi) During the period beginning on February 15, 2020 and ending on December 31, 2020, Borrower has not and will not receive any other loan under the Paycheck Protection Program. (xvii) Borrower certifies that the information provided in the Application and the information that Borrower provided in all supporting documents and forms is true and accurate in all material respects. Borrower acknowledges that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a Federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000. (xviii) Borrower understands, acknowledges and agrees that Bank can share any tax information received from Borrower or any Owner with SBA's authorized representatives, including authorized representatives of the SBA Office of lnspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews. (xix) Neither Borrower nor any Owner, is presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy. (xx) Neither Borrower, nor any Owner, nor any business owned or controlled by any of them, ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted in the last 7 years and caused a loss to the government. (xxi) Neither Borrower, nor any Owner, is an owner of any other business or has common management with any other business, except as disclosed to the Bank in connection with the Borrower's Application. (xxii) Borrower did not receive an SBA Economic Injury Disaster Loan between January 31, 2020 and April 3, 2020, except as disclosed to the Bank in connection with the Borrower's Application. (xxiii) Neither Borrower (if an individual), nor any individual owning 20% or more of the equity of Borrower (each, an ''Owner"), is subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, on probation or parole. (xxiv) Neither Borrower (if an individual), nor any Owner, has within the last S years been convicted; pleaded guilty; pleaded nolo contendere; been placed on pretrial diversion; or been placed on any form of parole or probation (including probation before judgment) for any felony. (xxv) The United States is the principal place of residence for all employees of Borrower included in Borrower's payroll calculation included in the Application. (xxvi) The Borrower correctly indicated on its Application whether it is a franchise that is listed in the SBA's franchise directory. (xxvii) If Borrower is claiming an exemption from all SBA affiliation rules applicable to Paycheck Protection Program loan eligibility under the religious exemption to the affiliation rules, Borrower has made a reasonable, good faith determination that it qualifies for such religious exemption under 13 C.F.R. 12l.103(b)(IO), which provides that "[t]he relationship of a faith­ based organization to another organization is not considered an affiliation with the other organization... if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion." (2) At all times during the term the of the Loan, Borrower represents and warrants to the Bank, that (i) if Borrower is anything other than a natural person, it is duly formed and existing under the laws of the state or other jurisdiction where organized; (ii) this Note, and any instrument or agreement required under this Note, are within Borrower's powers, have been duly authorized, and do not conflict with any of its organizational papers; (iii) the information included in the Beneficial Ownership Certification most recently provided to the Bank, if applicable, is true and correct in all respects; and (iv) in each state in which Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name (e.g. trade name or d/b/a) statutes. IF

THE FUNDING DATE IS AFTER THE DATE OF THIS NOTE, BORROWER AGREES THAT BORROWER SHALL BE DEEMED TO HAVE REPEATED AND. REISSUED, IMMEDIATELY PRIOR TO THE FUNDING ON THE FUNDING DATE, THE REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS SET FORTH ABOVE IN THIS PARAGRAPH

 

4

 


 

5.

EVENTS OF DEFAULT: If the Loan is not forgiven and a Loan Balance remains, then from the date the Repayment Letter is sent to Borrower until the Loan Balance is fully paid, the occurrence and continuation of any of the following events shall constitute a default hereunder: (i) insolvency, bankruptcy, dissolution, issuance of an attachment or garnishment against Borrower; (ii) failure to make any payment when due under the Loan or any or all other loans made by Bank to Borrower, and such failure continues for ten (l 0) days after it first became due; (iii) failure to provide current financial information promptly upon request by Bank; (iv) the making of any false or materially misleading statement on any application or any financial statement for the Loan or for any or all other loans made by Bank to Borrower; (v) Bank in good faith believes the prospect of payment under the Loan or any or all other loans made by Bank to Borrower is impaired; (vi) Borrower under or in connection with the Loan or any or all other loans made by Bank to Borrower fails to timely and properly observe, keep or perform any term, covenant, agreement, or condition therein; (vii) default shall be made with respect to any other indebtedness for borrowed money of Borrower, if the default is a failure to pay at maturity or if the effect of such default is to accelerate the maturity of such indebtedness for borrowed money or to permit the holder or obligee thereof or other party thereto to cause any such indebtedness for borrowed money to become due prior to its stated maturity; (viii) the Bank in its sole discretion determines in good faith that an event has occurred that materially and adversely affects Borrower; (ix) any change shall occur in the ownership of the Borrower; (x) permanent cessation of Borrower's business operations; (xi) Borrower, if an individual, dies, or becomes disabled, and such disability prevents the Borrower from continuing to operate its business; (xii) Bank receives notification or is otherwise made aware that Borrower, or any affiliate of Borrower, is listed as or appears on any lists of known or suspected terrorists or terrorist organizations provided to Bank by the U.S. government under the USA Patriot Act of 2001; and (xiii) Borrower fails to maintain the Deposit Account with the Bank.

6.

REMEDIES: If the Loan is not forgiven and a Loan Balance remains, then from the date the Repayment Letter is sent to Borrower, upon the occurrence of a default, all or any portion of the entire amount owing on the Loan, and any and all other loans made by Bank to Borrower, shall, at Bank's option, become immediately due and payable without demand or notice. Upon a default, Bank may exercise any other right or remedy available to it at law or in equity. All persons included in the term "Borrower'' are jointly and severally liable for repayment, regardless of to whom any advance of credit was made. Borrower shall pay any costs Bank may incur including without limitation reasonable attorney's fees and court costs should the Loan and/or any and all other loans made by Bank to Borrower be referred to an attorney for collection to the extent permitted under applicable state law. EACH PERSON INCLUDED IN THE TERM BORROWER WAIVES ALL SURETYSHIP AND OTHER SIMILAR DEFENSES TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW.

7.

CREDIT INVESTIGATION: If the Loan is not forgiven and a Loan Balance remains, then from the date the Repayment Letter is sent to Borrower until the Loan Balance is fully paid, Borrower authorizes Bank and any of its affiliates at any time to make whatever credit investigation Bank deems is proper to evaluate Borrower's credit, financial standing and employment and Borrower authorizes Bank to exchange Borrower's credit experience with credit bureaus and other creditors Bank reasonably believes are doing business with Borrower. Borrower also agrees to furnish Bank with any financial statements Bank may request at any time and in such detail as Bank may require.

8.

NOTICES: Borrower's request for Loan forgiveness, and the documentation that must accompany that request, shall be submitted to Bank by transmitting the communication to the electronic address, website, or other electronic transmission portal provided by Bank to Borrower. Otherwise, all notices required under this Note shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the signature page of this Note, or sent by facsimile to the fax number(s) listed on the signature page, or to such other addresses as the Bank and the Borrower may specify from time to time in writing (any such notice a "Written Notice"). Written Notices shall be effective {i) if mailed, upon the earlier of receipt or five (5) days after deposit in the U.S. mail, first class, postage prepaid, (ii) if telecopied, when transmitted, or (iii) if hand-delivered, by courier or otherwise (including telegram, lettergram or mailgram), when delivered. In lieu of a Written Notice, notices and/or communications from the Bank to the Borrower may, to the extent permitted by law, be delivered electronically (i) by transmitting the communication to the electronic address provided by the Borrower or to such other electronic address as the Borrower may specify from time to time in writing, or (ii) by posting the communication on a website and sending the Borrower a notice to the Borrower's postal address or electronic address telling the Borrower that the communication has been posted, its location, and providing instructions on how to view it (any such notice, an "Electronic Notice"). Electronic Notices shall be effective when presented to the Borrower, or is sent to the Borrower's electronic address or is posted to the Bank's website. To retain a copy for your records, please download and print or save a copy to your device.

9.

CHOICE OF LAW; JURISDICTION; VENUE. (1) At all times that Bank is the holder of this Note, except to the extent that any law of the United States may apply, this Note shall be governed and interpreted according to the internal laws of the state of Borrower's principal place of business (the "Governing Law State"), without regard to any choice of law, rules or principles to the contrary. However, the charging and calculating of interest on the obligations under this Note shall be governed by, construed and enforced in accordance with the laws of the state of North Carolina and applicable federal law. Nothing in this paragraph shall be construed to limit or otherwise affect any rights or remedies of Bank under federal law. Borrower and Bank agree and consent to be subject to the personal jurisdiction of any state or federal court located in the Governing Law State so that trial shall only be conducted by a court in that state. (2) Notwithstanding the foregoing, when SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

 

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10.

MISCELLANEOUS. The Loan may be sold or assigned by Bank without notice to Borrower. Borrower may not assign the Loan or its rights hereunder to anyone without Bank's prior written consent. If any provision of this Note is contrary to applicable law or is found unenforceable, such provision shall be severed from this Note without invalidating the other provisions thereof. Bank may delay enforcing any of its rights under this Note without losing them, and no failure or delay on the part of Bank in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. Bank, by its acceptance hereof, and the making of the Loan and Borrower understand and agree that this Note constitutes the complete understanding between them. This Note shall be binding upon Borrower, and its successors and assigns, and inure to the benefit of Bank and its successors and assigns.

11.

BORROWING AUTHORIZED. The signer for Borrower represents, covenants and warrants to Bank that he or she is certified to borrow for the Borrower and is signing this Note as the duly authorized sole proprietor, owner, sole shareholder, officer, member, managing member, partner, trustee, principal, agent or representative of Borrower, and further acknowledges and confirms to Bank that by said signature he or she has read and understands all of the terms and provisions contained in this Note and agrees and consents to be bound by them. This Note and any instrument or agreement required herein, are within the Borrower's powers, have been duly authorized, and do not conflict with any of its organizational papers. The individuals signing this Agreement on behalf of each Borrower are authorized to sign such documents on behalf of such entities. For purposes of this Note only, the Bank may rely upon and accept the authority of only one signer on behalf of the Borrower, and for this Note, this resolution supersedes and replaces any prior and existing contrary resolution provided by Borrower to Bank.

12.

ELECTRONIC COMMUNICATIONS AND SIGNATURES. This Note and any document, amendment, approval, consent, information, notice, certificate, request, statement, disclosure or authorization related to this Note (each a "Communication"), including Communications required to be in writing, may, if agreed by the Bank, be in the form of an Electronic Record and may be executed using Electronic Signatures, including, without limitation, facsimile and/or .pd£ The Borrower agrees that any Electronic Signature (including, without limitation, facsimile or .pdf) on or associated with any Communication shall be valid and binding on the Borrower to the same extent as a manual, original signature, and that any Communication entered into by Electronic Signature, will constitute the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with the terms thereof to the same extent as if a manually executed original signature was delivered to the Bank. Any Communication may be executed in as many counterparts as necessary or convenient, including both paper and electronic counterparts, but all such counterparts are one and the same Communication. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Bank of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format), or an electronically signed Communication converted into another format, for transmission, delivery and/or retention. The Bank may, at its option, create one or more copies of any Communication in the form of an imaged Electronic Record ("Electronic Copy''}, which shall be deemed created in the ordinary course of the Bank's business, and destroy the original paper document. All Communications in the form of an Electronic Record, including an Electronic Copy, shall be considered an original for all purposes, and shall have the same legal effect, validity and enforceability as a paper record. Notwithstanding anything contained herein to the contrary, the Bank is under no obligation to accept an Electronic Signature in any form or in any format unless expressly agreed to by the Bank pursuant to procedures approved by it; provided, further, without limiting the foregoing, (a) to the extent the Bank has agreed to accept such Electronic Signature, the Bank shall be entitled to rely on any such Electronic Signature without further verification and {b) upon the request of the Bank any Electronic Signature shall be promptly followed by a manually executed, original counterpart. For purposes hereof, ••Electronic Record" and "Electronic Signature" shall have the meanings assigned to them, respectively, by 15 USC §7006, as it may be amended from time to time.

13.

CONVERSION TO PAPER ORIGINAL. At the Bank's discretion the authoritative electronic copy of this Note ("Authoritative Copt') may be converted to  paper and marked as the original by the Bank (the "Paper Original).  Unless and until the Bank creates a Paper Original, the Authoritative Copy of this Agreement: (1) shall at all times reside in a document management system designated by the Bank for the storage of authoritative copies of electronic records, and (2) is held in the ordinary course of business. In the event the Authoritative Copy is converted to a Paper Original, the parties hereto acknowledge and agree that: (1) the electronic signing of this Agreement also constitutes issuance and delivery of the Paper Original, (2) the electronic signature(s) associated with this Agreement, when affixed to the Paper Original, constitutes legally valid and binding signatures on the Paper Original, and (3) the Borrower's obligations will be evidenced by the Paper Original after such conversion.

14.

BORROWER ATTESTATION. Borrower attests and certifies to Bank that it has not provided false or misleading information or statements to the Bank in its application for the Loan, and that the certifications, representations, warranties, and covenants made to the Bank in this Note and elsewhere relating to the Loan are true, accurate, and correct. Borrower further attests and certifies to Bank that it is has read, understands, and acknowledges that the Loan is being made under the CARES Act, and any use of the proceeds of the Loan other than as permitted by the CARES Act, or any false or misleading information or statements provided to the Bank in its application for the Loan or in this Note may subject the Borrower to criminal and civil liability under applicable state and federal laws and regulations, including but not limited to, the False Claims Act, 31 U.S.C. Sect ion 3729, et. seq. Borrower further acknowledges and understands that this Note is not valid and effective until and unless Borrower's application for the Loan is approved and Bank's receiving confirmation from the SBA that Bank may proceed with the Loan.

 

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lN WITNESS WHEREOF, I, the authorized representative of the Borrower, hereto have caused this Promissory Note to be duly executed as of the date set forth below.

 

 

By:

/s/ Steven L. Brink

 

Name:

Steven L. Brink

 

Title:

Chief Financial Officer

 

 

 

 

 

 

 

STREET ADDRESS: 5990 Sepulveda Blvd Ste 600

 

CITY/STATE/ZIPCODE: Sherman Oak, CA 91411

 

4

apex-ex104_100.htm

Exhibit 10.4

EXECUTION

FOURTH AMENDMENT TO FINANCING AGREEMENT
AND FORBEARANCE AGREEMENT

This FOURTH AMENDMENT TO FINANCING AGREEMENT AND FORBEARANCE AGREEMENT, dated as of April 30, 2020 (this “Amendment”), is entered into by and among Apex Global Brands Inc. (formerly known as Cherokee Inc.), a Delaware corporation (the “Parent” and the “U.S. Borrower”), Irene Acquisition Company B.V., a private company with limited liability incorporated under the laws of the Netherlands, having its statutory seat (statutaire zetel) in Amsterdam, the Netherlands and registered with the Dutch trade register under number 67160921 (the “Dutch Borrower” and, together with the U.S. Borrower, each a “Borrower” and collectively, the “Borrowers”), each Guarantor party hereto, the Lenders party hereto which constitute all of the Lenders party to the Financing Agreement as of the date hereof, Gordon Brothers Finance Company, a Delaware corporation (“GBFC”), as collateral agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the “Collateral Agent”), and GBFC, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the “Administrative Agent” and together with the Collateral Agent, each an “Agent” and collectively, the “Agents”).

W I T N E S S E T H:

WHEREAS, the Parent, the Borrowers, the Guarantors, the lenders from time to time party thereto (collectively, the “Lenders” and each individually, a “Lender”) and the Agents are parties to that certain Financing Agreement, dated as of August 3, 2018 (as amended by that certain First Amendment to Financing Agreement, dated as of December 28, 2018, as further amended by that certain Second Amendment to Financing Agreement, dated as of January 29, 2019, as further amended by that certain Third Amendment to Financing Agreement and Forbearance Agreement, dated as of December 20, 2019 and as further amended, modified or otherwise supplemented from time to time prior to the date hereof, the “Financing Agreement”);

WHEREAS, Events of Default have occurred and are continuing under the Financing Agreement pursuant to (i) Section 9.01(c) of the Financing Agreement as a result of the Borrowers breach of Section 7.03(b) of the Financing Agreement for the period ended October 31, 2019 and January 31, 2020 and (ii) Section 9.01(c) of the Financing Agreement as a result of the Borrowers breach of Section 7.03(c) of the Financing Agreement (collectively, the “Existing Events of Default”).  The Borrowers have requested the Agents and Lenders forbear from exercising the Agents rights and remedies granted pursuant to the Financing Agreement and other Loan Documents in order to provide the Borrowers an opportunity to consider various business alternatives.  The Agents and Lenders have agreed to forbear from exercising their rights and remedies solely in accordance with the terms and conditions of this Amendment; and

WHEREAS, the Borrowers have requested that the Agents and the Lenders effect certain amendments to the Financing Agreement, in each case, as more specifically set forth herein, and the Agents and the Lenders are willing, as applicable, to effect such amendments to the Financing Agreement, in each case, on the terms and conditions hereinafter set forth.

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NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and between the Agents, the Lenders, the Borrowers and the Guarantors, as follows:

1.Defined Terms.  Except as otherwise defined in this Amendment, capitalized terms used herein that are not otherwise defined shall have the meanings given to those terms in the Financing Agreement (as amended hereby).

2.Effect on Loan Documents; Ratification and Reaffirmation.  The Financing Agreement and the other Loan Documents, after giving effect to this Amendment, shall be and remain in full force and effect in accordance with their terms and hereby are ratified and confirmed in all respects.  Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of any right, power, or remedy of the Agents or any other Secured Party under the Financing Agreement or any other Loan Document.  Each Loan Party party hereto hereby ratifies and confirms in all respects all of its obligations under the Loan Documents to which it is a party and each Loan Party party hereto hereby ratifies and confirms in all respects any prior grant of a security interest under the Loan Documents to which it is party and acknowledges that all of such security interests, and all collateral heretofore pledged as security for such indebtedness, continues to be and remains collateral for such indebtedness from and after the date hereof.  Each Loan Party further acknowledges and agrees that none of the Loan Parties have any defense (whether legal or equitable), set-off or counterclaim to the payment or performance of the Obligations in accordance with the terms of the Loan Documents.

3.Representations and Warranties.  Each Loan Party hereby represents and warrants to the Agents and the Lenders as follows:

a.other than the Existing Events of Default, no Default or Event of Default has occurred and is continuing on the date hereof.

b.the execution, delivery and performance by each Loan Party of this Amendment (i) have been duly authorized by all necessary action, (ii) do not and will not contravene (A) any of its Governing Documents, (B) any applicable material Requirement of Law or (C) any material Contractual Obligation binding on or otherwise affecting it or any of its properties, and (iii) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties, except (solely for the purposes of subclause (iii)), to the extent where such contravention, default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal could not reasonably be expected to have a Material Adverse Effect;

c.no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required in connection with the due execution, delivery and performance by any Loan Party of this Amendment;

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d.this Amendment has been duly executed and delivered by each Loan Party and this Amendment constitutes a legal, valid and binding obligation of each such Loan Party, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally and by general principles of equity; and

e.all representations and warranties contained in the Financing Agreement and each other Loan Document are true and correct in all material respects (except for those representations and warranties that (i) are conditioned by materiality, which shall be true and correct in all respects and (ii) expressly relate to an earlier date or to the Existing Events of Default) on and as of the date hereof.

4.Acknowledgment of Indebtedness.  Each Loan Party acknowledges and agrees that, as of April 30, 2020, the Loan Parties are indebted, jointly and severally, (a) to the Tranche A Term Loan Lenders for the Tranche A Term Loans in an aggregate outstanding principal amount equal to $4,812,500.00 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents; (b) the Tranche B Term Loan Lenders for the Tranche B Term Loans in an aggregate outstanding principal amount equal to $33,687,500.00 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents; (c) the Tranche C Term Loan Lenders for the Tranche C Term Loans in an aggregate outstanding principal amount equal to $777,132.91 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents; (d) the Tranche D Term Loan Lenders for the Tranche D Term Loans in an aggregate outstanding principal amount equal to $4,662,797.38 plus accrued and unpaid interest thereon, as provided in the Financing Agreement and the other Loan Documents and (e) for accrued and unpaid fees and expenses of Agents and Lenders (and any other amounts due under the Financing Agreement and the other Loan Documents, including but not limited to reasonable fees and disbursements of counsel).

5.Acknowledgment of Existence of Events of Default.  Each Loan Party acknowledges and agrees that the Existing Events of Default have occurred and are continuing.  Each Loan Party acknowledges and agrees that the Agents and the Lenders have not waived the Existing Events of Default or any other Event of Default.  Each Loan Party further acknowledges and agrees that, as a result of the occurrence of the Existing Events of Default: (a) all of such Loan Party’s obligations, liabilities and indebtedness to the Agents and the Lenders under the Financing Agreement and the other Loan Documents may at any time, subject to the terms of this Amendment, the Financing Agreement and the other Loan Documents, be declared due and payable in full, (b) the Agents and the Lenders have no further commitment to extend credit to the Borrowers and (c) the Agents and the Lenders, subject to the terms of this Amendment, are entitled to proceed to enforce any and all of their rights and remedies under the terms of the Financing Agreement and the other Loan Documents.

6.Conditions Precedent to Effectiveness.  This Amendment shall not be effective until each of the following conditions precedent have been satisfied:

a.the Agents shall have received this Amendment, duly executed by each of the parties hereto;

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b.the Agents shall have received the Fourth Amendment Fee Letter (as hereinafter defined), duly executed by each of the parties thereto;

c.each of the representations and warranties set forth in Section 3 hereof shall be true and correct on and as of the date hereof;

d.the Borrowers shall have paid in full all invoiced cost and expenses incurred in connection with the preparation, execution, delivery and administration of this Amendment; and

e.all action on the part of the Loan Parties necessary for the valid execution, delivery and performance by the Loan Parties of this Amendment shall have been duly and effectively taken.

7.Conditions Subsequent to Effectiveness.  Within seven (7) days after the date hereof (or such later date as may be agreed to by the Agents), (a) the Loan Parties and the Board Observer (as hereinafter defined) shall have entered into and delivered to the Agents an agreement or agreements, in form and substance satisfactory to the Agents, governing, inter alia, the Board Observer’s board observation rights, including, without limitation, customary indemnification rights, expense reimbursement provisions, and fee arrangements and (b) the Loan Parties shall deliver to the Agents an updated Perfection Certificate in form and substance satisfactory to the Agents.

8.Covenants and Agreements.  Without any prejudice or impairment whatsoever to any of the rights and remedies of the Agents or any Lender contained in the Financing Agreement or any of the other Loan Documents or in any agreement, document or instrument executed in connection therewith, each of the Loan Party’s covenants and agrees with the Agents and the Lenders that so long as the Existing Events of Default have not been waived by the Required Lenders (it being understood and agreed that, unless otherwise explicitly set forth herein, the terms of this Section 8 shall survive the termination of the Forbearance Period so long as the Existing Events of Default are continuing):

a.Budget.  The Borrowers have delivered to the Agents on April 29, 2020 (i) a weekly budget through August 1, 2020, prepared by the Administrative Borrower and (ii) a monthly budget through December 31, 2020, prepared by the Administrative Borrower, in each case, which budget shall include information on a line item basis as to (w) projected cash receipts, (x) projected disbursements (including ordinary course operating expenses, capital expenditures, asset sales, credit party expenses and any other fees and expenses relating to the Loan Documents), (y) a calculation of the Borrowing Base and (z) the amount of Qualified Cash, which shall be in form and substance acceptable to the Agents (“Budget”) and each such Budget to be consistent with past practice.  The Budget may be updated, modified or supplemented (with the consent of the Agents and/or at the reasonable request of the Agents) from time to time, and each such updated, modified or supplemented budget shall be approved by, and in form and substance satisfactory to, the Agents and no such updated, modified or supplemented budget shall be effective until so approved and once so approved shall be deemed the Budget.

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b.Budget Variance Report.  On or before Friday of each week commencing on May 4, 2020, the Borrowers shall deliver to the Agents a Budget Variance Report.  As used herein “Budget Variance Report” means a weekly report provided by the Borrowers to the Agents, showing amount of Qualified Cash as of Saturday of each week and the actual receipts and disbursements for each line item compared to the Budget, as applicable, on a cumulative basis from the date hereof of until the fourth (4th) week after the date hereof and then on a rolling four (4) week basis at all times thereafter, noting therein all variances, on a line-item basis, from amounts set forth for such period in the Budget, and shall include or be accompanied by explanations for all material variances and certified by an Authorized Officer of the Parent.

c.Advisor.  The U.S. Borrower has engaged an advisory firm (“Advisor”) to provide certain advisory services pursuant to and as set forth in that certain Professional Services Agreement (“PSA”) dated as of December 17, 2019.  On or before May 7, 2020 the U.S. Borrower shall deliver to the Agents a copy of the report prepared by Advisor in accordance with the PSA.  The U.S. Borrower authorizes the Agents to communicate directly with Advisor and the U.S. Borrower will authorize and direct Advisor to communicate directly with the Agents with respect to matters concerning the PSA.

d.Modified Principal and Interest Payments During the Forbearance Period.  During the Forbearance Period (as hereinafter defined) only and subject to the provisions of Section 8(h) hereof:  (i) the U.S. Borrower and the Dutch Borrower, as applicable, shall not be required to make the regularly scheduled cash amortization payments on the Tranche A Term Loans or the Tranche B Term Loans pursuant to Section 2.03(a) and (b) of the Financing Agreement, (ii) all interest in respect of the Loans which (x) has accrued and not been paid prior to the date hereof and (y) accrues during the Forbearance Period shall, in each case, be automatically paid-in-kind on each applicable interest payment date by capitalizing and adding such amounts to the principal amount of the applicable Loans on which such interest accrued (the “Capitalized Interest”) and (iii) the Loans shall not accrue interest at the Post-Default Rate.  The Capitalized Interest shall be treated as principal of the applicable Loans on which such interest accrued for all purposes of the Loan Documents and thereafter bear interest as provided in Section 2.04 of the Financing Agreement.  For the avoidance of doubt, (i) this Section 8(d) only modifies the Financing Agreement as explicitly set forth herein and (ii) after the Forbearance Period ends (but subject to the provisions of Section 8(h) hereof), this Section 8(d) shall no longer apply and all of the payment and repayment provisions in the Financing Agreement with respect thereto shall govern.

e.Consolidated EBITDA Definition.  During the Forbearance Period only, Section 1.01 of the Financing Agreement shall be amended by deleting “$750,000” in sub-clause (ix) of the definition of “Consolidated EBITDA” and inserting “$1,200,000.00” in lieu thereof.

f.Qualified Cash.  During the Forbearance Period only, Section 7.03(a) of the Financing Agreement shall be amended by deleting “$700,000” and inserting “$150,000.00” in lieu thereof; provided, however, such amount may be increased as set forth in Section 8(h) hereof.

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g.Consolidated EBITDA.  During the Forbearance Period only, Section 7.03(b) of the Financing Agreement shall be amended by deleting “$9,500,000” where it appears opposite “January 31, 2020 and thereafter” and inserting “$6,500,000” in lieu thereof.

h.Application of Tax Refunds.  The Loan Parties shall promptly (and in any event within five (5) Business Days of receipt thereof), use the proceeds of any tax (or similar) refund received by the Loan Parties from the IRS or any other Governmental Authority with respect to the Loan Parties’ tax return(s) relating to the 2018 or 2019 Fiscal Year as follows:

i.With respect to the Initial Tax Refunds (as hereinafter defined) received after the Fourth Amendment Effective Date, (x) 50% of the proceeds of such Initial Tax Refunds may be retained by the Loan Parties for working capital and other general corporate purposes and (y) 50% of the proceeds of such Initial Tax Refunds (such portion, the “Relevant Portion”) shall repay the Obligations as follows:  (A) first, to any Capitalized Interest that has accrued on the Tranche A Term Loan and Tranche B Term Loan (on a pro rata basis between the Tranche A Term Loan and the Tranche B Term Loan) until such Capitalized Interest has been paid in full, (B) second, to any Capitalized Interest that has accrued on the Tranche C Term Loan and Tranche D Term Loan (on a pro rata basis between the Tranche C Term Loan and the Tranche D Term Loan) but only to the extent of such Capitalized Interest which would not have been capitalized but for the provisions of Section 8(d) hereof until such Capitalized Interest has been paid in full, and (C) third, against the installments of principal which would have been paid on the Tranche A Term Loan and Tranche B Term Loan during the Forbearance Period but for the provisions of Section 8(d) hereof (on a pro rata basis between the Tranche A Term Loan and the Tranche B Term Loan) until such principal payments have been paid in full.  If any proceeds of such refund remain after the applicable Obligations have been repaid from the Relevant Portion in accordance with the preceding sentence, then (x) the Loan Parties may retain the remainder of the proceeds from such Relevant Portion for working capital and other general corporate purposes and (y) the amount of the Relevant Portion remaining shall result in a dollar-for-dollar increase to the minimum Qualified Cash covenant contained in Section 7.03(a) of the Financing Agreement (as modified by this Amendment) up to a maximum amount of $750,000.  For purposes hereof, the “Initial Tax Refunds” shall mean all tax or similar refunds received by the Loan Parties from the IRS or other Governmental Authority up to an aggregate amount of $2,300,000.

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ii.With respect to any other refunds received by the Loan Parties from the IRS or other Governmental Authority after the Initial Tax Refunds, 100% of the proceeds of such refund shall repay the Obligations as follows:  (A) first, to any Capitalized Interest that has accrued on the Tranche A Term Loan and Tranche B Term Loan (on a pro rata basis between the Tranche A Term Loan and the Tranche B Term Loan) until such Capitalized Interest has been paid in full, (B) second, to any Capitalized Interest that has accrued on the Tranche C Term Loan and Tranche D Term Loan (on a pro rata basis between the Tranche C Term Loan and the Tranche D Term Loan) but only to the extent of such Capitalized Interest which would not have been capitalized but for the provisions of Section 8(d) hereof until such Capitalized Interest has been paid in full, and (C) third, against the installments of principal which would have been paid on the Tranche A Term Loan and Tranche B Term Loan during the Forbearance Period but for the provisions of Section 8(d) hereof (on a pro rata basis between the Tranche A Term Loan and the Tranche B Term Loan) until such principal payments have been paid in full.  If any proceeds of such refund remain after the applicable Obligations have been repaid in accordance with the preceding sentence, then (x) the Loan Parties may retain the remainder of the proceeds from such refund for working capital and other general corporate purposes, (y) the amount of the refund remaining shall result in a dollar-for-dollar increase to the minimum Qualified Cash covenant contained in Section 7.03(a) of the Financing Agreement (as modified by this Amendment) up to a maximum amount of $750,000, and (z) (i) the provisions of Section 8(d) hereof which provide that (A) (1) the provisions in clauses (i) and (ii) of the first sentence in Section 8(d) hereof shall not longer be applicable and (ii) all of the payment and repayment provisions in the Financing Agreement with respect to amortization and interest payments shall govern.

Any payments of the Obligations made pursuant to this Section 8(h) shall not be subject to the Applicable Premium.  Notwithstanding the foregoing, if the Administrative Agent, Collateral Agent, or Required Lenders, as applicable, have elected to apportion the payments as set forth in, and in accordance with the terms of, Section 4.03(b) of the Financing Agreement, then the provisions of such Section 4.03(b) shall control.

i.Board Observer.  Each Loan Party will permit the Agents to have a representative (the “Board Observer”) present (whether in person or by telephone) in an observer capacity at all duly convened meetings of the Board of Directors or managers of each Loan Party and any committee meetings thereof.  The Board Observer must be approved by the U.S. Borrower (such approval not to be unreasonably withheld, conditioned or delayed).  Each Loan Party shall provide the Board Observer representative with a notice and agenda of each duly convened meeting of the Board of Directors and any committee thereof at least seven (7) days (or such lesser time as agreed to by the Board Observer) in advance of such meeting, and all of the information and other materials that are distributed to the Board of Directors or any committee thereof, as applicable, at the same time and in the same manner as such notices, agendas, information and other materials are provided to the members of the Board of Directors or any committee thereof; provided, however, that the Loan Parties reserve the right to withhold any information and to exclude the Board Observer from any meeting or portion thereof if (x) access to such information or attendance at such meeting would, upon advice of the Loan Parties’ counsel, adversely affect

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the attorney-client privilege between the Loan Parties and their counsel or (y) in the reasonable judgment of the Loan Parties, access to such information or attendance at such meeting could result in a conflict of interest between the Secured Parties and the Loan Parties.  The Loan Parties shall reimburse the Board Observer for the reasonable out-of-pocket expenses (including travel expenses) incurred by the Board Observer in connection with the Board Observer attending any meetings of the Board of Directors or any committees thereof.  The Parent shall hold at least one meeting of its Board of Directors each month.

9.Forbearance by Agents and Lenders.  In consideration of the Loan Parties performance in accordance with this Amendment, the Agents and Lenders shall forbear from enforcing their rights and remedies under the Financing Agreement and other Loan Documents until the earlier of (i) July 27, 2020 (the “Termination Date”) or (ii) the occurrence of a Termination Event (the period from the Fourth Amendment Effective Date until the earlier to occur of the Termination Date and the occurrence of a Termination Event, the “Forbearance Period”).  Notwithstanding the foregoing:

a.Nothing contained in this Amendment shall constitute:  (i) a waiver by the Agents or Lenders of any Event of Default under the Financing Agreement or Loan Documents, whether now existing or hereafter arising; or (ii) a waiver of any of the Agents’ or Lenders’ contractual and legal rights and remedies.

b.This Amendment shall only constitute an agreement by the Agents and Lenders to forbear from enforcing its rights and remedies upon the terms and conditions expressly set forth herein.

10.Termination Events.  The occurrence of any one or more of the following events shall constitute a termination event (hereinafter, a “Termination Event”) under this Amendment:

a.The failure of the Loan Parties to promptly, punctually, or faithfully perform any term, condition, or covenant of this Amendment as and when due, it being expressly acknowledged and agreed that TIME IS OF THE ESSENCE.

b.The failure of the Loan Parties to promptly, punctually, or faithfully perform any term, condition, or covenant of that certain Fourth Amendment Fee Letter, dated as of the date hereof, by and among the Agents, the Lenders and the Borrowers (the “Fourth Amendment Fee Letter”) as and when due thereunder, it being expressly acknowledged and agreed that TIME IS OF THE ESSENCE.

c.The occurrence of any Event of Default under the Financing Agreement or any other Loan Document, other than the Existing Events of Default.

d.The commencement, assistance, cooperation, or participation as an adverse party or adverse witness by Loan Party in any suit or other proceeding against the Agents or any Lenders or any Affiliates of the Agents or any Lenders, relating to the Obligations or any of the transactions contemplated by the Financing Agreement, the other Loan Documents, this Amendment, or any other documents, agreements or instruments executed in connection with the Loan Documents.

-8-

9700767


 

11.Rights Upon Termination.  Upon the Termination Date or the occurrence of any Termination Event, the forbearance as set forth in this Amendment shall terminate upon notice to the Administrative Borrower, and thereafter the Agents and Lenders may immediately commence enforcing their rights and remedies pursuant to the Financing Agreement and Loan Documents and otherwise without notice or demand.

12.Amendments to Financing Agreement.  Subject to the satisfaction of the conditions precedent specified in Section 6, the Financing Agreement is hereby amended by:

a.amending Section 1.01 thereof by adding the following definitions in the appropriate alphabetical order:

““CARES Act” means the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act, Pub. L. 116-136 (2020) (as in effect on the Fourth Amendment Effective Date).”

““Fourth Amendment Effective Date” means April 30, 2020.”

““PPP Lender” means Bank of America, N.A.”

““PPP Loan” means an unsecured loan incurred by the U.S. Borrower in the original principal amount of $735,552.00 from the PPP Lender pursuant to the CARES Act.”

b.amending Section 1.01 thereof by amending and restating clause (o) of the definition of “Permitted Indebtedness” in its entirety as follows:

“(o)the PPP Loan;”

c.amending Section 7.01(a)(iii) by deleting sub-clause (1) in the parenthetical which appears in clause (B) thereof and inserting the following in lieu thereof:

“(1) except with respect to the Fiscal Year ending on or around February 1, 2020, a “going concern” or like qualification or exception,”

d.amending and restating Section 7.01(q) thereof in its entirety as follows:

“(q)PPP Loan.  The U.S. Borrower shall (i) use the proceeds of the PPP Loan solely for “allowable uses” under the CARES Act, (ii) use the proceeds of the PPP Loan, and shall otherwise comply with all applicable conditions and requirements of the CARES Act and (iii) after sixty (60) days, but not more than ninety (90) days, from the date the PPP Loan is funded, apply to the PPP Lender for full and complete forgiveness of the maximum eligible amount of the PPP Loan, which shall be, in any event, no less than sixty percent (60%) of the PPP Loan.”

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e.amending Section 7.02 by adding the following sentence at the end of such section:

“Notwithstanding anything to the contrary in this Section 7.02, no Loan Party shall (x) make any Restricted Payment to any shareholder or other equityholder of the U.S. Borrower, (y) prior to October 1, 2020, make any payment, prepayment, redemption, defeasance, or repurchase of any Subordinated Indebtedness (including the Board Debt, but excluding payments of up to $3,000 per month pursuant to that certain Subordinated Promissory Note, dated as of December 31, 2019, by the Administrative Borrower in favor of Caransa Groep B.V.), or (z) pay any fees or similar amounts to any members of the Board of Directors, provided, however, the Loan Parties shall be permitted to pay reasonable and customary fees to the members of the Board of Directors solely to the extent such fees are paid in the form of restricted stock units in the U.S. Borrower.”

f.deleting Schedule 8.01 in its entirety and inserting the new Schedule 8.01 attached hereto as Exhibit A in lieu thereof; and

g.amending Section 9.01(c) by inserting “Section 7.01(q), ” immediately after “Section 7.01(o),” therein.

13.Release.

a.Each Loan Party hereby releases and forever discharges the Agents, the Lenders and each of their parents, subsidiaries and affiliates, past or present, and each of them, as well as each of Agents’ and Lenders’ directors, officers, agents, servants, employees, shareholders, representatives, attorneys, administrators, executors, heirs, assigns, predecessors and successors in interest, and all other persons, firms or corporations with whom any of the former have been, are now, or may hereafter be affiliated, and each of them (collectively, the “Releasees”), from and against any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action in law or equity, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, whether known or unknown, fixed or contingent, suspected or unsuspected by any Loan Party, and whether concealed or hidden (collectively, “Claims”), which any Loan Party now owns or holds or has at any time heretofore owned or held, which are based upon or arise out of or in connection with any matter, cause or thing existing at any time prior to the date hereof or anything done, omitted or suffered to be done or omitted at any time prior to the date hereof in connection with the Financing Agreement, the other Loan Documents or this Amendment (collectively the “Released Matters”).  Each Loan Party represents, warrants and agrees that in executing and entering into this release, they are not relying and have not relied upon any representation, promise or statement made by anyone which is not recited, contained or embodied in this Amendment or the Loan Documents.  Each Loan Party has reviewed this release with the Loan Parties’ legal counsel, and understands and acknowledges the significance and consequence of this release and of the specific waiver thereof contained herein.  Each Loan Party understands and expressly assumes the risk that any fact not recited, contained or embodied therein may turn out hereafter to be other than, different from, or contrary to the facts now known to any Loan Party or believed by any Loan Party to be true.  Nevertheless, each Loan Party intends by this release to release fully, finally and forever all Released Matters and agrees that this release shall be effective in all respects notwithstanding any such difference in facts, and shall not be subject to termination, modification or rescission by reason of any such difference in facts.

-10-

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b.Each Loan Party acknowledges that it has been informed by its respective counsel of the provisions of Section 1542 of the California Civil Code and the possible applicability of those provisions to this Amendment.  With the advice of its respective counsel, to the extent the releases in this Amendment are deemed to be general releases in connection with the matters they encompass, the Borrowers and each Guarantor hereby expressly waives and relinquishes all rights and benefits which they have or may in the future have under Section 1542 of the California Civil Code which reads as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.

Each Loan Party acknowledges that it may hereafter discover facts which are different from or in addition to those which they now know or believe to be true with respect to the Loan Documents or to the matters herein released, and they agree that the Loan Documents shall be and remain in full force and effect in all respects notwithstanding any such different or additional facts.  The foregoing references to California law shall not in any way derogate from the provisions of Section 19 below, it being understood and agreed by all parties hereto that, as provided for in Section 19, New York law shall govern this Amendment.

c.The provisions of this Section 13 shall survive the termination of the Forbearance Period.

14.No Novation; Entire Agreement.  This Amendment evidences solely the specified terms and obligations of the Loan Parties under the Financing Agreement and is not a novation or discharge of any of the other obligations of the Loan Parties under the Financing Agreement.  There are no other understandings, express or implied, among the Loan Parties, the Agents and the Lenders regarding the subject matter hereof or thereof, and the forbearance terms herein supersede all prior forbearance agreements entered into between the Agents, the Lenders, and the Loan Parties.

15.Severability.  Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

16.Headings.  Headings and captions used in this Amendment are included for convenience of reference only and shall not be given any substantive effect.

17.Counterparts.  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of this Amendment by telecopier or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Amendment.  Any party delivering an executed counterpart of this Amendment by telecopier or electronic mail also shall deliver an original executed counterpart of this Amendment but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.

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9700767


 

18.Miscellaneous.  The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns.

19.Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.

20.WAIVER OF JURY TRIAL, ETC.  EACH LOAN PARTY, EACH AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AMENDMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.  EACH LOAN PARTY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF ANY AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS.  EACH LOAN PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AMENDMENT.

21.Informed Execution.  Each of the Loan Parties represents and warrants to the Agents and Lenders that:

a.Each Loan Party has read and understands all of the terms and conditions of this Amendment;

b.The Loan Parties intend to be bound by the terms and conditions of this Amendment; and

c.The Loan Parties are executing this Amendment freely and voluntarily, without duress, after consultation with independent counsel of the Loan Parties own selection.

[Remainder of Page Intentionally Left Blank; Signature Pages Follow]

 

 

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9700767


 

IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.

 

 

BORROWERS:

 

 

 

 

 

APEX GLOBAL BRANDS, INC. (f/k/a Cherokee Inc.), as U.S. Borrower

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

Chief Executive Officer

 

 

 

 

 

 

IRENE ACQUISITION COMPANY B.V., as Dutch Borrower

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

Director A

 

 

 

 

 

By:

 

/s/ Kimberly Doyle

 

Name:

 

Kimberly Doyle

 

Title:

 

Director B

 

 

 

[Signature Page to Fourth Amendment]


 

 

 

GUARANTORS:

 

 

 

 

 

CHEROKEE INC.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

SPELL C. LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

CHEROKEE BRANDS LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HAWK 900 BRANDS LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

[Signature Page to Fourth Amendment]


 

 

 

EDCA LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

FFS HOLDINGS, LLC

 

 

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

FLIP FLOP SHOES FRANCHISE COMPANY, LLC

 

 

 

 

 

By: FFS HOLDINGS, LLC, its sole member

 

 

 

By: CHEROKEE INC., its sole member

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

HI-TEC SPORTS INTERNATIONAL HOLDINGS B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC SPORTS PLC

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

[Signature Page to Fourth Amendment]


 

 

 

HI-TEC INTERNATIONAL HOLDINGS B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC SPORTS UK LIMITED

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

 

 

 

 

HI-TEC NEDERLAND B.V.

 

 

 

 

 

By:

 

/s/ Henry Stupp

 

Name:

 

Henry Stupp

 

Title:

 

CEO

 

 

[Signature Page to Fourth Amendment]


 

 

 

COLLATERAL AGENT AND

 

ADMINISTRATIVE AGENT:

 

 

 

GORDON BROTHERS FINANCE COMPANY

 

 

 

 

 

By:

 

/s/ Felicia Galeota

 

Name:

 

Felicia Galeota

 

Title:

 

Vice President

 

 

 

 

 

 

LENDERS:

 

 

 

GORDON BROTHERS FINANCE COMPANY, LLC

 

 

 

 

 

By:

 

/s/ Felicia Galeota

 

Name:

 

Felicia Galeota

 

Title:

 

Vice President

 

 

 

 

 

 

GORDON BROTHERS BRANDS, LLC

 

 

 

 

 

By:

 

/s/ Patricia E. Parent

 

Name:

 

Patricia E. Parent

 

Title:

 

VP, Asst. Secretary

 

 

 

 

 

 

 

[Signature Page to Fourth Amendment]


 

Exhibit A

Schedule 8.01
Cash Management Accounts
(as of the Fourth Amendment Effective Date)

Company

Bank or Broker

Address

Account No.

Account Type

Cherokee Inc.

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000475392697

Payroll

Cherokee Inc.

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000475392689

Operating

Cherokee Inc.

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000109690336

Operating

Spell C. LLC

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000107930220

Operating

Cherokee Brands LLC

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000133536350

Operating

Hawk 900 Brands LLC

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000551026912

Operating

EDCA LLC

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000762128267

Operating

FFS Holdings, LLC

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000773856005

Operating

FFS Holdings, LLC

JPMorgan Chase Bank, N.A.

300 S Grand Ave, Suite 350 Los Angeles, CA 90071

000000773855783

Operating

9700767


 

Apex Global Brands, Inc.

Bank of America, N.A.

PO Box 15284
Wilmington, DE 19850

1416115784

Operating

Apex Global Brands, Inc.

Bank of America, N.A.

PO Box 15284
Wilmington, DE 19850

1416115789

Payroll

Hi-Tec Sports International Holdings B.V.

ING Bank

Bijlmerplein 888
Postbus 1800, 1000 BV Amsterdam

NL11INGB0658895311 (EUR)

NL29INGB0020132042 (USD)
Cash receipts account

Operating

Operating

Hi-Tec Sports UK Limited

Barclays

Barclays Bank PLC 1 Churchill Place, London E14 5HP United Kingdom

GB49BARC20776700740799 (GBP)

Operating

Hi-Tec Sports PLC

Barclays Bank PLC

Leicester, Leicestershire, United Kingdom LE87,2BB

GB54BARC20776730229458 (GBP)

Operating

 

9700767

apex-ex105_98.htm

 

Exhibit 10.5

 

PROMISSORY NOTE

$ ________                                                                  Effective as of ___________, 2020

FOR VALUE RECEIVED, Apex Global Brands Inc., a Delaware corporation (the “Borrower”), hereby promises to pay, without setoff, deduction, recoupment or counterclaim, to ______________, an individual (the “Holder”), or his permitted assigns, the principal sum of $_________, together with all accrued and unpaid interest thereon, upon the terms and conditions specified below.

Subject to the terms hereof, the entire outstanding principal balance of this Promissory Note (this “Note”), plus any and all accrued and unpaid interest thereon, shall be due and payable in full by the Borrower to the Holder upon the earlier of (a) October 30, 2020, (b) the Holder’s “separation from service” with the Borrower within the meaning of Treas. Reg. Section 1.409A-1(h), (c) the death or disability of the Holder, and (d) a change in the ownership or effective control of the Borrower or a substantial portion of the assets of the Borrower within the meaning of Treas. Reg. Section 1.409A-3(a)(5).

The following is a statement of the rights of Holder and the conditions to which this Note is subject, and to which the holder hereof, by the acceptance of this Note, and the Borrower agrees:

1.               Interest. Interest on this Note shall accrue quarterly in arrears at a rate per annum equal to the Applicable Federal Rate. For purposes hereof, the “Applicable Federal Rate” shall mean the IRS published rate in accordance with section 1274(d) of the Internal Revenue Code of 1986 together with the regulations promulgated thereunder from time to time. All interest will be computed on the basis of the actual number of days elapsed, commencing on the date hereof, and a year of 365 days.

2.               Issuance of Payment.  Payments of principal and interest are payable by the Borrower in lawful monies of the United States of America via wire transfer in immediately available funds for deposit in the account(s) designated in writing by the Holder prior to the date of such payment. Notwithstanding the foregoing, the Company may, in its sole discretion, pay the obligations owing to the Holder pursuant to this Note in full by the issuance to the Holder of ______ shares of the common stock of the Borrower in accordance with applicable Nasdaq rules.

3.               Event of Default.  The failure of the Borrower to pay when due any principal, interest, fees or other payment obligations hereunder within five days after notice thereof is provided by Holder, shall constitute an “Event of Default” under this Note.  

4.               Rights of Holder.  Upon the occurrence or existence of any Event of Default and at any time thereafter unless such Event of Default has been waived in writing by the Holder, Holder may declare all outstanding obligations and liabilities of the Borrower payable hereunder to be immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived.

5.               Successors and Assigns.  The rights and obligations of the Borrower and the Holder of this Note shall be binding upon and benefit their respective permitted successors, assigns, heirs, administrators and transferees. The Borrower may not assign this Note, in whole or in part, without the written consent of the Holder.  The Holder may not assign this Note, in whole or in part, without the written consent of the Borrower.

6.               Waiver and Amendment.  Any provision of this Note may be amended, waived or modified upon the written consent of the Borrower and Holder.

 


 

7.               Notices.  All notices and other communications required or permitted hereunder shall be in writing and shall be hand delivered or sent via electronic transmission, overnight courier service or mailed by certified or registered mail, postage prepaid, return receipt requested, addressed or sent to the applicable party at such address for such party as shall be furnished prior thereto in writing.

8.               Governing Law.  This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. The Borrower submits to the exclusive jurisdiction of the courts of the State of New York, New York County, located in the Borough of Manhattan, the courts of the United States of America for the Southern District of New York and appellate courts from any thereof.

9.               JURY TRIAL WAIVER.  THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY WHETHER BASED ON CONTRACT, TORT OR OTHERWISE.

10.            Entire Agreement.  This Note contains the entire agreement between the parties with respect to the subject matter hereof, and supersedes every course of dealing, other conduct, oral agreement or representation previously made by the Holder.  In the event that any court of competent jurisdiction shall determine that any provision, or portion thereof, contained in this Note shall be unenforceable in any respect, then such provision shall be deemed limited to the extent that such court deems it enforceable, and the remaining provisions of this Note shall nevertheless remain in full force and effect.

[Signature Page Follows]

 


 

IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed as of the date first above indicated.

 

 

 

 

APEX GLOBAL BRANDS INC.

 

 

 

 

 

By:

 

 

 

 

 

 

 

Name:

 

 

 

 

 

 

 

 

 

Title:

 

 

Signature Page to

_______ Board Promissory Note


 

 

AGREED AND ACCEPTED:

 

 

 

 

 

 

 

 

apex-ex311_10.htm

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Henry Stupp, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apex Global Brands Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: June 16, 2020

 

By:

/s/ Henry Stupp

 

 

 

Henry Stupp

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

apex-ex312_6.htm

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven L. Brink, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apex Global Brands Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: June 16, 2020

 

By:

/s/ Steven L. Brink

 

 

 

Steven L. Brink

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

apex-ex321_9.htm

 

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to 18 U.S.C. § 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Apex Global Brands Inc. (the “ Company ”) hereby certifies, to such officer’s knowledge, that:

 

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended May 2, 2020 (the “ Report ”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: June 16, 2020

 

By:

/s/ Henry Stupp

 

 

 

Henry Stupp

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

This certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 

apex-ex322_7.htm

Exhibit 32.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to 18 U.S.C. § 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Apex Global Brands Inc. (the “ Company ”) hereby certifies, to such officer’s knowledge, that:

 

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended May 2, 2020 (the “ Report ”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: June 16, 2020

 

By:

/s/ Steven L. Brink

 

 

 

Steven L. Brink

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

This certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 

v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
May 02, 2020
Feb. 01, 2020
Statement Of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.02 $ 0.02
Preferred stock, shares authorized 1,000,000 1,000,000
Preferred stock, shares issued 0 0
Common stock, par value (in dollars per share) $ 0.02 $ 0.02
Common stock, shares authorized 10,000,000 10,000,000
Common stock, shares issued 5,570,530 5,570,530
v3.20.1
Basis of Presentation
3 Months Ended
May 02, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation

1.

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation.  Cherokee Inc. changed its name to Apex Global Brands Inc. effective June 27, 2019.  These financial statements include the accounts of Apex Global Brands Inc. and its consolidated subsidiaries (the “Company”) and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and the results of operations for the periods presented.  The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended February 1, 2020 included in the Company’s Annual Report on Form 10-K.  Interim results are not necessarily indicative of results to be expected for the full year.

 

Liquidity and Going Concern

 

The accompanying condensed consolidated financial statements have been prepared on the going concern basis of accounting, which assumes the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  Under the Company’s senior secured credit facility, the Company is required to maintain specified levels of Adjusted EBITDA as defined. The Company’s operating results for the twelve months ended November 2, 2019 and twelve months ended February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report received from the Company’s senior secured lender during the first quarter of Fiscal 2021 indicated that the Company’s borrowing base is less than the outstanding term loan balance.   Beginning in the quarter ended May 2, 2020, the Company’s business has been materially adversely affected by the effects of the global pandemic of COVID-19 and the related protective public health measures.  The Company’s business depends upon purchases and sales of products bearing the Company’s brands by the Company’s licensees, and the prevalence of shelter in place and similar orders in the regions where these products are sold, together with the closure of many retail stores of the Company’s licensees, have resulted in significant declines in the Company’s royalties, which will likely continue for some period of time.  In response to the decline in revenues, the Company has implemented cost savings measures, such as pay reductions and employee furloughs among other things. The Company has classified its term loans and junior notes as current obligations because its financial projections, which now reflect the impact of the COVID-19 pandemic, indicate that there is a significant risk of further violations of the minimum Adjusted EBITDA covenant and borrowing base requirements beyond the forbearance period agreed to with the Company’s senior lender.

The Company’s senior lender has agreed to forbear from enforcing its rights under the senior secured credit facility with respect to these defaults through July 27, 2020. Beginning with May 1, 2020 and continuing through the term of the forbearance agreement, interest and loan amortization payments will not be paid in cash, but an equivalent amount will be added to the principal amount of the term loans to be repaid in future periods.  During the forbearance period, the Adjusted EBITDA covenant was reduced, the required minimum cash balance to be maintained by the Company was reduced, and the borrowing base requirement was suspended. The Company is required during the forbearance period to evaluate strategic alternatives designed to provide liquidity to repay the term loans under the senior secured credit facility.  In exchange for these concessions, the senior lender will receive an additional fee totaling 2% of the then outstanding loan balance when the debt is repaid.  The Company’s Junior Notes holders also agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020.

Future compliance failures under the senior secured credit facility would subject the Company to significant risks, including the right of its senior lender to terminate its obligations under the senior secured credit facility, declare all or any portion of the borrowed amounts then outstanding to be accelerated and due and payable, and/or exercise any other right or remedies it may have under applicable law, including foreclosing on the Company’s and/or its subsidiaries’ assets that serve as collateral for the borrowed amounts.  If any of these rights were to be exercised, the Company’s financial condition and ability to continue operations would be materially jeopardized.  If the Company is unable to meet obligations to lenders and other creditors, the Company may have to significantly curtail or even cease operations.  The Company is evaluating potential sources of working capital, including the disposition of certain assets, and believes that the NOL carryback provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by the U.S. Congress in March 2020 will result in additional liquidity, although the timing of these future cash receipts is uncertain.  NOL carryback claims are expected to result in federal income tax refunds of approximately $9.0 million.  Management’s plans also include the evaluation of strategic alternatives to enhance shareholder value.  There is no assurance that the Company will be able to execute these plans.  Because of this uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern.

     

v3.20.1
Intangible Assets - Weighted Average Period (Details) - Trademarks
$ in Thousands
3 Months Ended
May 02, 2020
USD ($)
Acquired Finite-Lived Intangible Assets [Line Items]  
Residual values $ 0
Weighted-average amortization period 10 years
v3.20.1
Basis of Presentation (Details)
$ in Millions
3 Months Ended
May 02, 2020
USD ($)
Basis Of Presentation [Line Items]  
Expected federal income tax refunds from NOL carryback claims $ 9.0
Senior Secured Credit Facility  
Basis Of Presentation [Line Items]  
Percentage of additional fee payable on outstanding loan balance, when debt is repaid 2.00%
v3.20.1
Earnings (Loss) Per Share
3 Months Ended
May 02, 2020
Earnings Per Share [Abstract]  
Earnings (Loss) Per Share

9.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing the net (loss) income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, while diluted EPS additionally includes the dilutive effect of outstanding stock options and warrants as if such securities had been exercised at the beginning of the period.  The computation of diluted common shares outstanding excludes outstanding stock options and warrants that are anti‑dilutive.

v3.20.1
Restructuring Plans
3 Months Ended
May 02, 2020
Restructuring And Related Activities [Abstract]  
Restructuring Plans

5.

Restructuring Plans

The Company incurred restructuring charges in Fiscal 2018 and Fiscal 2017 related to the Hi-Tec Acquisition and its integration into the Company’s ongoing operations (the “Hi-Tec Plan”).  Restructuring charges were also incurred during Fiscal 2019 as the Company took additional steps designed to improve its organizational efficiencies by eliminating redundant positions and unneeded facilities, and by terminating various consulting and marketing contracts (the “FY19 Plan”).         

Payments against the restructuring plan obligations were as follows:

 

(In thousands)

 

FY19 Plan

 

 

Hi-Tec Plan

 

 

Total

 

Balance, February 1, 2020

 

 

 

1,649

 

 

 

 

28

 

 

 

 

1,677

 

Payments during the period

 

 

 

(463

)

 

 

 

 

 

 

 

(463

)

Balance, May 2, 2020

 

$

 

1,186

 

 

$

 

28

 

 

$

 

1,214

 

 

v3.20.1
Accounts Payable and Other Current Liabilities (Tables)
3 Months Ended
May 02, 2020
Other Liabilities Current [Abstract]  
Schedule of Accounts Payable and Other Current Liabilities

 

(In thousands)

 

May 2,

2020

 

 

February 1,

2020

 

Accounts payable

 

$

 

2,881

 

 

$

 

2,814

 

Accrued employee compensation and benefits

 

 

 

159

 

 

 

 

413

 

Restructuring plan liabilities

 

 

 

1,214

 

 

 

 

1,677

 

Income taxes payable

 

 

 

289

 

 

 

 

291

 

Other liabilities

 

 

 

682

 

 

 

 

1,087

 

 

 

$

 

5,225

 

 

$

 

6,282

 

 

v3.20.1
Debt (Details) - USD ($)
3 Months Ended 12 Months Ended
Aug. 03, 2018
May 02, 2020
May 02, 2020
Jul. 27, 2020
Jan. 30, 2019
Promissory Notes to Bank          
Debt          
Debt instrument, interest rate, stated percentage   1.00% 1.00%    
Proceeds from Paycheck Protection Program loan   $ 700,000      
Paycheck Protection Program loan, frequency of periodic payment   monthly      
Paycheck Protection Program loan, first required repayment month and year   2020-10      
Paycheck Protection Program loan, maturity month and year   2022-04      
Senior Secured Credit Facility          
Debt          
Adjusted level of earnings before interest tax depreciation and amortization     $ 6,500,000    
Senior Secured Credit Facility | Forecast          
Debt          
Minimum cash balance       $ 150,000  
Senior Secured Credit Facility | Term Loan          
Debt          
Maximum borrowing capacity $ 40,000,000.0       $ 5,300,000
Line of credit facility maturity month and year 2021-08        
Debt instrument, interest rate, stated percentage         3.00%
Line of credit facility, borrowing capacity, description   The Company is required to maintain a borrowing base comprising the value of the Company’s trademarks that exceeds the outstanding balance of the term loans.  If the borrowing base is less than the outstanding term loans at any measurement period, then the Company would be required to repay a portion of the term loans to eliminate such shortfall.  Events of default include, among other things, the occurrence of a change of control of the Company, and a default under the term loans agreement would also trigger a default under the Junior Notes agreements.      
Line of credit facility, maximum amount outstanding during period   $ 44,400,000      
Unamortized debt issuance costs   1,500,000 1,500,000    
Senior Secured Credit Facility | Junior Notes          
Debt          
Maximum borrowing capacity $ 13,500,000        
Line of credit facility maturity month and year 2021-11        
Debt instrument periodic amortization payment interest $ 0        
Line of credit facility, maximum amount outstanding during period   14,000,000.0      
Unamortized debt issuance costs   $ 300,000 $ 300,000    
Senior Secured Credit Facility | Term Loan and Junior Notes          
Debt          
Debt instrument, interest rate, stated percentage   10.80% 10.80%    
v3.20.1
Intangible Assets (Tables)
3 Months Ended
May 02, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Schedule of Intangible Assets

Intangible assets consists of the following:

 

 

 

May 2, 2020

 

 

February 1, 2020

 

(In thousands)

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Amortizable trademarks

 

$

 

30,186

 

 

 

 

(20,796

)

 

$

 

9,390

 

 

$

 

30,153

 

 

 

 

(20,600

)

 

$

 

9,553

 

Indefinite lived trademarks

 

 

 

45,157

 

 

 

 

 

 

 

 

45,157

 

 

 

 

49,557

 

 

 

 

 

 

 

 

49,557

 

 

 

$

 

75,343

 

 

$

 

(20,796

)

 

$

 

54,547

 

 

$

 

79,710

 

 

$

 

(20,600

)

 

$

 

59,110

 

v3.20.1
Revenues and Concentrations of Risk
3 Months Ended
May 02, 2020
Risks And Uncertainties [Abstract]  
Revenues and Concentrations of Risk

8.

Revenues and Concentrations of Risk

 

Revenues by geographic area based upon the licensees’ country of domicile comprise the following:

 

 

 

Three Months Ended

 

(In thousands)

 

May 2,

2020

 

 

May 4,

2019

 

U.S. and Canada

 

$

 

1,027

 

 

$

 

1,342

 

EMEA (1)

 

 

 

1,132

 

 

 

 

1,349

 

Asia-Pacific

 

 

 

1,270

 

 

 

 

1,682

 

Latin America

 

 

 

605

 

 

 

 

679

 

Total

 

$

 

4,034

 

 

$

 

5,052

 

(1) EMEA includes Europe, Middle East and Africa

 

 

 

 

 

 

 

 

 

 

 

Long‑lived assets located in the United States and outside the United States amount to $0.2 million and $0.1 million, respectively, at May 2, 2020 and $0.2 million and $0.2 million, respectively, at February 1, 2020.

 

Deferred revenue totaled $2.9 million and $3.8 million at May 2, 2020 and February 1, 2020, respectively.  Revenue recognized in the three months ended May 2, 2020 and May 4, 2019 that was previously included in deferred revenue was $1.3 million and $0.7 million, respectively.        

 

Five licensees accounted for approximately 60% of accounts receivable at May 2, 2020, and two licensees accounted for approximately 35%  of revenues for the three months ended May 2, 2020, respectively.  Four licensees accounted for approximately 45% of accounts receivable at February 1, 2020.  Two licensees accounted for approximately 28% of revenues for the three months ended May 4, 2019. 

v3.20.1
Accounts Payable and Other Current Liabilities
3 Months Ended
May 02, 2020
Other Liabilities Current [Abstract]  
Accounts Payable and Other Current Liabilities

4.

Accounts Payable and Other Current Liabilities

Accounts Payable and other current liabilities consist of the following:

 

(In thousands)

 

May 2,

2020

 

 

February 1,

2020

 

Accounts payable

 

$

 

2,881

 

 

$

 

2,814

 

Accrued employee compensation and benefits

 

 

 

159

 

 

 

 

413

 

Restructuring plan liabilities

 

 

 

1,214

 

 

 

 

1,677

 

Income taxes payable

 

 

 

289

 

 

 

 

291

 

Other liabilities

 

 

 

682

 

 

 

 

1,087

 

 

 

$

 

5,225

 

 

$

 

6,282

 

 

v3.20.1
Commitments and Contingencies (Details) - USD ($)
$ in Thousands
3 Months Ended
May 02, 2020
May 04, 2019
Commitments And Contingencies Disclosure [Abstract]    
Operating lease cost excluding variable lease costs and sublease income $ 100 $ 200
Operating lease, Weighted-average remaining lease term 4 years 4 months 24 days  
Operating lease, Weighted-average IBR 8.80%  
Operating lease, right-of-use asset $ 1,500  
Remainder of Fiscal 2021 323  
Fiscal 2022 442  
Fiscal 2023 425  
Fiscal 2024 434  
Fiscal 2025 333  
Total future minimum lease payments 1,957  
Less imputed interest (345)  
Present value of operating lease liabilities $ 1,612  
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
May 02, 2020
Feb. 01, 2020
Current assets:    
Cash and cash equivalents $ 1,259 $ 1,209
Accounts receivable, net 3,319 4,962
Income tax and other receivables 8,869 157
Prepaid expenses and other current assets 1,077 1,431
Total current assets 14,524 7,759
Property and equipment, net 316 319
Intangible assets, net 54,547 59,110
Goodwill 6,752 12,152
Accrued revenue and other assets 3,505 3,582
Total assets 79,644 82,922
Current liabilities:    
Accounts payable and other current liabilities 5,225 6,282
Current portion of long-term debt 56,786 56,044
Deferred revenue—current 2,580 3,551
Total current liabilities 64,591 65,877
Long-term liabilities:    
Long-term debt 491  
Deferred income taxes 8,781 9,515
Long-term lease liabilities 1,309 1,389
Other liabilities 792 794
Total liabilities 75,964 77,575
Commitments and Contingencies (Note 7)
Stockholders’ Equity:    
Preferred stock, $.02 par value, 1,000,000 shares authorized, none issued
Common stock, $.02 par value, 10,000,000 shares authorized, shares issued 5,570,530 (May 2, 2020) and 5,570,530 (February 1, 2020) 111 111
Additional paid-in capital 78,723 78,541
Accumulated deficit (75,154) (73,305)
Total stockholders’ equity 3,680 5,347
Total liabilities and stockholders’ equity $ 79,644 $ 82,922
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
May 02, 2020
May 04, 2019
Cash flows from operating activities:    
Net loss $ (1,849) $ (2,258)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 202 257
Restructuring charges   42
Intangible assets and goodwill impairment charge 9,800  
Amortization of deferred financing costs 579 575
Interest expense paid in kind 680  
Deferred income taxes and noncurrent provisions (734) 387
Stock-based compensation and stock warrant charges 182 236
Changes in operating assets and liabilities, net of effects from business combinations:    
Accounts receivable 1,643 242
Income tax and other receivables (8,712) 46
Prepaid expenses and other current assets 354 212
Accrued revenue and other assets 77 (233)
Accounts payable and other current liabilities (1,059) (1,957)
Long- term lease liabilities (80)  
Deferred revenue (971) (484)
Net cash provided by (used in) operating activities 112 (2,935)
Cash flows from investing activities:    
Capital investments (37) (38)
Net cash used in investing activities (37) (38)
Cash flows from financing activities:    
Proceeds from promissory note payable 736  
Payments on term loan and line of credit (350) (250)
Debt issuance costs (411) (28)
Issuance of common stock   623
Net cash (used in) provided by financing activities (25) 345
Increase (decrease) in cash and cash equivalents 50 (2,628)
Cash and cash equivalents, beginning of period 1,209 4,284
Cash and cash equivalents, end of period 1,259 1,656
Cash paid for:    
Income taxes 231 276
Interest 861 $ 1,646
Noncash investing and financing activities:    
Interest paid in kind $ 680  
v3.20.1
Intangible Assets - Annual Impairment (Details)
$ in Millions
3 Months Ended
May 02, 2020
USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]  
Impairment charges $ 4.4
v3.20.1
Revenues and Concentrations of Risk (Tables)
3 Months Ended
May 02, 2020
Risks And Uncertainties [Abstract]  
Schedule of revenues by geographic area based upon the licensees' country of domicile

 

 

 

Three Months Ended

 

(In thousands)

 

May 2,

2020

 

 

May 4,

2019

 

U.S. and Canada

 

$

 

1,027

 

 

$

 

1,342

 

EMEA (1)

 

 

 

1,132

 

 

 

 

1,349

 

Asia-Pacific

 

 

 

1,270

 

 

 

 

1,682

 

Latin America

 

 

 

605

 

 

 

 

679

 

Total

 

$

 

4,034

 

 

$

 

5,052

 

(1) EMEA includes Europe, Middle East and Africa

 

 

 

 

 

 

 

 

 

 

 

v3.20.1
Restructuring Plans (Details)
$ in Thousands
3 Months Ended
May 02, 2020
USD ($)
Payments for restructuring plan obligations  
Balance at beginning of period $ 1,677
Payments during the period (463)
Balance at end of period 1,214
FY19 Plan  
Payments for restructuring plan obligations  
Balance at beginning of period 1,649
Payments during the period (463)
Balance at end of period 1,186
Hi-Tec Plan  
Payments for restructuring plan obligations  
Balance at beginning of period 28
Balance at end of period $ 28
v3.20.1
Taxes on Income - (Details) - USD ($)
$ in Thousands
3 Months Ended
May 02, 2020
May 04, 2019
Income Taxes [Line Items]    
Income tax benefit based on estimated tax refunds from carryback claims $ 9,000  
Income tax benefit 9,380 $ (638)
Trademarks    
Income Taxes [Line Items]    
Income tax benefit $ 700  
v3.20.1
Taxes on Income
3 Months Ended
May 02, 2020
Income Tax Disclosure [Abstract]  
Taxes on Income

10.

Taxes on Income

Each reporting period, the Company evaluates the realizability of its deferred tax assets, and in recent years has maintained a full valuation allowance against its deferred tax assets in the United States and the foreign subsidiaries acquired in the Hi-Tec Acquisition.  However, the CARES Act allows the Company’s historical net operating loss in Fiscal 2018 to be carried back two years and the Company’s net operating losses for Fiscal 2019, Fiscal 2020 and Fiscal 2021 to be carried back five years.  The Company recognized an income tax benefit of $9.0 million in the three months ended May 2, 2020 based on estimated tax refunds expected to result from these carryback claims.  The Company continues to maintain a full valuation allowance against its other deferred tax assets.  These valuation allowances will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that these other deferred tax assets will be realized.

The Company’s deferred tax liabilities related to its indefinite lived Hi-Tec and Magnum trademarks cannot be used as a source of taxable income to support the realization of the Company’s deferred tax assets.  Accordingly, the valuation allowance reserves for the deferred tax assets in these foreign jurisdictions and results in a “naked credit” for these indefinite-lived trademarks.  The impairment charge recorded during the quarter ended May 2, 2020 for these indefinite-lived trademarks reduced the naked credit, which resulted in a $0.7 million income tax benefit during the quarter.

 

v3.20.1
Debt
3 Months Ended
May 02, 2020
Debt Disclosure [Abstract]  
Debt

6.

Debt

On August 3, 2018, the Company entered into a senior secured credit facility, which provided a $40.0 term loan, and $13.5 million of subordinated promissory notes (the “Junior Notes”). The credit facility was amended on January 30, 2019 to provide an additional term loan of $5.3 million. The term loans mature in August 2021 and generally require quarterly principal payments and monthly interest payments based on LIBOR plus a margin.  The additional $5.3 million term loan also requires interest of 3.0% payable in kind with such interest being added to the principal balance of the loan.  The term loans are secured by substantially all the assets of the Company and are guaranteed by the Company’s subsidiaries.  The Junior Notes mature in November 2021, and they are secured by a second priority lien on substantially all of the assets of Company and guaranteed by the Company’s subsidiaries.  Interest is generally payable monthly on the Junior Notes, but no periodic amortization payments are required.  The Junior Notes are subordinated in rights of payment and priority to the term loans but otherwise have economic terms substantially similar to the term loans.  The weighted-average interest rate on both the term loans and Junior Notes at May 2, 2020 was 10.8%.

The term loans are generally subject to a borrowing base and include financial covenants and obligations regarding the operation of the Company’s business that are customary in facilities of this type, including limitations on the payment of dividends.  Financial covenants include the requirement to maintain specified levels of Adjusted EBITDA, as defined in the agreement, and maintain a specified level of cash on hand. The Company is required to maintain a borrowing base comprising the value of the Company’s trademarks that exceeds the outstanding balance of the term loans.  If the borrowing base is less than the outstanding term loans at any measurement period, then the Company would be required to repay a portion of the term loans to eliminate such shortfall.  Events of default include, among other things, the occurrence of a change of control of the Company, and a default under the term loans agreement would also trigger a default under the Junior Notes agreements.

The Company’s operating results for the twelve months ended November 2, 2019 and February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report received from the Company’s senior secured lender during the first quarter of Fiscal 2021 indicated that the Company’s borrowing base is less than the outstanding term loan balance.  However, the Company’s senior secured lender has agreed to forbear from enforcing its rights under the senior secured credit facility in response to these events of default and borrowing base shorfall through July 27, 2020. (See Note 1, Liquidity and Going Concern.)  In conjunction with this forbearance agreement, the senior secured credit facility was amended to (i) reduce the Adjusted EBITDA requirement to $6.5 million for the twelve-months ending with the Company’s first quarter of Fiscal 2021, (ii) reduce the minimum cash requirement to $150,000 during the forbearance period, (iii) defer the quarterly principal payment otherwise due May 1, 2020 and (iv) accept interest payments in the form of additional principal rather than in cash during the forbearance period.  At the conclusion of the forbearance period, these amended items revert to the original terms of the senior secured credit facility.  The forbearance agreement also provides for a fee to be paid to the senior secured lender when the debt is repaid, and that a portion of the federal income tax refunds expected based on recent loss carryback claims filed by the Company will be used to pay the deferred amortization and interest paid in kind during the forbearance period.  The Company’s Junior Notes holders agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020.

Outstanding borrowings under the term loans were $44.4 million at May 2, 2020 with associated unamortized debt issuance costs of $1.5 million. Outstanding Junior Notes were $14.0 million at May 2, 2020 with associated unamortized debt issuance costs of $0.3 million. As a result of the covenant violations and the short-term nature of the forbearance agreement referred to above, the total amount of the Company’s long-term debt is reflected as a current obligation in the Company’s May 2, 2020 consolidated balance sheet.

During the three months ended May 2, 2020 the company obtained a Paycheck Protection Program loan under the CARES Act totaling $0.7 million.   The Paycheck Protection Program loan bears interest at 1.0% per annum, is repayable monthly starting in October 2020, and matures in April 2022.  In addition, a portion of the loan may be forgiven under provisions under the CARES Act based on payments for payroll, rent and utilities during the period subsequent to obtaining the loan.

v3.20.1
New Accounting Pronouncements
3 Months Ended
May 02, 2020
Accounting Policies [Abstract]  
New Accounting Pronouncements

2.

New Accounting Pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update (“ASU”) to simplify the accounting for income taxes. The new guidance removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This guidance will be effective for the first quarter of the Company’s Fiscal 2023, which will end on January 28, 2023. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (“Topic 326”).  This standard requires a forward-looking expected loss model for trade receivables rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.  The Company adopted this standard as of the beginning of its fiscal year ending January 30, 2021 (‘‘Fiscal 2021’’).  The impact of adoption was not material.

v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
May 02, 2020
May 04, 2019
Income Statement [Abstract]    
Revenues $ 4,034 $ 5,052
Operating expenses:    
Selling, general and administrative expenses 2,896 3,855
Stock-based compensation 150 208
Business acquisition and integration costs   66
Restructuring charges   42
Intangible assets and goodwill impairment charges 9,800  
Depreciation and amortization 202 257
Total operating expenses 13,048 4,428
Operating (loss) income (9,014) 624
Other income (expense):    
Interest expense (2,181) (2,245)
Other (expense) income, net (34) 1
Total other expense, net (2,215) (2,244)
Loss before income taxes (11,229) (1,620)
(Benefit) provision for income taxes (9,380) 638
Net loss $ (1,849) $ (2,258)
Net loss per share:    
Basic loss per share $ (0.33) $ (0.44)
Diluted loss per share $ (0.33) $ (0.44)
Weighted average common shares outstanding:    
Basic 5,571 5,128
Diluted 5,571 5,128
v3.20.1
New Accounting Pronouncements (Details)
3 Months Ended
May 02, 2020
ASU 2016-13  
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]  
New Accounting Pronouncement or Change in Accounting Principle, Description In December 2019, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update (“ASU”) to simplify the accounting for income taxes. The new guidance removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This guidance will be effective for the first quarter of the Company’s Fiscal 2023, which will end on January 28, 2023. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.   In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (“Topic 326”).  This standard requires a forward-looking expected loss model for trade receivables rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.  The Company adopted this standard as of the beginning of its fiscal year ending January 30, 2021 (‘‘Fiscal 2021’’).  The impact of adoption was not material.
v3.20.1
Restructuring Plans (Tables)
3 Months Ended
May 02, 2020
Restructuring And Related Activities [Abstract]  
Schedule of restructuring-related costs is measured at its fair value

(In thousands)

 

FY19 Plan

 

 

Hi-Tec Plan

 

 

Total

 

Balance, February 1, 2020

 

 

 

1,649

 

 

 

 

28

 

 

 

 

1,677

 

Payments during the period

 

 

 

(463

)

 

 

 

 

 

 

 

(463

)

Balance, May 2, 2020

 

$

 

1,186

 

 

$

 

28

 

 

$

 

1,214

 

 

v3.20.1
Intangible Assets - Amortization Expenses (Details) - USD ($)
$ in Millions
3 Months Ended
May 02, 2020
May 04, 2019
Goodwill And Intangible Assets Disclosure [Abstract]    
Amortization of Intangible Assets $ 0.2 $ 0.2
v3.20.1
Document and Entity Information - shares
3 Months Ended
May 02, 2020
May 29, 2020
Cover [Abstract]    
Entity Registrant Name APEX GLOBAL BRANDS INC.  
Entity Central Index Key 0000844161  
Document Type 10-Q  
Document Period End Date May 02, 2020  
Trading Symbol APEX  
Amendment Flag false  
Current Fiscal Year End Date --01-30  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Shell Company false  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   5,570,530
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
Document Quarterly Report true  
Document Transition Report false  
Entity File Number 0-18640  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 95-4182437  
Entity Address, Address Line One 5990 Sepulveda Boulevard  
Entity Address, City or Town Sherman Oaks  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 91411  
City Area Code 818  
Local Phone Number 908-9868  
Title of 12(b) Security Common stock  
Security Exchange Name NASDAQ  
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Balance at Feb. 02, 2019 $ 15,122 $ 98 $ 76,829 $ (61,805)
Balance (in shares) at Feb. 02, 2019   4,900    
Increase (Decrease) in Stockholders' Equity        
Stock-based compensation 208   208  
Equity issuances, net of tax 623 $ 8 615  
Equity issuances, net of tax (in shares)   415    
Stock Warrants 28   28  
Net Loss (2,258)     (2,258)
Balance at May. 04, 2019 13,723 $ 106 77,680 (64,063)
Balance (in shares) at May. 04, 2019   5,315    
Balance at Feb. 01, 2020 5,347 $ 111 78,541 (73,305)
Balance (in shares) at Feb. 01, 2020   5,571    
Increase (Decrease) in Stockholders' Equity        
Stock-based compensation 150   150  
Stock Warrants 32   32  
Net Loss (1,849)     (1,849)
Balance at May. 02, 2020 $ 3,680 $ 111 $ 78,723 $ (75,154)
Balance (in shares) at May. 02, 2020   5,571    
v3.20.1
Intangible Assets
3 Months Ended
May 02, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets

3.

Intangible Assets

Intangible assets consists of the following:

 

 

 

May 2, 2020

 

 

February 1, 2020

 

(In thousands)

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Amortizable trademarks

 

$

 

30,186

 

 

 

 

(20,796

)

 

$

 

9,390

 

 

$

 

30,153

 

 

 

 

(20,600

)

 

$

 

9,553

 

Indefinite lived trademarks

 

 

 

45,157

 

 

 

 

 

 

 

 

45,157

 

 

 

 

49,557

 

 

 

 

 

 

 

 

49,557

 

 

 

$

 

75,343

 

 

$

 

(20,796

)

 

$

 

54,547

 

 

$

 

79,710

 

 

$

 

(20,600

)

 

$

 

59,110

 

 

Intangible assets include trademarks that are classified as indefinite lived and not subjected to amortization.  Other indefinite lived trademarks include certain Cherokee brand trademarks that were acquired in historical transactions.  The Company's revenues have been adversely impacted by the COVID-19 pandemic and its effect on the Company’s licensees.  This was identified as an interim impairment indicator for the related indefinite lived trademarks during the preparation of the Company’s interim financial statements, and management performed an interim impairment test based on updated cash flow projections and discounted cash flows based on estimated weighted average costs of capital (income approach).   The Company determined that the fair values of its Hi-Tec and Magnum trademarks were not in excess of their carrying values, and as a result, an impairment charge of $4.4 million was recorded during the three months ended May 2, 2020 to adjust these trademarks to their estimated fair value.  The forcasted impact of the COVID-19 pandemic on the Company’s future revenues is subject to change as additional information becomes available.  Further impairments may be required if management’s revenue forecasts for Hi-Tec and Magnum are further reduced in future reporting periods. The Company has acquired other trademarks that are being amortized over their estimated useful lives, which average 10.0 years with no residual values.  Amortization of intangible assets was $0.2 million for both the three months ended May 2, 2020 and May 4, 2019.

The Company’s goodwill of $16.3 million arose from the Hi-Tec Acquisition that occurred during Fiscal 2017.  Goodwill is tested at least annually for impairment in the Company’s fourth quarter, and because the Company has one reporting unit, the impairment test is based primarily on the relationship between the Company’s market capitalization and the book value of its equity adjusted for an estimated control premium.  The annual goodwill impairment test in the fourth quarter of the fiscal year ended February 1, 2020 indicated that the Company’s goodwill was impaired, and an impairment charge of $4.1 million was recorded to reduce goodwill to $12.2 million.  The Company’s market capitalization was adversely affected during the three months ended May 2, 2020 as a result of the COVID-19 pandemic.  This was identified as an interim impairment indicator for goodwill during the preparation of the Company’s interim financial statements, and management performed an interim impairment test, which indicated that the Company’s goodwill was impaired.  Accordingly, an impairment charge of $5.4 million was recorded during the quarter ended May 2, 2020 to reduce goodwill to $6.8 million.

v3.20.1
Intangible Assets - Goodwill (Details) - USD ($)
$ in Thousands
3 Months Ended
May 02, 2020
Feb. 01, 2020
Jan. 28, 2017
Goodwill And Intangible Assets Disclosure [Abstract]      
Goodwill impairment charges $ 5,400 $ 4,100  
Goodwill $ 6,752 $ 12,152 $ 16,300
v3.20.1
Intangible Assets (Details) - USD ($)
$ in Thousands
May 02, 2020
Feb. 01, 2020
Intangible assets subject to amortization:    
Intangible assets, Gross value $ 75,343 $ 79,710
Accumulated amortization (20,796) (20,600)
Intangible Assets, Net (Excluding Goodwill), Total 54,547 59,110
Trademarks    
Intangible assets not subject to amortization:    
Gross Value and Carrying Value 45,157 49,557
Trademarks    
Intangible assets subject to amortization:    
Gross Value 30,186 30,153
Accumulated amortization (20,796) (20,600)
Carrying Value $ 9,390 $ 9,553
v3.20.1
Commitments and Contingencies (Tables)
3 Months Ended
May 02, 2020
Commitments And Contingencies Disclosure [Abstract]  
Schedule of future minimum commitments under non-cancelable operating leases

 

(In thousands)

 

Operating

Leases

 

Remainder of Fiscal 2021

 

$

 

323

 

Fiscal 2022

 

 

 

442

 

Fiscal 2023

 

 

 

425

 

Fiscal 2024

 

 

 

434

 

Fiscal 2025

 

 

 

333

 

Total future minimum lease payments

 

 

 

1,957

 

Less imputed interest

 

 

 

(345

)

Present value of operating lease liabilities

 

$

 

1,612

 

 

v3.20.1
Accounts Payable and Other Current Liabilities (Details) - USD ($)
$ in Thousands
May 02, 2020
Feb. 01, 2020
Other Liabilities Current [Abstract]    
Accounts payable $ 2,881 $ 2,814
Accrued employee compensation and benefits 159 413
Restructuring plan liabilities 1,214 1,677
Income taxes payable 289 291
Other liabilities 682 1,087
Total accounts payable and other current liabilities $ 5,225 $ 6,282
v3.20.1
Revenues and Concentrations of Risk (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
May 02, 2020
May 04, 2019
Feb. 01, 2020
Revenues From External Customers And Long Lived Assets [Line Items]      
Revenues $ 4,034 $ 5,052  
Long-lived tangible assets 316   $ 319
Deferred revenue 2,900   $ 3,800
Revenue recognized $ 1,300 $ 700  
Customer Concentration Risk | Accounts Receivable | Five Licensees      
Revenues From External Customers And Long Lived Assets [Line Items]      
Concentration risk (as a percent) 60.00%    
Customer Concentration Risk | Accounts Receivable | Four Licensees      
Revenues From External Customers And Long Lived Assets [Line Items]      
Concentration risk (as a percent)     45.00%
Customer Concentration Risk | Revenues | Two Licensees      
Revenues From External Customers And Long Lived Assets [Line Items]      
Concentration risk (as a percent) 35.00% 28.00%  
U.S. and Canada      
Revenues From External Customers And Long Lived Assets [Line Items]      
Revenues $ 1,027 $ 1,342  
EMEA      
Revenues From External Customers And Long Lived Assets [Line Items]      
Revenues 1,132 1,349  
Asia-Pacific      
Revenues From External Customers And Long Lived Assets [Line Items]      
Revenues 1,270 1,682  
Latin America      
Revenues From External Customers And Long Lived Assets [Line Items]      
Revenues 605 $ 679  
United States      
Revenues From External Customers And Long Lived Assets [Line Items]      
Long-lived tangible assets 200   $ 200
Non-US      
Revenues From External Customers And Long Lived Assets [Line Items]      
Long-lived tangible assets $ 100   $ 200
v3.20.1
Basis of Presentation (Policies)
3 Months Ended
May 02, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Liquidity and Going Concern

Liquidity and Going Concern

 

The accompanying condensed consolidated financial statements have been prepared on the going concern basis of accounting, which assumes the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  Under the Company’s senior secured credit facility, the Company is required to maintain specified levels of Adjusted EBITDA as defined. The Company’s operating results for the twelve months ended November 2, 2019 and twelve months ended February 1, 2020 resulted in violations of the minimum Adjusted EBITDA covenant, which are events of default, and the valuation report received from the Company’s senior secured lender during the first quarter of Fiscal 2021 indicated that the Company’s borrowing base is less than the outstanding term loan balance.   Beginning in the quarter ended May 2, 2020, the Company’s business has been materially adversely affected by the effects of the global pandemic of COVID-19 and the related protective public health measures.  The Company’s business depends upon purchases and sales of products bearing the Company’s brands by the Company’s licensees, and the prevalence of shelter in place and similar orders in the regions where these products are sold, together with the closure of many retail stores of the Company’s licensees, have resulted in significant declines in the Company’s royalties, which will likely continue for some period of time.  In response to the decline in revenues, the Company has implemented cost savings measures, such as pay reductions and employee furloughs among other things. The Company has classified its term loans and junior notes as current obligations because its financial projections, which now reflect the impact of the COVID-19 pandemic, indicate that there is a significant risk of further violations of the minimum Adjusted EBITDA covenant and borrowing base requirements beyond the forbearance period agreed to with the Company’s senior lender.

The Company’s senior lender has agreed to forbear from enforcing its rights under the senior secured credit facility with respect to these defaults through July 27, 2020. Beginning with May 1, 2020 and continuing through the term of the forbearance agreement, interest and loan amortization payments will not be paid in cash, but an equivalent amount will be added to the principal amount of the term loans to be repaid in future periods.  During the forbearance period, the Adjusted EBITDA covenant was reduced, the required minimum cash balance to be maintained by the Company was reduced, and the borrowing base requirement was suspended. The Company is required during the forbearance period to evaluate strategic alternatives designed to provide liquidity to repay the term loans under the senior secured credit facility.  In exchange for these concessions, the senior lender will receive an additional fee totaling 2% of the then outstanding loan balance when the debt is repaid.  The Company’s Junior Notes holders also agreed to accept interest payments in the form of additional principal rather than in cash from April 1, 2020 through October 1, 2020.

Future compliance failures under the senior secured credit facility would subject the Company to significant risks, including the right of its senior lender to terminate its obligations under the senior secured credit facility, declare all or any portion of the borrowed amounts then outstanding to be accelerated and due and payable, and/or exercise any other right or remedies it may have under applicable law, including foreclosing on the Company’s and/or its subsidiaries’ assets that serve as collateral for the borrowed amounts.  If any of these rights were to be exercised, the Company’s financial condition and ability to continue operations would be materially jeopardized.  If the Company is unable to meet obligations to lenders and other creditors, the Company may have to significantly curtail or even cease operations.  The Company is evaluating potential sources of working capital, including the disposition of certain assets, and believes that the NOL carryback provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by the U.S. Congress in March 2020 will result in additional liquidity, although the timing of these future cash receipts is uncertain.  NOL carryback claims are expected to result in federal income tax refunds of approximately $9.0 million.  Management’s plans also include the evaluation of strategic alternatives to enhance shareholder value.  There is no assurance that the Company will be able to execute these plans.  Because of this uncertainty, there is substantial doubt about the Company’s ability to continue as a going concern.

v3.20.1
Commitments and Contingencies
3 Months Ended
May 02, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

7.

Commitments and Contingencies

 

The Company indemnifies certain customers against liability arising from third‑party claims of intellectual property rights infringement related to the Company’s trademarks.  These indemnities appear in the licensing agreements with the Company’s customers, are not limited in amount or duration and generally survive the expiration of the contracts.  The Company is unable to determine a range of estimated losses that it could incur related to such indemnities since the amount of any potential liabilities cannot be determined until an infringement claim has been made.

 

The Company is involved from time to time in various claims and other matters incidental to the Company’s business, the resolution of which is not presently expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity.  Estimated reserves for contingent liabilities, including threatened or pending litigation, are recorded as liabilities in the financial statements when the outcome of these matters is deemed probable and the liability is reasonably estimable.

The Company has non-cancelable operating lease agreements with various expiration dates for office space and equipment.  Certain lease agreements include options to renew, which are not reasonably certain to be exercised and therefore are not factored into our determination of the present value of lease obligations.

Operating lease costs are included as a component of selling, general and administrative expense and were $0.1 million and $0.2 million, excluding variable lease costs and sublease income, for the three months ended May 2, 2020 and May 4, 2019, respectively.  Cash paid for operating lease obligations is consistent with operating lease costs for the period.     

As of May 2, 2020, the weighted-average remaining lease term is 4.4 years, and the weighted-average IBR is 8.8%.  The right-of-use assets as of May 2, 2020 was $1.5 million.  Future minimum commitments under non-cancelable operating leases as of May 2, 2020 are as follows:

 

(In thousands)

 

Operating

Leases

 

Remainder of Fiscal 2021

 

$

 

323

 

Fiscal 2022

 

 

 

442

 

Fiscal 2023

 

 

 

425

 

Fiscal 2024

 

 

 

434

 

Fiscal 2025

 

 

 

333

 

Total future minimum lease payments

 

 

 

1,957

 

Less imputed interest

 

 

 

(345

)

Present value of operating lease liabilities

 

$

 

1,612