Quarterly Report


Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 3, 2014

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                     

Commission File Number 001-34842

 

 

Gordmans Stores, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   26-3171987

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1926 South 67 th St.,

Omaha, Nebraska 68106

(Address of principal executive offices) (Zip Code)

(402) 691-4000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Stock, $0.001 par value, outstanding as of June 12, 2014: 19,554,905 shares

 

 

 


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

INDEX

 

PART I

  FINANCIAL INFORMATION      3   

ITEM 1.

  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)      3   

ITEM 2.

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      14   

ITEM 3.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      23   

ITEM 4.

  CONTROLS AND PROCEDURES      24   

PART II

  OTHER INFORMATION      24   

ITEM 1.

  LEGAL PROCEEDINGS      24   

ITEM 1A.

  RISK FACTORS      24   

ITEM 2.

  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS      24   

ITEM 3.

  DEFAULTS UPON SENIOR SECURITIES      24   

ITEM 4.

  RESERVED      24   

ITEM 5.

  OTHER INFORMATION      24   

ITEM 6.

  EXHIBITS      25   

SIGNATURES

     26   

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in 000’s except share and per share data)

(Unaudited)

 

     13 Weeks
Ended
May 3,
2014
    13 Weeks
Ended
May 4,
2013
 

Net sales

   $ 143,022      $ 131,434   

License fees from leased departments

     2,219        1,921   

Cost of sales

     (81,867     (74,364
  

 

 

   

 

 

 

Gross profit

     63,374        58,991   

Selling, general and administrative expenses

     (63,358     (53,673
  

 

 

   

 

 

 

Income from operations

     16        5,318   

Interest expense, net

     (1,197     (121
  

 

 

   

 

 

 

Income / (loss) before taxes

     (1,181     5,197   

Income tax (expense) / benefit

     449        (1,949
  

 

 

   

 

 

 

Net income / (loss)

   $ (732   $ 3,248   
  

 

 

   

 

 

 

Basic earnings / (loss) per share

   $ (0.04   $ 0.17   

Diluted earnings / (loss) per share

   $ (0.04   $ 0.17   

Basic weighted average shares outstanding

     19,351,918        19,242,790   

Diluted weighted average shares outstanding

     19,351,918        19,424,882   

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in 000’s except share and per share data)

(Unaudited)

 

     May 3,
2014
    February 1,
2014
 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 18,044      $ 5,759   

Accounts receivable

     2,779        2,755   

Landlord receivable

     5,159        4,716   

Income taxes receivable

     4,384        3,809   

Merchandise inventories

     95,178        94,711   

Deferred income taxes

     2,786        2,815   

Prepaid expenses and other current assets

     9,237        8,361   
  

 

 

   

 

 

 

Total current assets

     137,567        122,926   

PROPERTY AND EQUIPMENT, net

     83,284        76,393   

INTANGIBLE ASSETS, net

     1,884        1,906   

OTHER ASSETS, net

     5,583        5,762   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 228,318      $ 206,987   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 66,935      $ 42,561   

Accrued expenses

     32,546        28,748   

Current portion of long-term debt

     844        7,813   
  

 

 

   

 

 

 

Total current liabilities

     100,325        79,122   
  

 

 

   

 

 

 

NONCURRENT LIABILITIES:

    

Long-term debt, less current portion

     44,156        44,437   

Deferred rent

     32,910        31,591   

Deferred income taxes

     9,650        9,553   

Other liabilities

     418        479   
  

 

 

   

 

 

 

Total noncurrent liabilities

     87,134        86,060   
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ EQUITY:

    

Preferred stock — $0.001 par value, 5,000,000 shares authorized, none issued and outstanding as of May 3, 2014 and February 1, 2014

     —         —    

Common stock — $0.001 par value, 50,000,000 shares authorized, 19,805,806 issued and 19,401,394 outstanding as of May 3, 2014, 19,824,856 issued and 19,420,444 outstanding as of February 1, 2014

     19        19   

Additional paid-in capital

     53,513        53,795   

Accumulated deficit

     (12,673     (12,009
  

 

 

   

 

 

 

Total stockholders’ equity

     40,859        41,805   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 228,318      $ 206,987   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

4


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in 000’s except share and per share data)

(Unaudited)

 

     Shares of
Common
Stock
    Common
Stock
     Additional
Paid-In
Capital
    Retained
Earnings/

(Accumulated
Deficit)
    Total  

BALANCE, February 2, 2013

     19,404,322      $ 19       $ 52,461      $ 49,908      $ 102,388   

Share-based compensation expense , net of forfeitures benefit

     —          —           334        —          334   

Exercise of stock options

     12,354        —           136        —          136   

Net income

     —          —           —          3,248        3,248   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, May 4, 2013

     19,416,676      $ 19       $ 52,931      $ 53,156      $ 106,106   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, February 1, 2014

     19,420,444      $ 19       $ 53,795      $ (12,009   $ 41,805   

Share-based compensation expense, net of forfeitures benefit

     —          —           (282     —          (282

Forfeiture of unvested restricted stock

     (19,050     —           —          —          —     

Forfeiture of dividends payable on unvested restricted stock

     —          —           —          68        68   

Net loss

     —          —           —          (732     (732
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, May 3, 2014

     19,401,394      $ 19       $ 53,513      $ (12,673   $ 40,859   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

5


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in 000’s)

(Unaudited)

 

     13 Weeks
Ended
May 3,
2014
    13 Weeks
Ended
May 4,
2013
 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income / (loss)

   $ (732   $ 3,248   

Adjustments to reconcile net income / (loss) to net cash provided by operating activities:

    

Depreciation and amortization expense

     3,021        2,225   

Amortization of deferred financing fees

     129        80   

Loss on retirement / sale of property and equipment

     34        —     

Deferred income taxes

     126        87   

Share-based compensation expense, net of forfeitures benefit

     (282     334   

Net changes in operating assets and liabilities:

    

Accounts, landlord and income taxes receivable

     (1,042     5,395   

Merchandise inventories

     (467     (11,412

Prepaid expenses and other current assets

     (876     (1,606

Other assets

     50        (215

Accounts payable

     24,374        15,178   

Deferred rent

     1,319        1,129   

Income taxes payable

     —          484   

Accrued expenses and other liabilities

     6,911        2,702   
  

 

 

   

 

 

 

Net cash provided by operating activities

     32,565        17,629   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of property and equipment

     (17,317     (14,220

Proceeds from sale-leaseback transactions

     4,316        5,139   
  

 

 

   

 

 

 

Net cash used in investing activities

     (13,001     (9,081
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Dividends paid

     (29     —     

Borrowings on revolving line of credit

     42,200        —     

Repayments on revolving line of credit

     (49,450     —     

Payment of long-term debt

     —          (113

Proceeds from the exercise of stock options

     —          136   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (7,279     23   
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     12,285        8,571   

CASH AND CASH EQUIVALENTS, Beginning of period

     5,759        40,824   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, End of period

   $ 18,044      $ 49,395   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

6


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share Data and Per Share Amounts)

(Unaudited)

A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation The condensed consolidated financial statements include the accounts of Gordmans Stores, Inc. (the “Company”) and its subsidiaries, Gordmans Intermediate Holding Corp., Gordmans, Inc., Gordmans Management Company, Inc., Gordmans Distribution Company, Inc. and Gordmans LLC. All intercompany transactions and balances have been eliminated in consolidation. The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends on the Saturday nearest January 31. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of February 1, 2014 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly our financial position and results of operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature.

Summary of Significant Accounting Policies The accounting policies followed by the Company are reflected in the notes to the consolidated financial statements for the fiscal year ended February 1, 2014, included in our fiscal year 2013 Annual Report on Form 10-K, filed with the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended February 1, 2014. Due to the seasonality of our business, the results of operations for any quarter are not necessarily indicative of the operating results for the full fiscal year. In addition, quarterly results of operations can vary based upon the timing and amount of net sales and costs associated with the opening of new stores.

Recently Issued Accounting Pronouncement – In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . This guidance amends previous guidance related to the criteria for reporting a disposal as a discontinued operation by elevating the threshold for qualification for discontinued operations treatment to a disposal that represents a strategic shift that has a major effect on an organization’s operations or financial results. This guidance also requires expanded disclosures for transactions that qualify as a discontinued operation and requires disclosure of individually significant components that are disposed of or held for sale but do not qualify for discontinued operations reporting. This guidance is effective prospectively for all disposals or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted, or the beginning of the fiscal year ending January 30, 2016 for the Company. The Company does not expect this guidance to significantly impact the Company’s operations or financial statements.

B. DESCRIPTION OF THE BUSINESS

Gordmans Stores, Inc. operated 95 everyday value price department stores under the trade name “Gordmans” located in 20 states as of May 3, 2014. Gordmans offers a wide assortment of name brand clothing for all ages, accessories (including fragrances), footwear and home fashions for up to 60% off department and specialty store regular prices every day in a fun, easy-to-shop environment.

The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company has determined that its Chief Executive Officer is the Chief Operating Decision Maker. The Company has one reportable segment. The Company’s operations include activities related to retail stores. The Company opened three new stores and closed one existing store during the thirteen weeks ended May 3, 2014 and opened three new stores during the thirteen weeks ended May 4, 2013.

The following table reflects the percentage of revenues by major merchandising category:

 

     13 Weeks
Ended
May 3,
2014
    13 Weeks
Ended
May 4,
2013
 

Apparel

     57.1     57.2

Home Fashions

     26.5        26.2   

Accessories (including fragrances)

     16.4        16.6   
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

 

7


Table of Contents

C. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

 

     May 3,
2014
    February 1,
2014
 

Leasehold improvements

   $ 10,391      $ 9,317   

Furniture, fixtures and equipment

     54,494        47,876   

Computer software

     17,650        17,398   

Capitalized leases

     1,740        1,740   

Construction in progress

     25,847        25,209   
  

 

 

   

 

 

 
     110,122        101,540   

Less accumulated depreciation and amortization

     (26,838     (25,147
  

 

 

   

 

 

 
   $ 83,284      $ 76,393   
  

 

 

   

 

 

 

D. DEBT OBLIGATIONS

Revolving Line of Credit Facility – The Company has an $80.0 million revolving line of credit facility dated February 20, 2009, as amended effective August 27, 2013, with Wells Fargo Bank, N.A. (successor in merger with Wells Fargo Retail Finance, LLC) and PNC Bank (“WF LOC”). The credit facility expires on August 27, 2018. While the Company had no borrowings outstanding under the WF LOC as of May 3, 2014, average borrowings during the first quarter of fiscal year 2014 were $5.6 million and there were no borrowings on the WF LOC during the first quarter of fiscal year 2013. The Company had $7.3 million of borrowings outstanding under the WF LOC as of February 1, 2014.

Borrowings under this facility bear interest at various rates based on the excess availability and time of year, with two rate options at the discretion of management as follows: (1) For base rate advances, borrowings bear interest at the prime rate plus 0.75% during the non-seasonal period and the prime rate plus 1.50% during the seasonal period. When excess availability is $40.0 million or greater, borrowings for base rate advances bear interest at the prime rate plus 0.50% during the non-seasonal period and the prime rate plus 1.25% during the seasonal period; (2) For LIBOR rate advances, borrowings bear interest at the LIBOR rate plus 1.75% during the non-seasonal period and the LIBOR rate plus 2.50% during the seasonal period. When excess availability is $40.0 million or greater, borrowings for LIBOR rate advances bear interest at the LIBOR rate plus 1.50% during the non-seasonal period and the LIBOR rate plus 2.25% during the seasonal period. Borrowings available under the WF LOC may not exceed the borrowing base (consisting of specified percentages of credit card receivables and eligible inventory, less applicable reserves). The Company must maintain minimum excess availability equal to at least 10% of the borrowing base. The Company had $67.8 million and $53.8 million available to borrow at May 3, 2014 and February 1, 2014, respectively. Borrowings under this facility bore an interest rate of 3.75% under the base rate option at May 3, 2014 and February 1, 2014. The Company had outstanding letters of credit included in the borrowing base totaling approximately $1.0 million and $0.8 million as of May 3, 2014 and February 1, 2014, respectively.

An unused line fee is payable quarterly in an amount equal to 0.25% of the sum of the average daily unused revolving commitment plus the average daily unused letter of credit commitment. A customary fee is also payable to the administrative agent under the facility on an annual basis.

Borrowings are secured by the Company’s inventory, accounts receivable and all other personal property, except as specifically excluded in the agreement.

Among other provisions, the loan, guaranty and security agreement relating to the Company’s revolving line of credit facility contains customary affirmative and negative covenants, including a negative covenant that restricts the level and form of indebtedness entered into by the Company or its wholly owned subsidiaries. Exceptions to this covenant include borrowings under the $45.0 million Loan, Guaranty and Security Agreement by and among the Borrower, each of the other credit parties signatory thereto, and lenders party thereto and Cerberus Business Finance, LLC, as the administrative agent for the lenders (the “senior term loan”), and indebtedness not to exceed $11,000,000 in any fiscal year and $30,000,000 in the aggregate to finance the acquisition, construction or installation of equipment or fixtures at the Company’s retail store locations, distribution centers or corporate office. The revolving line of credit facility also includes a negative covenant that restricts dividends and other upstream distributions by the Company and its subsidiaries to the extent the Company does not meet minimum excess availability thresholds. Exceptions to this covenant include dividends or other upstream distributions: (i) by subsidiaries of Gordmans, Inc. to Gordmans, Inc. and its other subsidiaries, (ii) that consist of repurchases of stock of employees in an amount not to exceed $500,000 in any fiscal year, (iii) that consist of the payment of taxes on behalf of any employee, officer or director of the Company for vested restricted stock of the Company owned by such employee, officer or director, (iv) to the Company to pay federal, state and local income taxes and franchise taxes solely arising out of the consolidated operations of the Company and its subsidiaries and (v) to the Company to pay certain reasonable directors’ fees and out-of-pocket expenses, reasonable and customary indemnities to directors, officers and employees and other expenses in connection with ordinary corporate governance, overhead, legal and accounting and maintenance. The loan, guaranty and security agreement also includes a negative covenant that restricts subsidiaries of the Company from making any loans to the Company. The agreement also contains a cross default provision related to the senior term loan. Should the Company default on any of its covenants, Wells Fargo Bank, N.A. may make any outstanding amounts on the WF LOC immediately due and payable. As of May 3, 2014, the Company was in compliance with all of its debt covenants under the loan and security agreement.

 

8


Table of Contents

Senior Term Loan – Gordmans, Inc. (the “Borrower”), a wholly owned subsidiary of the Company, entered into a $45.0 million senior term loan on August 27, 2013 to partially fund the $69.9 million special cash dividend declared in August 2013. The senior term loan has a maturity date of August 27, 2018, with payments of $0.3 million due on a quarterly basis beginning in October 2014 through October 2015 and payments of $0.4 million due on a quarterly basis beginning in January 2016 through the maturity date, with the remaining principal due on the maturity date. As of May 3, 2014, the Company may repay at any time all or a portion of the outstanding principal amount, subject to a prepayment premium equal to 2% in the first year and 1% in the second year (there is no prepayment premium after the second year). As of May 3, 2014, the senior term loan carries an interest rate equal to the prime rate (subject to a floor of 3.25%) plus 5.25% or the LIBOR rate (subject to a floor of 1.5%) plus 7.0%, as selected by the Company. The interest rate at May 3, 2014 was 8.5%.

The senior term loan is secured on a second lien basis by the Company’s inventory, accounts receivable and all other personal property, except as specifically excluded in the agreement.

The senior term loan contains customary affirmative and negative covenants, including a negative covenant that restricts the level and form of indebtedness entered into by the Company or its wholly owned subsidiaries. Exceptions to this covenant include indebtedness not to exceed $7,500,000 at any time to finance the acquisition of fixed assets, including capital lease obligations, borrowings under the revolving line of credit facility and other indebtedness not to exceed $15,000,000 in any fiscal year and $30,000,000 in the aggregate to finance the acquisition, construction or installation of equipment or fixtures at the Company’s retail store locations, distribution centers or corporate office. The senior term loan also includes a negative covenant that restricts dividends and other upstream distributions by the Company and its subsidiaries. The exceptions to this covenant are substantially similar to the exceptions under the revolving line of credit facility. The senior term loan also contains financial covenants requiring the Company to maintain compliance with a minimum fixed charge coverage ratio and a maximum leverage ratio, as well as limitations on the annual amount of capital expenditures. Should the Company default on any of its covenants, the lenders may demand that the outstanding balance of the senior term loan be immediately due and payable.

On June 9, 2014, the Company entered into a Waiver and First Amendment (the “amendment”) of its credit facilities. The amendment, among other things, revised the fixed charge coverage ratio and leverage ratio covenants for measurement dates occurring after the first quarter of fiscal 2014 through the maturity date and the capital expenditures limitation for each fiscal year end. The amendment also included an extension of the prepayment penalty period under the early payment provision from the amendment date through the first and second anniversaries of the amendment and a 1% increase in the interest rate should a minimum liquidity test, which is measured based on operating performance and a minimum fixed charge coverage ratio as defined in the agreement, not be met. The outstanding balance on the senior term loan due more than twelve months from the balance sheet date is classified as long-term debt as the Company expects to be in compliance with the senior term loan covenants, including the fixed charge coverage ratio, for measurement dates occurring within the next twelve months.

Long-term Debt – Long-term debt consists of the following:

 

     May 3,
2014
    February 1,
2014
 

Revolving line of credit facility

   $ —        $ 7,250   

Senior term loan

     45,000        45,000   
  

 

 

   

 

 

 

Total long-term debt

     45,000        52,250   

Less current portion of long-term debt

     (844     (7,813
  

 

 

   

 

 

 

Long-term debt, less current portion

   $ 44,156      $ 44,437   
  

 

 

   

 

 

 

 

9


Table of Contents

At May 3, 2014, annual maturities of long-term debt during the next five fiscal years and thereafter were as follows:

 

Remainder of 2014

   $ 563   

2015

     1,265   

2016

     1,688   

2017

     1,688   

2018

     39,796   
  

 

 

 

Total long-term debt

   $ 45,000   
  

 

 

 

Financial Instruments – Based on the borrowing rates currently available to the Company for debt with similar terms and the variable interest rate of the senior term loan, which has not changed since the agreement was signed in August 2013, the fair value of the senior term loan approximates its carrying amount of $45.0 million at May 3, 2014. For all other financial instruments including cash and cash equivalents, receivables, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the short maturity of those instruments.

E. LEASES

The Company has entered into short and long term operating lease agreements. These leases relate to retail store locations, the distribution centers and the corporate headquarters. The leases expire on various dates through the year 2029 with most of the leases containing renewal options. Leases for retail store locations typically have base lease terms of 10 years with one or more renewal periods, usually for five years. Certain retail store leases contain provisions for additional rent based on varying percentages of net sales.

Future minimum lease payments, by year, under operating leases as of May 3, 2014 are as follows:

 

 

     Operating
Leases
 

Remainder of 2014

   $ 39,512   

2015

     51,750   

2016

     44,667   

2017

     41,229   

2018

     36,071   

After 2018

     152,516   
  

 

 

 

Total minimum lease payments

   $ 365,745   
  

 

 

 

F. SHARE BASED COMPENSATION

The Gordmans Stores, Inc. 2010 Omnibus Incentive Compensation Plan (the “2010 Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents and other share-based awards. Directors, officers and other associates of the Company and its subsidiaries, as well as others performing consulting or advisory services, are eligible for grants under the 2010 Plan. As of May 3, 2014, an aggregate of 2,573,086 shares of the Company’s common stock were available under the 2010 Plan, subject to adjustments for stock splits and other actions affecting the Company’s common stock. As amended by the Board of Directors on February 25, 2014 and approved by the stockholders of the Company on May 28, 2014, the number of shares available under the 2010 Plan was increased by 2,000,000 to 4,573,086 shares, subject to adjustments for stock splits and other actions affecting the Company’s common stock. The exercise price of an option granted under the 2010 Plan will not be less than 100% of the fair value of a share of the Company’s common stock on the date of grant, provided the exercise price of an incentive stock option granted to a person holding greater than 10% of the Company’s voting power may not be less than 110% of such fair value on such date. The term of each option may not exceed ten years or, in the case of an incentive stock option granted to a ten percent stockholder, five years. Under the 2010 Plan, in the event of a dividend or other distribution other than regular cash dividends, recapitalization, or other transactions or events affecting the Company’s common stock, the Company must equitably adjust the number of shares of common stock subject to outstanding stock options and restricted stock and must adjust the exercise price of any outstanding stock options.

There were 627,388 shares of common stock available for future grants under the 2010 Plan at May 3, 2014.

 

10


Table of Contents

A summary of restricted stock activity during the thirteen weeks ended May 3, 2014 is set forth in the table below:

 

     Number
of
Shares
    Weighted Average
Grant Date
Fair Value
 

Non-vested, February 1, 2014

     69,058      $ 15.63   

Forfeited

     (19,050     17.85   

Vested

     (8,080     2.36   
  

 

 

   

Non-vested, May 3, 2014

     41,928      $ 17.18   
  

 

 

   

Restricted stock vests at varying rates of 25% per year over four years or 20% per year over five years as applicable. Unrecognized compensation expense on the restricted stock was $0.5 million at May 3, 2014, which is expected to be recognized over a period of 1.5 years. The total fair value of shares vested during the thirteen weeks ended May 3, 2014 was $38 thousand.

A summary of stock option activity during the thirteen weeks ended May 3, 2014 is set forth in the table below:

 

     Number
of Stock
Options
    Weighted
Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term
     Aggregate
Intrinsic
Value (1)
(thousands)
 

Outstanding, February 1, 2014

     990,353      $ 11.50         

Granted

     72,300        5.98         

Forfeited

     (179,808     11.30         
  

 

 

         

Outstanding, May 3, 2014

     882,845        11.09         7.6 years       $ —    

Exercisable, May 3, 2014

     348,538        11.29         7.1         —    

Vested or expected to vest at May 3, 2014

     723,554        11.33         7.7         —    

 

(1) The aggregate intrinsic value for stock options is the difference between the current market value of the Company’s stock as of May 3, 2014 and the option strike price. The stock price at May 3, 2014 was $4.53, which was below the weighted average exercise price for options outstanding, exercisable and vested or expected to vest at May 3, 2014.

The Company received $0.1 million of proceeds from the exercise of stock options during the thirteen weeks ended May 4, 2013, which is reflected as a financing cash inflow in the condensed consolidated statement of cash flows for the thirteen weeks ended May 4, 2013. The aggregate intrinsic value of stock options exercised during the thirteen weeks ended May 4, 2013 was $35 thousand. There were no stock option exercises during the thirteen weeks ended May 3, 2014.

The Company used the Black-Scholes option valuation model to estimate fair value of the options. This model required an estimate of the volatility of the Company’s share price; however, because the Company’s shares or options were not publicly traded for a significant period of time, the Company determined that it was not practical to estimate the expected volatility of its share price. Thus, the Company accounted for equity share options based on a value calculated using the historical volatility of an appropriate industry sector index instead of the expected volatility of the entity’s share price. The historical volatility was calculated using comparisons to peers in the Company’s market sector, which was chosen due to the proximity of size and industry to the Company over the expected term of the option.

In determining the expense to be recorded for options, the significant assumptions utilized in applying the Black-Scholes option valuation model are the risk-free interest rate, expected term, dividend yield and expected volatility. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating the expected term used as the assumption in the model. The expected term of the option awards is estimated using the simplified method, or the average of the vesting period and the original contractual term, as it is not practical for the Company to use its historical experience to estimate the expected term because the Company’s shares have not been publicly traded for a significant period of time.

 

11


Table of Contents

The weighted average assumptions used by the Company in applying the Black-Scholes valuation model for option grants during the thirteen weeks ended May 3, 2014 are illustrated in the following table:

 

     13 Weeks
Ended
May 3,
2014
 

Risk-free interest rate

     2.0

Dividend yield

     2.0

Expected volatility

     36.0

Expected life (years)

     6.25   

Weighted average fair value of options granted

   $ 1.83   

Stock options have ten-year contractual terms and vest at varying rates of either 20% per year over five years or 25% per year over four years as applicable. None of the stock options outstanding at May 3, 2014 were subject to performance or market-based vesting conditions. As of May 3, 2014, the unrecognized compensation expense on stock options was $1.5 million, which is expected to be recognized over a weighted average period of 2.3 years.

For the thirteen week period ended May 3, 2014, the Company recorded a share-based compensation benefit of $0.4 million related to the forfeiture of unvested share-based awards granted to the Company’s former chief executive officer, who retired effective March 25, 2014, and a $0.1 million benefit resulting from changes in the forfeiture rates used to measure share-based compensation expense based on actual historical and expected future forfeitures. Share-based compensation expense was $0.2 million and $0.3 million for the thirteen week periods ended May 3, 2014 and May 4, 2013, respectively. Share-based compensation expense is recorded in selling, general and administrative expenses in the consolidated statements of operations.

G. EARNINGS / LOSS PER SHARE

The following is a reconciliation of the outstanding shares utilized in the computation of earnings / loss per share:

 

     13 Weeks
Ended
May 3,
2014
     13 Weeks
Ended
May 4,
2013
 

Basic weighted average shares outstanding

     19,351,918         19,242,790   

Dilutive effect of non-vested stock and stock options

     —           182,092   
  

 

 

    

 

 

 

Diluted weighted average shares outstanding

     19,351,918         19,424,882   
  

 

 

    

 

 

 

The anti-dilutive effect of 991,551 and 468,221 stock options has been excluded from diluted weighted average shares outstanding for the thirteen week periods ended May 3, 2014 and May 4, 2013, respectively.

 

12


Table of Contents

H. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth non-cash investing activities and other cash flow information:

 

     13 Weeks
Ended
May 3,
2014
     13 Weeks
Ended
May 4,
2013
 

Non-cash investing and financing activities:

     

Purchases of property and equipment in accrued expenses at the end of the period

   $ 2,846       $ 3,053   

Sales of property and equipment pursuant to sale-leaseback accounting

     3,802         —    

Dividends payable forfeited on unvested restricted stock

     68         —    

Other cash flow information:

     

Cash paid for interest

     1,118         99   

Cash paid for income taxes, net

     —          79   

Sales of property and equipment pursuant to sale-leaseback accounting represents the amount of structural assets sold to the landlord at the completion of construction for which the Company was deemed the owner during the construction period, pursuant to sale-leaseback accounting, and for which no cash was received upon transfer of ownership. For the three new stores opened in the first quarter of fiscal 2013, the landlord incurred and paid for all construction costs during the construction period and bore substantially all construction period risk for the landlord-owned, or structural assets, during the construction period. As a result, there were no sales of property and equipment to the landlords pursuant to sale-leaseback accounting during the thirteen weeks ended May 4, 2013.

I. RELATED PARTY DISCLOSURE

In addition to a services agreement the Company has with Sun Capital Partners Management V, LLC (“Sun Capital Management”), an affiliate of private equity firm Sun Capital Partners, Inc. (“Sun Capital”) to (1) reimburse Sun Capital Management for out-of-pocket expenses incurred in providing consulting services to the Company and (2) provide Sun Capital Management with customary indemnification for any such services, Sun Capital was reimbursed $0.3 million by the Company during the first quarter of fiscal 2014 for professional consulting services paid by Sun Capital and provided by an unrelated third party related to the search for a new chief executive officer resulting from the retirement of our former chief executive officer in the first quarter of fiscal 2014.

 

13


Table of Contents

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, or strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including the factors described in “Item 1A – Risk Factors” in our fiscal year 2013 Annual Report on Form 10-K.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other Securities and Exchange Commission (“SEC”) filings and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties. The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

The following discussion and analysis should be read in conjunction with our fiscal year 2013 Annual Report on Form 10-K and the unaudited condensed consolidated financial statements and the related notes thereto included in Item 1. Consolidated Financial Statements of this Quarterly Report.

Executive Overview

Gordmans is an everyday value price department store retailer featuring a large selection of the latest brands, fashions and styles at up to 60% off department and specialty store prices every day in a fun, easy-to-shop environment. Our merchandise assortment includes apparel for all ages, accessories (including fragrances), footwear and home fashions. The origins of Gordmans date back to 1915, and as of May 3, 2014, we operated 95 stores in 20 states situated in a variety of shopping center developments, including regional enclosed shopping malls, lifestyle centers and power centers.

We opened three new stores in two new markets, including one new state, and one existing market during the thirteen weeks ended May 3, 2014 compared to opening three new stores in existing markets during the thirteen weeks ended May 4, 2013. We also closed an existing store during the thirteen weeks ended May 3, 2014.

In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales and comparable store sales and other individual store performance factors, gross profit and selling, general and administrative expenses.

Net Sales . Net sales reflect our revenues from the sale of our merchandise less returns and discounts and exclusive of sales tax. Net sales include comparable store sales and non-comparable store sales.

Comparable Store Sales . Comparable store sales have been calculated based upon stores that were open at least 16 months as of the end of the reporting period. Comparable store sales include stores that were relocated or remodeled and exclude stores that are closed. We also review average sale per transaction, comparable store transactions and sales conversion rates. Comparable store sales are an important indicator of current operating performance, with higher comparable store sales helping us to leverage our fixed expenses and positively impacting our operating results.

Gross Profit . Gross profit is equal to our net sales minus cost of sales, plus license fee income generated from sales of footwear and maternity apparel in our leased departments. Cost of sales includes the direct cost of purchased merchandise, inventory shrinkage, inventory write-downs and inbound freight to our distribution center. Gross margin measures gross profit as a percentage of our net sales. Our gross profit may not be comparable to other retailers, as some companies include all of the costs related to their distribution network in cost of sales while others, like us, exclude a portion of these costs from cost of sales and include those costs in selling, general and administrative expenses. Our gross margin is evaluated in terms of initial markup and the amount of markdowns, with higher initial markup and lower markdowns positively impacting our operating results.

 

14


Table of Contents

Selling, General and Administrative Expenses . Selling, general and administrative expenses include all operating costs not included in cost of sales. These expenses include payroll and other expenses related to operations at our corporate office, store expenses, occupancy costs, certain distribution and warehousing costs, pre-opening expenses, depreciation and amortization and advertising expense. Selling, general and administrative expenses as a percentage of net sales is generally higher in lower sales volume periods and lower in higher sales volume periods. Our ability to manage store level and certain other operating expenses directly impacts our operating results.

Overview

The net loss for the thirteen weeks ended May 3, 2014 was $0.7 million as compared to net income of $3.2 million for the thirteen weeks ended May 4, 2013. The decrease in net income / (loss) was primarily due to a 2.7% decrease in comparable store sales, a 60 basis point decrease in gross profit margin and higher selling, general and administrative expenses, partially offset by higher net sales attributable to new stores. Below are highlights of our financial results for the thirteen weeks ended May 3, 2014.

 

    Net sales increased 8.8% for the thirteen weeks ended May 3, 2014 as compared to the thirteen weeks ended May 4, 2013. Higher net sales were driven by an increase in non-comparable store sales due to the addition of ten new stores in fiscal year 2013, three of which opened in the first quarter of fiscal 2013, and the three new stores opened during the thirteen weeks ended May 3, 2014. Comparable store sales decreased 2.7% for the thirteen weeks ended May 3, 2014 as compared to the prior year comparable store sales decrease of 10.5%. To improve our recent comparable store sales trend, we are working on a number of initiatives in fiscal year 2014, including several merchandising strategies focused on injecting breadth and diversity into our product selection, improving sales conversion at the store level, recalibrating inventory levels and modifying our marketing strategy to increase email advertising, increase the size of our email database and focus our marketing message in all of our advertising mediums more directly on our merchandise and value proposition.

 

    Gross profit margin decreased 60 basis points in the thirteen weeks ended May 3, 2014 as compared to the thirteen weeks ended May 4, 2013 primarily as a result of higher promotional markdowns associated with our loyalty rewards program, which we launched in May 2013, resulting from higher rewards earned and redeemed, in combination with maintaining the same promotional advertising through issuance of discount coupons to guests.

 

    Higher selling, general and administrative expenses were primarily attributable to the ten new stores opened in fiscal 2013 and the three new stores opened during the thirteen weeks ended May 3, 2014.

Basis of Presentation and Results of Operations

The consolidated financial statements include the accounts of Gordmans Stores, Inc. and its subsidiaries, Gordmans Intermediate Holding Corp., Gordmans, Inc., Gordmans Management Company, Inc., Gordmans Distribution Company, Inc. and Gordmans LLC. All intercompany transactions and balances have been eliminated in consolidation. We utilize a typical retail 52-53 week fiscal year whereby the fiscal year ends on the Saturday nearest January 31. Fiscal years 2014 and 2013 represent fifty-two week years ending January 31, 2015 and ended February 1, 2014, respectively. All references to fiscal years are to the calendar year in which the fiscal year begins. The thirteen weeks ended May 3, 2014 and the thirteen weeks ended May 4, 2013 represent the first quarters of fiscal 2014 and fiscal 2013, respectively.

 

15


Table of Contents

The table below sets forth the consolidated statements of operations data for the periods presented (in thousands):

 

     13 Weeks
Ended
May 3,
2014
    13 Weeks
Ended
May 4,
2013
 

Statements of Operation Data:

  

Net sales

   $ 143,022      $ 131,434   

License fees from leased departments

     2,219        1,921   

Cost of sales

     (81,867     (74,364
  

 

 

   

 

 

 

Gross profit

     63,374        58,991   

Selling, general and administrative expenses

     (63,358     (53,673
  

 

 

   

 

 

 

Income from operations

     16        5,318   

Interest expense, net

     (1,197     (121
  

 

 

   

 

 

 

Income / (loss) before taxes

     (1,181     5,197   

Income tax (expense) / benefit

     449        (1,949
  

 

 

   

 

 

 

Net income / (loss)

   $ (732   $ 3,248   
  

 

 

   

 

 

 

The table below sets forth the components of the consolidated statements of operations as a percentage of net sales:

 

     13 Weeks
Ended
May 3,
2014 (1)
    13 Weeks
Ended
May 4,
2013 (1)
 

Net sales

     100.0     100.0

License fees from leased departments

     1.6        1.5   

Cost of sales

     (57.2     (56.6
  

 

 

   

 

 

 

Gross profit

     44.3        44.9   

Selling, general and administrative expenses

     (44.3     (40.8
  

 

 

   

 

 

 

Income from operations

     0.0        4.1   

Interest expense, net

     (0.8     (0.1
  

 

 

   

 

 

 

Income / (loss) before taxes

     (0.8     4.0   

Income tax (expense) / benefit

     0.3        (1.5
  

 

 

   

 

 

 

Net income / (loss)

     (0.5 )%      2.5
  

 

 

   

 

 

 

 

(1)   Percentages may not foot due to rounding.

Thirteen Weeks Ended May 3, 2014 Compared to Thirteen Weeks Ended May 4, 2013

Net Sales

Net sales for the thirteen weeks ended May 3, 2014 increased $11.6 million, or 8.8%, to $143.0 million as compared to $131.4 million for the thirteen weeks ended May 4, 2013. This increase was primarily the result of a $15.0 million increase in non-comparable store sales due to the opening of ten new stores in fiscal 2013, three of which opened in the first quarter of fiscal 2013, and the opening of three new stores in the first quarter of fiscal 2014. Comparable store sales decreased $3.4 million, or 2.7%, for the quarter. The comparable store sales decrease was primarily due to a mid-single digit decrease in comparable transactions, which represents our measure for guest traffic, partially offset by a low single digit increase in the average sale per transaction, which improved from the first quarter of fiscal 2013 in part due to the rollout of our guest loyalty program, gRewards, to all stores in the second quarter of fiscal 2013. From a major merchandising category perspective, Apparel, Accessories (including Fragrances) and Home Fashions all experienced a low single digit comparable store sales decrease for the thirteen weeks ended May 3, 2014 compared to the thirteen weeks ended May 4, 2013.

The 2.7% comparable store sales decrease we experienced in the first quarter of fiscal 2014 represents an improvement from our recent comparable store sales trend we experienced in fiscal 2013. We believe that the recent decline in comparable store sales, which began in the fourth quarter of fiscal 2012, is primarily the result of our merchandise selection and pricing strategies. We believe initiatives, such as the company-wide launch of our guest loyalty program in fiscal 2013, and initiatives we are working on in fiscal 2014, including several merchandising sales growth strategies focused on injecting breadth and diversity into our product selection across a number of our Apparel and Home Fashions businesses and revitalizing the presentation of merchandise and the shopping experience for our guests, combined with the addition of several talented associates to our merchandising and stores leadership teams and changes in our marketing message to focus on our merchandise and our value proposition, will lead to improved comparable store sales performance for the remainder of this fiscal year and beyond.

 

16


Table of Contents

License Fees from Leased Departments

License fee income related to sales of merchandise in leased departments for the thirteen weeks ended May 3, 2014 increased $0.3 million, or 15.5%, to $2.2 million as compared to $1.9 million for the thirteen weeks ended May 4, 2013 primarily due to new store growth.

Gross Profit

Gross profit, which includes license fees from leased departments, for the thirteen weeks ended May 3, 2014 increased $4.4 million, or 7.4%, to $63.4 million as compared to $59.0 million for the thirteen weeks ended May 4, 2013. Gross profit margin decreased 60 basis points to 44.3% of net sales as compared to 44.9% of net sales for the first quarter of 2013. Of this decrease, 70 basis points was due to higher promotional markdowns associated with our loyalty rewards program, which was launched in May 2013, resulting from higher rewards earned and redeemed in combination with maintaining the same promotional advertising through issuance of discount coupons to guests in an effort to promote sales. Mark-up on merchandise purchases also decreased 40 basis points in the first quarter of fiscal 2014 versus the first quarter of fiscal 2013 primarily as a result of higher freight charges. Markdowns on merchandise inventory, which decreased 60 basis points in the first quarter of fiscal 2014 versus the first quarter of fiscal 2013 due to lower merchandise inventory levels on an average store basis, partially offset the gross margin deterioration caused by a combination of loyalty rewards issued through our loyalty program and promotional advertising, as well as lower initial mark-up on merchandise purchases.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the thirteen weeks ended May 3, 2014 increased $9.7 million, or 18.0%, to $63.4 million as compared to $53.7 million for the thirteen weeks ended May 4, 2013. As a percentage of net sales, selling, general and administrative expenses increased to 44.3% as compared to 40.8% for the first quarter of 2013, a 350 bps increase. The increase in selling, general and administrative expenses as a percentage of net sales was primarily due to higher corporate expenses, higher store expenses and higher distribution center expenses primarily associated with a decrease in comparable store sales, as well as higher depreciation expense and higher pre-opening expenses.

Store expenses increased $4.2 million in the first quarter of fiscal 2014 as compared to the first quarter of fiscal 2013 primarily due to increased rent and real estate, payroll and benefits, maintenance and utilities expenses associated with the ten new stores opened in fiscal 2013 and the three new stores opened in the first quarter of fiscal 2014. Store expenses were 27.2% of net sales in the first quarter of fiscal 2014 as compared to 26.3% of net sales in the first quarter of fiscal 2013, an 80 basis point increase, primarily resulting from higher rent and real estate, higher maintenance and higher utilities expenses as a percentage of net sales associated with a decrease in comparable store sales and higher benefit expenses related to higher health insurance and workers compensation claims.

Corporate expenses increased $3.2 million in the first quarter of fiscal 2014 as compared to the first quarter of fiscal 2013 primarily due to expenses of $1.1 million associated with the retirement of our former Chief Executive Officer (“CEO”) in the first quarter, as well as a $0.6 million increase in recruiting and relocation costs associated with the addition of several associates to our merchandising and stores leadership teams. Rental expenses were higher by $0.3 million associated with the move to our new corporate headquarters in the first quarter of fiscal 2014 and information technology costs were higher by $0.3 million related to upgrading our information technology systems and supporting our enterprise merchandise system. Payroll costs increased $0.2 million for the addition of new staff positions to support our growth and merit compensation increases, partially offset by a decrease in share-based compensation expense associated with the former CEO’s separation in the first quarter of fiscal 2014 and a change in the estimated forfeiture rate of share-based awards in the first quarter of fiscal 2014 due to higher actual forfeiture rates than estimated. Corporate expenses were 7.7% of net sales in the first quarter of fiscal 2014 as compared to 5.9% of net sales in the first quarter of fiscal 2013, a 180 basis point increase, primarily resulting from expenses associated with the former CEO’s separation, higher recruiting and relocation expenses for additional stores and merchandising associates and higher information technology costs as a percentage of net sales associated with a decrease in comparable store sales.

A $1.1 million increase in distribution center expenses was primarily the result of higher rent expenses associated with the second primary distribution center that is planned to be operational in the second quarter of fiscal 2014 and charges associated with lower capitalized freight than the prior quarter due to lower inventory levels and lower average delivery charges as a percentage of inventory receipts during the quarter. Distribution center expenses were 4.3% of net sales in the first quarter of fiscal 2014 as compared to 3.8% of net sales in the first quarter of fiscal 2013, a 50 basis point increase, primarily resulting from higher rent expenses and capitalized freight charges, as well as the decrease in comparable store sales.

 

17


Table of Contents

Depreciation and amortization expenses increased $0.8 million, or 40 basis points as a percentage of net sales, in the first quarter of fiscal 2014 as compared to the first quarter of fiscal 2013 due to increased property additions associated with new store openings, investments in upgrading our information technology systems and the new corporate headquarters.

Pre-opening and closing expenses increased $0.5 million, or 30 basis points as a percentage of net sales, in the first quarter of fiscal 2014 due to the second primary distribution center, which is planned to open in the second quarter of fiscal 2014, and the closing of an existing store in the first quarter of fiscal 2014. The Company opened three new stores in the first quarter of fiscal 2014 as compared to the three new stores opened in the first quarter of fiscal 2013 and closed one store in the first quarter of fiscal 2014 as compared to no store closings in the first quarter of fiscal 2013.

Advertising expenses decreased $0.1 million in the first quarter of fiscal 2014 as compared to the first quarter of fiscal 2013 primarily due to lower television expenses, partially offset by higher preprint expenses, both of which are a result of the refinement of our marketing efforts to drive annual comparable store sales. Advertising expenses were 1.8% of net sales in the first quarter of fiscal 2014 as compared to 2.1% in the first quarter of fiscal 2013, a 30 bps decrease, primarily resulting from lower advertising expenses in the first quarter.

Interest Expense, Net

Interest expense, net for the first quarter of fiscal 2014 increased $1.1 million to $1.2 million compared to $0.1 million for the thirteen weeks ended May 4, 2013. This increase was primarily the result of interest expense, including the amortization of deferred financing fees, related to the $45.0 million senior term loan that we entered into on August 27, 2013, as well as an increase in average borrowings on the revolving line of credit from $0 during the first quarter of fiscal 2013 to $5.6 million during the first quarter of fiscal 2014.

Income / (Loss) before Taxes

The loss before taxes for the first quarter of fiscal 2014 was $1.2 million compared to income before taxes of $5.2 million in the first quarter of fiscal 2013. As a percentage of net sales, the loss before taxes was (0.8%) for the first quarter of fiscal 2014 compared to income before taxes of 4.0% for the first quarter of fiscal 2013.

Income Tax (Expense) / Benefit

Income tax benefit for the thirteen weeks ended May 3, 2014 was $0.4 million compared to income tax expense of $1.9 million for the thirteen weeks ended May 4, 2013. The effective income tax rate for the first quarter of fiscal 2014 was 38.0% compared to the effective income tax rate of 37.5% for the first quarter of fiscal 2013. The effective rate differed from the federal enacted rate of 35% primarily due to state taxes, net of federal benefits.

Net Income / (Loss)

Net income / (loss) for the first quarter of fiscal 2014 decreased $4.0 million to a net loss of $0.7 million compared to net income of $3.2 million for the first quarter of fiscal 2013. As a percentage of net sales, the net loss was (0.5%) for the first quarter of fiscal 2014 compared to net income of 2.5% of net sales for the first quarter of fiscal 2013. The decrease in net income / (loss) as a percentage of net sales resulted primarily from the comparable store sales decrease, the 60 basis point decrease in gross profit margin and the increase in selling, general and administrative expenses associated with our new store growth, partially offset by higher net sales attributable to new stores.

Seasonality

Our business is subject to seasonal fluctuations, which are typical of retailers that carry a similar merchandise offering. A disproportionate amount of our sales and net income are realized during the fourth fiscal quarter, which includes the holiday selling season. In fiscal years 2013, 2012 and 2011, respectively, 32.3%, 33.3% and 33.6% of our net sales were generated in the fourth quarter. Operating cash flows are typically higher in the fourth fiscal quarter due to inventory related working capital requirements in the third fiscal quarter. During fiscal years 2013, 2012 and 2011, we generated net income during the first nine months of $5.3 million, $15.6 million and $15.0 million, respectively, and 34.1%, 33.7% and 40.5% of net income was realized in the fourth quarters of fiscal years 2013, 2012 and 2011, respectively. Our business is also subject, at certain times, to calendar shifts, which may occur during key selling periods close to holidays such as Easter, Thanksgiving and Christmas and regional fluctuations for events such as sales tax holidays.

 

18


Table of Contents

Liquidity and Capital Resources

Our primary ongoing cash requirements are for operating expenses, inventory, new store capital investment, investments in our information technology, investments in our distribution centers, including our second primary distribution center that will become operational in the second quarter of fiscal 2014, and capital expenditures for existing store improvements, as well as debt service. Our typical investment in a new store is approximately $1.3 million, which represents pre-opening expenses of $0.4 million and inventory of $0.9 million (of which $0.3 million is typically financed through trade payables). The fixed assets and leasehold improvements associated with a new store opening of approximately $1.1 million have typically been financed by landlords through favorable tenant improvement allowances. Our primary sources of funds for our business activities are cash from operations, borrowings under our revolving line of credit facility, tenant improvement allowances and the use of operating leases for new stores.

Our working capital at May 3, 2014 decreased $6.6 million, or 15.0%, to $37.2 million compared to working capital of $43.8 million at February 1, 2014. The decrease in working capital from February 1, 2014 to May 3, 2014 primarily resulted from an increase in accounts payable due to seasonality, enhanced cash management and new store growth in concert with a decrease in merchandise inventories on a comparable and average store basis as part of our strategy to drive comparable store sales by injecting breadth and diversity into our product selection.

On August 26, 2013, the Company’s board of directors approved and the Company declared a $69.9 million, or $3.60 per share of common stock, special cash dividend, of which $69.7 million was paid on September 23, 2013 with the remaining $0.2 million to be paid as non-vested restricted stock awards vest. To fund a portion of the special cash dividend payment, the Company entered into a $45.0 million senior term loan with a maturity date of August 27, 2018. The majority of the principal is due on the maturity date, with quarterly principal payments due beginning in October 2014 through the maturity date. As of May 3, 2014, the senior term loan contains an early payment provision exercisable at the Company’s option, pursuant to which the Company may repay all or a portion of the outstanding principal amount at any time, subject to a prepayment penalty for any prepayments made during the first two years of the agreement. The remainder of the special cash dividend payment was funded by cash from operations, and principal payments on the senior term loan will be funded by cash from operations and, if necessary, borrowings under the $80.0 million revolving line of credit facility, which expires on August 27, 2018.

There were no borrowings outstanding under our revolving line of credit facility at May 3, 2014, as compared to $7.3 million of borrowings outstanding under our revolving line of credit facility at February 1, 2014. Cash and cash equivalents were $18.0 million and $5.8 million at May 3, 2014 and February 1, 2014, respectively. Net cash provided by operating activities was $32.6 million for the first quarter of fiscal 2014 compared to $17.6 million in the first quarter of fiscal 2013. Average borrowings under our revolving line of credit facility increased to $5.6 million in the first quarter of fiscal 2014 from $0 in the first quarter of fiscal 2013, in part due to the portion of the $69.9 million special cash dividend declared on August 26, 2013 that was funded by cash from operations. The largest amount borrowed at one time during the first quarter of fiscal 2014 was $11.7 million, compared to no borrowings under our revolving line of credit facility during the first quarter of fiscal 2013. Availability under our revolving line of credit facility increased 26.0% to $67.8 million at May 3, 2014 compared to $53.8 million at February 1, 2014. Stockholders’ equity was $40.9 million as of May 3, 2014 compared to $41.8 million as of February 1, 2014.

During the course of our seasonal business cycle, working capital is needed to support inventory for existing stores, particularly during peak selling seasons. Historically, our working capital needs are lowest in the first quarter and peak late in the third quarter or early in the fourth quarter in anticipation of the holiday selling season. Management believes that the net cash provided by operating activities, bank borrowings, vendor trade terms, tenant improvement allowances and the use of operating leases for new stores will be sufficient to fund anticipated current and long-term capital expenditures and working capital requirements.

Capital Expenditures

Net capital expenditures during the thirteen weeks ended May 3, 2014 and May 4, 2013 were $13.0 million and $9.1 million, respectively. Net capital expenditures were comprised of the following (in thousands):

 

     13 Weeks
Ended
May 3,
2014
    13 Weeks
Ended
May 4,
2013
 

Recurring capital expenditures

    

New and existing stores

   $ 10,479      $ 11,380   

Technology-related investments

     1,702        1,063   

Non-recurring capital expenditures

    

Second distribution center

     2,509        1,639   

New corporate office

     2,627        138   
  

 

 

   

 

 

 

Gross capital expenditures

     17,317        14,220   

Less: Proceeds from sale-leaseback transactions

     (4,316     (5,139
  

 

 

   

 

 

 

Net capital expenditures

   $ 13,001      $ 9,081   
  

 

 

   

 

 

 

 

19


Table of Contents

We lease all of our store locations. In certain cases, we negotiate leases whereby we take responsibility for construction of a new store during the construction period and are reimbursed for our costs from the landlord. When this situation occurs, we report the construction costs as part of our capital expenditures and, as reimbursements are received from the landlord for construction costs where we are the accounting owner during the construction period, we report the proceeds received from the landlord as proceeds from sale-leaseback transactions.

Cash Flow Analysis

A summary of operating, investing, and financing activities are shown in the following table (in thousands):

 

     13 Weeks
Ended
May 3,
2014
    13 Weeks
Ended
May 4,
2013
 

Cash flows provided by operating activities

   $ 32,565      $ 17,629   

Cash flows used in investing activities

     (13,001     (9,081

Cash flows provided by (used in) financing activities

     (7,279     23   
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     12,285        8,571   

Cash and cash equivalents at beginning of period

     5,759        40,824   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 18,044      $ 49,395   
  

 

 

   

 

 

 

Cash Flows from Operating Activities

Net cash provided by operating activities in the thirteen weeks ended May 3, 2014 was $32.6 million, which included the net loss of $0.7 million and noncash charges of $3.0 million comprised of depreciation and amortization expense of $3.1 million, amortization of deferred financing fees of $0.1 million, changes in deferred income taxes of $0.1 million and a share-based compensation benefit of $0.3 million. Net cash provided by operating activities in the thirteen weeks ended May 3, 2014 were favorably impacted by an increase in accounts payable of $24.4 million related to seasonality, enhanced cash management and new store growth and an increase of $6.9 million in accrued expenses primarily due to the second primary distribution center opening in the second quarter of fiscal 2014 and an increase in new store activity for the ten new stores opened in fiscal 2013, the three new stores opened in the first quarter of fiscal 2014 and four new stores opening in the second and third quarters of fiscal 2014. Net cash provided by operating activities was also favorably impacted by a $1.3 million increase in deferred rent associated with new store growth and a $0.1 million decrease in other assets. These increases in operating cash flows for the thirteen weeks ended May 3, 2014 were partially offset by a $1.0 million increase in income taxes receivable, landlord receivable and accounts receivable and a $0.9 million increase in prepaid expenses and other current assets related to new store growth and the timing of insurance renewals. The increases in operating cash flows were also partially offset by cash used to increase inventory of $0.5 million for the spring season and for the three new stores opened in the first quarter of fiscal 2014, partially offset by a high single digit decrease in comparable store merchandise inventory levels resulting from our inventory recalibration efforts and our strategy of having a fresh, diverse merchandise selection to drive comparable store sales.

Net cash provided by operating activities in the thirteen weeks ended May 4, 2013 was $17.6 million, which included net income of $3.2 million and noncash charges of $2.7 million comprised of depreciation and amortization expense of $2.2 million, share-based compensation expense of $0.3 million, $0.1 million of changes in deferred income taxes and amortization of deferred financing fees of $0.1 million. Net cash provided by operating activities in the thirteen weeks ended May 3, 2014 were favorably impacted by an increase in accounts payable of $15.2 million related to inventory purchases and an increase of $4.1 million resulting from lower accounts and landlord receivables primarily due to a decrease in landlord receivables for tenant improvement allowances as the three new stores opened in the first quarter of fiscal 2013 were directly financed by the landlord during the construction period. Net cash provided by operating activities was also favorably impacted by an increase of $2.7 million in accrued expenses primarily due to an increase in new store activity for the three new stores opened in the first quarter of fiscal 2013 and the seven new stores opening in the second and third quarters of fiscal 2013, an increase of $1.8 million related to a decrease in income taxes receivable of $1.3 million and an increase of $0.5 million in income taxes payable, and a $1.1 million increase in deferred rent associated with new store growth. These increases in operating cash flows for the thirteen weeks ended May 4, 2013 were partially offset by cash used to increase inventory of $11.4 million for the spring season and for the three new stores opened in the first quarter of fiscal 2013, a $1.6 million increase in prepaid expenses and other current assets related to new store growth and the timing of insurance renewals, and a $0.2 million increase in other assets.

 

20


Table of Contents

Cash Flows from Investing Activities

Net cash used in investing activities in the thirteen weeks ended May 3, 2014 and May 4, 2013 was $13.0 million and $9.1 million, respectively. Cash of $17.3 million and $14.2 million was used for purchases of property and equipment during the thirteen weeks ended May 3, 2014 and May 4, 2013, respectively. The increase in cash used in investing activities is primarily due to the increase in cash invested in furniture, fixtures and equipment related to our new corporate headquarters, which increased to $2.6 million in the first quarter of fiscal 2014 when we moved into the new corporate office as compared to $0.1 million in the first quarter of fiscal 2013, and cash invested in the second primary distribution center planned to be opened in the second quarter of fiscal 2014, which increased to $2.5 million in the first quarter of fiscal 2014 from $1.6 million in the first quarter of fiscal 2013 when construction of the second distribution center began. Investments in information technology equipment and software during the thirteen weeks ended May 3, 2014 was $1.7 million compared to $1.1 million during the thirteen weeks ended May 4, 2013, with the increase primarily relating to technology improvements made in our retail stores in the first quarter of fiscal 2014.

Cash of $10.5 million was invested in new and existing stores during the first quarter of fiscal 2014. Of the $10.5 million, $9.9 million was invested in the three new stores opened during the thirteen weeks ended May 3, 2014 and the four additional new stores to be opened in the second and third quarters of fiscal 2014 while the remaining $0.6 million was used for fixtures and store improvements for existing stores. This compares to $11.4 million for store investments during the thirteen weeks ended May 4, 2013, of which $8.8 million was invested in the three new stores opened in the first quarter of fiscal 2013 and seven new stores opened in the second and third quarters of fiscal 2013 while the remaining $2.6 million was used for fixtures and store improvements for existing stores. The decrease in cash invested in new and existing stores from the first quarter of fiscal 2013 is a result of less investment in fixtures and store improvements for existing stores due to there being fewer remodel projects planned for fiscal 2014 compared to fiscal 2013. This decrease was partially offset by $1.1 million more invested in new stores during the thirteen weeks ended May 3, 2014 than the same period last year. In the first quarter of fiscal 2014, the Company paid for the construction costs incurred during the construction period and was deemed the accounting owner of two of the three new stores during the construction period, while almost $5.7 million was spent in fiscal 2013 on these two new stores and the four new stores we are opening in the second and third quarters of fiscal 2014. In the first quarter of fiscal 2013, all three new stores were constructed by landlords with over 90% of the total costs paid by the landlords and, as a result, the majority of cash invested in new stores was for the seven new stores opened in the second and third quarters of fiscal 2013.

Proceeds from sale-leaseback transactions were $4.3 million and $5.1 million for the thirteen weeks ended May 3, 2014 and May 4, 2013, respectively, where the Company was deemed the accounting owner of the property and equipment during the new store construction period pursuant to the underlying lease agreement.

Cash Flows from Financing Activities

Net cash used in financing activities was $7.3 million during the thirteen weeks ended May 3, 2014, as compared to net cash provided by financing activities of $23 thousand during the thirteen weeks ended May 4, 2013. While there were no borrowings outstanding on the revolving line of credit facility at May 3, 2014, borrowings and repayments on the revolving line of credit facility were $42.2 million and $49.5 million, respectively, during the thirteen weeks ended May 3, 2014. There were no borrowings on the revolving line of credit facility during the first quarter of fiscal 2013. Dividends of $29 thousand were paid on restricted stock that vested in the first quarter of fiscal 2014 related to the $69.9 million, or $3.60 per share of common stock, special cash dividend declared in August 2013. Cash of $0.1 million was used during the thirteen weeks ended May 4, 2013 for payments on capital lease and financing agreements. Proceeds of $0.1 million were received during the thirteen weeks ended May 4, 2013 in connection with the exercise of stock options.

Existing Credit Facilities

Gordmans, Inc. is the borrower under a loan, guaranty and security agreement dated as of February 20, 2009, as amended August 27, 2013, with Wells Fargo Bank, N.A. (successor in merger with Wells Fargo Retail Finance, LLC) as agent and a lender and with certain other lender parties thereto from time to time. Gordmans Stores, Inc., Gordmans Intermediate Holdings Corp., Gordmans Distribution Company, Inc., Gordmans Management Company, Inc. and Gordmans LLC are all guarantors under the loan agreement. The loan, guaranty and security agreement provides a revolving line of credit facility for general working capital needs of up to $80.0 million with the ability to increase the maximum available borrowings under the facility to $100.0 million. The description which follows includes the terms of the sixth amendment to the loan agreement, which became effective August 27, 2013.

The revolving line of credit facility is available for working capital and other general corporate purposes and is scheduled to expire on August 27, 2018. At May 3, 2014, we had no borrowings outstanding under our revolving line of credit facility as compared to outstanding borrowings of $7.3 million at February 1, 2014. Availability under our revolving line of credit facility was $67.8 million at May 3, 2014, which includes letters of credit issued with an aggregate face amount of $1.0 million. There were borrowings on the facility of $42.2 million during the first quarter of fiscal 2014 and repayments of $49.5 million during the first quarter of fiscal 2014.

 

21


Table of Contents

Interest is payable on borrowings under the revolving line of credit facility monthly at a rate equal to LIBOR or the base rate as selected by management, plus an applicable margin which ranges from 0.50% to 2.50% set quarterly dependent upon the seasonal or non-seasonal period and average net availability under the revolving line of credit facility during the previous quarter.

An unused line fee is payable quarterly in an amount equal to 0.25% of the sum of the average daily unused revolving commitment plus the average daily unused letter of credit commitment. A customary fee is also payable to the administrative agent under the loan agreement on an annual basis.

The availability of the revolving line of credit facility is subject to a borrowing base, which is comprised of eligible credit card receivables and the liquidation value of eligible landed inventory, eligible distribution center inventory and eligible in-transit inventory. Borrowings under the revolving line of credit facility are secured by the Company’s inventory, accounts receivable and all other personal property, except as specifically excluded in the agreement.

Among other provisions, the loan, guaranty and security agreement relating to the Company’s revolving line of credit facility contains customary affirmative and negative covenants, including a negative covenant that restricts the level and form of indebtedness entered into by the Company or its wholly owned subsidiaries. Exceptions to this covenant include borrowings under the $45.0 million senior term loan and indebtedness not to exceed $11,000,000 in any fiscal year and $30,000,000 in the aggregate to finance the acquisition, construction or installation of equipment or fixtures at the Company’s retail store locations, distribution centers or corporate office. The revolving line of credit facility also includes a negative covenant that restricts dividends and other upstream distributions by the Company and its subsidiaries to the extent the Company does not meet minimum excess availability thresholds. Exceptions to this covenant include dividends or other upstream distributions: (i) by subsidiaries of Gordmans, Inc. to Gordmans, Inc. and its other subsidiaries, (ii) that consist of repurchases of stock of employees in an amount not to exceed $500,000 in any fiscal year, (iii) that consist of the payment of taxes on behalf of any employee, officer or director of the Company for vested restricted stock of the Company owned by such employee, officer or director, (iv) to the Company to pay federal, state and local income taxes and franchise taxes solely arising out of the consolidated operations of the Company and its subsidiaries and (v) to the Company to pay certain reasonable directors’ fees and out-of-pocket expenses, reasonable and customary indemnities to directors, officers and employees and other expenses in connection with the ordinary corporate governance, overhead, legal and accounting and maintenance. The loan, guaranty and security agreement also includes a negative covenant that restricts subsidiaries of the Company from making any loans to the Company. As of May 3, 2014, the Company was in compliance with all of its debt covenants under the loan, guaranty and security agreement. The agreement also contains cross default provisions with the senior term loan. Should the Company default on any of its covenants, Wells Fargo Bank, N.A. may make any outstanding amounts on the revolving line of credit facility immediately due and payable.

On August 27, 2013, Gordmans, Inc. entered into a $45.0 million senior term loan with Cerberus Business Finance, LLC. The senior term loan has a maturity date of August 27, 2018, with payments of $0.3 million due on a quarterly basis beginning in October 2014 through October 2015 and payments of $0.4 million due on a quarterly basis beginning January 2016 through the maturity date, with the remaining principal due on the maturity date. As of May 3, 2014, the senior term loan contains an early payment provision, exercisable at the Company’s option, pursuant to which the Company may repay all or a portion of the outstanding principal amount at any time, subject to a prepayment penalty applicable during the first two years. As of May 3, 2014, the senior term loan carries an interest rate equal to the prime rate (subject to a floor of 3.25%) plus 5.25% or the LIBOR rate (subject to a floor of 1.5%) plus 7.0%, as selected by the Company. The senior term loan is secured on a second lien basis by the Company’s inventory, accounts receivable and all other personal property, except as specifically excluded in the agreement. The senior term loan contains certain financial covenants, including a minimum fixed charge coverage ratio, a maximum leverage ratio and limitations on the annual amount of capital expenditures, as well as customary affirmative and negative covenants substantially similar to those under the revolving line of credit facility. Should the Company default on any of its covenants, the lenders may demand that the outstanding balance of the senior term loan be immediately due and payable, at which point the Company would also be in default of covenants contained in its revolving credit facility.

On June 9, 2014, the Company obtained an amendment and waiver under its credit facilities. The amendment, among other things, revised the fixed charge coverage ratio and leverage ratio covenants to be less restrictive for measurement dates occurring subsequent to the first quarter of fiscal 2014 through the maturity date and revised the capital expenditures limitation for each fiscal year end, introduced a liquidity test to which the Company is subject at each measurement date, as defined in the agreement, which could result in a 1% increase in the interest rate, and extended the prepayment penalty periods under the early payment provision to the first and second anniversary dates of the amended agreement. The Company is projecting to be in compliance with the financial covenants, including the fixed charge coverage ratio, during the next twelve months.

 

22


Table of Contents

Contractual Obligations and Off-Balance-Sheet Arrangements

As noted in the table below, the Company has contractual obligations and commitments as of May 3, 2014 that may affect the financial condition of the Company. However, we believe there is no known trend, demand, commitment, event, or uncertainty that is reasonably likely to occur which would have a material effect on the Company’s financial condition, results of operations, or cash flows. Other than the letters of credit set forth in the table below, the Company had no off-balance-sheet arrangements as of May 3, 2014.

The following table summarizes our contractual obligations and commitments as of May 3, 2014:

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 
     (in 000’s)  

Contractual Obligations:

              

Operating leases (1)(2)

   $ 365,745       $ 39,512       $ 96,417       $ 77,300       $ 152,516   

Senior term loan (3)

     60,571         3,422         10,289         46,860         —     

Revolving line of credit

     —           —           —           —           —     

Letters of credit

     997         997         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 427,313       $ 43,931       $ 106,706       $ 124,160       $ 152,516   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Certain retail store leases contain provisions for additional rent based on varying percentages of sales when sales reach certain thresholds, but are not included in operating lease obligations.
(2)   Real estate taxes, common area maintenance and insurance are expenses considered additional rent that can vary from year to year, but are not included in operating lease obligations. These expenses represented approximately 39% of lease expense for our retail stores in the thirteen weeks ended May 3, 2014.
(3)   Includes $45.0 million of principal payments and $15.6 million of interest payments on the senior term loan. Interest is calculated using the interest rate of 8.50% at May 3, 2014.

Critical Accounting Policies and Estimates

We have determined that our most critical accounting policies are those related to revenue recognition, merchandise inventories, long-lived assets, operating leases, self-insurance, share-based compensation and income taxes. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies discussed in our fiscal year 2013 Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk primarily through borrowings under our revolving line of credit facility and through outstanding borrowings on our senior term loan, both of which bear interest at variable rates.

Borrowings under the revolving line of credit facility bear interest at the base rate plus 0.50% (3.75% at May 3, 2014) with an option to bear interest at the LIBOR interest rate plus 1.75%. Borrowings under the revolving line of credit facility may not exceed the lesser of a calculated borrowing base or $80.0 million. Borrowings under the revolving line of credit facility during the first quarter of fiscal 2014 were $42.2 million with $11.7 million being the largest amount borrowed at one time, with no borrowings outstanding under our revolving credit facility at May 3, 2014. Average daily borrowings during the first quarter of fiscal 2014 were $5.6 million. We performed a sensitivity analysis assuming a hypothetical 100 basis point movement in interest rates applied to the average daily borrowings of the revolving line of credit facility. As of May 3, 2014, the analysis indicated that such a movement would not have a material effect on our financial position or our results of operations or cash flows.

Borrowings under the senior term loan bear interest at the prime rate plus 5.25% with a floor of 3.25% (8.50% at May 3, 2014) with an option to bear interest at the LIBOR interest rate plus 7.0% with a floor of 1.5%. We performed a sensitivity analysis assuming a hypothetical 100 basis point increase in the interest rate applied to the average amount outstanding on the senior term loan (assumes no prepayments of principal), as the interest rate of 8.50% at May 3, 2014 represents the floor. As of May 3, 2014, the analysis indicated that such a movement would result in an increase to interest expense of approximately $0.4 million per year.

 

23


Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

The required certifications of our Chief Executive Officer and Chief Financial Officer are included as exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures, internal control over financial reporting and changes in internal control over financial reporting referred to in those certifications. Those certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.

Evaluation of Disclosure Controls and Procedure

Under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 3, 2014 to ensure that information we are required to disclose in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal claims and proceedings which arise in the ordinary course of our business, including employment related claims, involving routine claims incidental to our business. Although the outcome of these routine claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these claims will have a material adverse effect on our results of operations, financial condition or cash flow.

ITEM 1A. RISK FACTORS

Our risk factors have not changed materially from those disclosed in our fiscal year 2013 Annual Report on Form 10-K. The risk factors disclosed in our Annual Report on Form 10-K, in addition to the other information set forth in this Quarterly Report, could materially affect our business, financial condition or results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM  4. RESERVED

ITEM 5. OTHER INFORMATION

None

 

24


Table of Contents

ITEM 6. EXHIBITS

The following exhibits are filed or furnished with this Quarterly Report:

EXHIBIT INDEX

 

Exhibit

Number

  

Description

  10.1    Jeffrey J. Gordman Separation Agreement, dated March 24, 2014.
  10.2    Waiver and First Amendment to the Loan, Guaranty and Security Agreement dated as of August 27, 2013 by and among the Borrower, the guarantors from time to time party thereto and Cerberus Business Finance, LLC, as the collateral and administrative agent for the lenders.
  31.1    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.CAL    XBRL Taxonomy Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Label Linkbase Document.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.

 

25


Table of Contents

SIGNATURES

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

Date: June 12, 2014

 

GORDMANS STORES, INC.
By:   /s/ T. SCOTT KING
  T. Scott King
 

Interim President, Chief Executive Officer, Secretary and Chairman of the Board of Directors

(Principal Executive Officer)

By:   /s/ MICHAEL D. JAMES
  Michael D. James
 

Senior Vice President, Chief Financial Officer,

Treasurer and Assistant Secretary

(Principal Financial Officer and Principal Accounting Officer)

 

26

Exhibit 10.1

SEPARATION AGREEMENT

This Separation Agreement (the “ Agreement ”) is made as of March 24, 2014, by and among Jeffrey J. Gordman (the “ Executive ”) and Gordmans Stores, Inc. (the “ Company ”).

WHEREAS , Executive and the predecessor to the Company are parties to an Employment Letter Agreement dated as of October 16, 2008 (the “ Employment Letter Agreement ”);

WHEREAS , Executive has served as President and Chief Executive Officer of the Company since 1996, during which time the Company experienced unprecedented growth; and, Executive has determined that the Company is currently well-positioned for further growth and profitability and it is therefore an appropriate time to pursue family and other interests;

WHEREAS , Executive has advised the Company that he has retired and the parties have therefore agreed that Executive will separate from employment with the Company effective March 24, 2014 (the “ Separation Date ”) and Executive has resigned from all of his positions with the Company effective as of the Separation Date; and

WHEREAS , Executive and the Company desire to set forth the terms and conditions of Executive’s separation from employment with the Company.

NOW, THEREFORE , for and in consideration of the covenants and undertakings hereinafter set forth, and for other good and valuable consideration, which each party hereby acknowledges, and intending to be legally bound, Executive and Company agree as follows:

1. Termination . The Executive acknowledges that the Executive’s employment with the Company terminated effective at the close of business on the Separation Date, and that after the Separation Date, the Executive shall not represent himself as being an employee, officer, director, agent or representative of the Company of any of its subsidiaries for any purpose. The Executive hereby resigns all of the Executive’s positions at the Company and any of its subsidiaries effective as of the Separation Date, including Executive’s positions as President and CEO of the Company as well as a member of the Board of Directors of the Company (the “ Board ”) or any of its subsidiaries. The Executive shall execute such additional documents as requested by the Company to evidence the foregoing. Except as otherwise provided herein, the Separation Date shall be the termination date of the Executive’s employment for purposes of active participation in and coverage under all benefit plans and programs sponsored by or through the Released Parties (as defined in Exhibit A hereof).

2. Severance Benefits . The Company will pay severance pay and provide the other benefits described in this Section subject to Executive’s continued compliance with the obligations in this Agreement and the execution of the General Release (as defined below). The Company will pay severance compensation in the total amount of $647,000, to be paid in accordance with the normal payment practices of the Company, but no less frequently than monthly, over the period of twelve (12) months following the Separation Date. Further, (a) the Executive will receive a lump sum payment in lieu of his current car allowance in an amount equal to $15,600.00, payable within 10 business days of the execution of this Agreement, and (b) the Company shall provide, at its expense, for the participation by the Executive and his family


members in 12 months of COBRA health and dental plan coverage. Lastly, the Company shall pay to Executive a bonus with respect to his services provided in fiscal year ending 2013 in an amount equal to the bonus paid to the Executive with respect to fiscal year ending 2012. Such bonus shall be paid to the Executive in a manner consistent with the payment of 2013 bonuses to other executives of the Company.

3. Modification of Option Expiration Date. All vested stock options and similar benefits held by the Executive pursuant to the 2010 Omnibus Incentive Compensation Plan (as amended) are hereby amended such that all such stock options and similar benefits may be exercised at any time within a period of ninety (90) days from and after the date of this Agreement.

4. Release . The amounts described in paragraph 2 hereof shall only be payable if the Executive delivers to the Company on the date hereof the general release of claims in favor of the Company as attached on Exhibit A hereto (the “ General Release ”) and does not subsequently revoke the General Release.

5. Accrued Obligations . Within thirty (30) days following the Separation Date (or such earlier time as may be required by applicable law), the Executive shall be paid for accrued, unused vacation days, plus any accrued but unpaid base salary and any unreimbursed business expenses entitled to reimbursement, all in accordance with the Company’s policies. The Executive shall be entitled to the payments and benefits described in this paragraph 5 regardless of whether the Executive executes this Agreement or the General Release.

6. Restrictive Covenants; Survival . Executive understands, acknowledges and agrees the rights and obligations of Executive with respect to any covenants regarding confidential information, noncompetition and non-solicitation of customers or employees will survive Executive’s termination of employment with the Company and remain in full force and effect in accordance with all of the terms and conditions thereof.

7. No Other Compensation . The Executive acknowledges and agrees that the payments and other benefits provided pursuant to this Agreement: (i) are in full discharge of any and all liabilities and obligations of the Company to the Executive, monetarily or with respect to employee benefits or otherwise, including, but not limited to, any and all obligations arising under any alleged written or oral employment agreement, policy, plan or procedure of the Company and/or any alleged understanding or arrangement between the Executive and the Company; and (ii) exceed any payment, benefit, or other thing of value to which the Executive might otherwise be entitled under any policy, plan or procedure of the Company and/or any agreement between the Executive and the Company.

8. Confidentiality . The Executive agrees that the Executive shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person any Confidential Information or other confidential or proprietary information received from third parties subject to a duty on the Company’s and its subsidiaries’ and affiliates’ part to maintain the confidentiality of such information, which shall have been obtained by the Executive during the Executive’s employment by the Company (or any predecessor). For purposes of this Agreement, “ Confidential Information ” means all data, information, ideas, concepts, discoveries, trade secrets, inventions (whether or not patentable or reduced to practice), innovations,

 

2


improvements, know-how, developments, techniques, methods, processes, treatments, drawings, sketches, specifications, designs, plans, patterns, models, plans and strategies, and all other confidential or proprietary information or trade secrets in any form or medium (whether merely remembered or embodied in a tangible or intangible form or medium) whether now or hereafter existing, relating to or arising from the past, current or potential business, activities and/or operations of the Company or any of its affiliates, including, without limitation, any such information relating to or concerning finances, sales, marketing, advertising, transition, promotions, pricing, personnel, customers, suppliers, vendors, raw partners and/or competitors. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to the Executive; (ii) becomes generally known to the public subsequent to disclosure to the Executive through no wrongful act of the Executive or any representative of the Executive; or (iii) the Executive is required to disclose by applicable law, regulation or legal process (provided that the Executive provides the Company with prior notice of the contemplated disclosure and cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information).

9. Company Property . No later than ten (10) days following the date hereof, Executive shall return all property belonging to the Company or its affiliates (including, but not limited to any the Company laptop or computers, and other equipment, documents and property belonging to the Company).

10. Cooperation . Upon the receipt of at least ten (10) days’ prior written notice from the Company (including outside counsel), the Executive agrees that for a period of twelve (12) months following the Separation Date, the Executive will respond and provide information with regard to matters in which the Executive has knowledge as a result of the Executive’s employment with the Company, and will provide assistance to the Company, its affiliates and their respective representatives in defense of any claim that may be made against the Company or its affiliates, and will assist the Company and its affiliates in the prosecution of any claims that may be made by the Company or its affiliates, to the extent that such claims may relate to the period of the Executive’s employment with the Company. The Executive shall not be required to provide in excess of fifteen (15) hours per calendar month for such assistance, except as otherwise agreed by the Executive. The Executive also agrees to promptly inform the Company (to the extent that the Executive is legally permitted to do so) if the Executive is asked to assist in any investigation of the Company or its affiliates (or their actions), regardless of whether a lawsuit or other proceeding has then been filed against the Company or its affiliates with respect to such investigation, and shall not do so unless legally required.

11. Enforcement; Remedies . If any provision of this Agreement is held by a court of competent jurisdiction to be illegal, void or unenforceable, such provision shall have no effect; however, the remaining provisions shall be enforced to the maximum extent possible. Further, if a court should determine that any portion of this Agreement is overbroad or unreasonable, such provision shall be given effect to the maximum extent possible by narrowing or enforcing in part that aspect of the provision found overbroad or unreasonable. Additionally, the Executive agrees that any material breach by the Executive of this Agreement and the General Release shall constitute a material breach of this Agreement as to which the Released Parties may seek all relief available under the law. In addition, the Executive acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of the provisions of this

 

3


Agreement or the General Release would be inadequate and, in recognition of this fact, the Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available.

12. No Assignments; Binding Effect . Except as provided in this paragraph 12, no party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto. The Company may assign this Agreement to any successor to all or substantially all of the business and/or assets of the Company, provided that the Company shall require such successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the term “ the Company ” shall mean the Company and any successor to its business and/or assets, which assumes and agrees to perform the duties and obligations of the Company under this Agreement by operation of law or otherwise. This Agreement is binding upon, and shall inure to the benefit of, the parties and their respective heirs, executors and administrators (including the Executive’s estate, in the event of the Executive’s death), and their respective permitted successors and assigns.

13. Executive Acknowledgements . The Executive acknowledges that the Executive: (a) has carefully read this Agreement in its entirety; (b) is hereby advised by the Company in writing to consult with an attorney of the Executive’s choice prior to signing this Agreement; (c) fully understands the significance of all of the terms and conditions of this Agreement and has discussed them with the Executive’s independent legal counsel, or has had a reasonable opportunity to do so; (d) has had answered to the Executive’s satisfaction by the Executive’s independent legal counsel all questions that the Executive has asked with regard to the meaning and significance of any of the provisions of this Agreement; and (e) is signing this Agreement voluntarily and of the Executive’s own free will and agrees to abide by all of the terms and conditions contained herein.

14. Governing Law . This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of Delaware (without regard to its choice of law provisions). THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE EXECUTIVE’S EMPLOYMENT BY THE COMPANY OR ANY AFFILIATE OF THE COMPANY, OR THE EXECUTIVE’S OR THE COMPANY’S PERFORMANCE UNDER, OR THE ENFORCEMENT OF, THIS AGREEMENT.

15. Entire Agreement . The Executive understands that this Agreement and the documents referenced herein constitute the complete understanding between the Company and the Executive, and, except as specifically provided herein, supersedes any and all agreements, understandings, and discussions, whether written or oral, between the Executive and any of the Released Parties, including, for the avoidance of doubt, the Employment Letter Agreement. No other promises or agreements shall be binding unless in writing and signed by both the Company and the Executive after the date of this Agreement.

 

4


16. Miscellaneous . This Agreement is not intended, and shall not be construed, as an admission that the Executive or any of the Released Parties has violated any federal, state or local law (statutory or decisional), ordinance or regulation, breached any contract or committed any wrong whatsoever against the other. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. For the avoidance of doubt, it is acknowledged that Executive’s resignation does not constitute a termination of employment with cause under any agreements between the parties or Company benefit plans.

17. Tax Matters .

(a) Tax Withholding . The Company may withhold from any and all amounts payable under this Agreement such federal, state, local or foreign taxes as may be required to be withheld pursuant to any applicable law or regulation.

(b) Section 409A Compliance . The intent of the parties is that payments and benefits under this Agreement that are subject to Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “ Code Section 409A ”) comply with or be exempt from Code Section 409A, and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. Executive agrees and acknowledges that the Company makes no representations with respect to the application of Code Section 409A and other tax consequences to any payments hereunder and, by entering into this Agreement, Executive agrees to accept the potential application of Code Section 409A and the other tax consequences of any payments made hereunder. For purposes of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.

18. Company Indemnification and D&O Insurance . In all events, all rights as of the Separation Date of the Executive to indemnification as an officer, director, committee member or otherwise, whether arising under any Company organizational documents, plans, agreements, resolutions or otherwise, shall remain in full force and effect from and after the Separation Date; and, the Company shall cause the Executive to continue to be insured under the Company’s director and officer liability insurance coverage with respect to facts and circumstances on or before the Separation Date.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

5


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

 

GORDMANS STORES, INC.
By:   /s/ T. Scott King
Name: T. Scott King
Title:   President, Chief Executive Officer & Secretary
/s/ Jeffrey J. Gordman
JEFFREY J. GORDMAN

Signature Page to Separation Agreement


EXHIBIT A

GENERAL RELEASE

I, Jeff Gordman, in consideration of and subject to the performance by Gordmans Stores, Inc. (together with its subsidiaries, the “ the Company ”), of its obligations under the Separation Agreement dated as of March 24, 2014 (the “ Agreement ”), do hereby release and forever discharge as of the date hereof the Company and its respective affiliates and all present, former and future managers, directors, officers, employees, successors and assigns of the Company and its affiliates and direct or indirect owners (collectively, the “ Released Parties ”) to the extent provided below (this “ General Release ”). The Released Parties are intended to be third-party beneficiaries of this General Release, and this General Release may be enforced by each of them in accordance with the terms hereof in respect of the rights granted to such Released Parties hereunder. Terms used herein but not otherwise defined shall have the meanings given to them in the Agreement.

 

1. I understand that any payments or benefits paid or granted to me under paragraph 2 of the Agreement represent, in part, consideration for signing this General Release and are not salary, wages or benefits to which I was already entitled. I understand and agree that I will not receive certain of the payments and benefits specified in paragraph 2 of the Agreement unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter. All such payments and benefits will be considered compensation for purposes of any employee benefit plan program, policy or arrangement maintained or hereafter established by the Company or its affiliates.

 

2. Except as provided in paragraphs 4 and 5 below and except for the provisions of the Agreement which expressly survive the termination of my employment with the Company, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date that this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).

Exhibit A to Separation Agreement — General Release


3. I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above.

 

4. I agree that this General Release does not waive or release any rights or claims that I may have under the Age Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and agree that my separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967).

 

5. I agree that I hereby waive all rights to sue or obtain equitable, remedial or punitive relief from any or all Released Parties of any kind whatsoever in respect of any Claim, including, without limitation, reinstatement, back pay, front pay, and any form of injunctive relief. Notwithstanding the above, I further acknowledge that I am not waiving and am not being required to waive any right that cannot be waived under law, including the right to file an administrative charge or participate in an administrative investigation or proceeding; provided, however, that I disclaim and waive any right to share or participate in any monetary award resulting from the prosecution of such charge or investigation or proceeding. Additionally, nothwithstanding anything in this General Release to the contrary, I am not waiving (i) any right to the payment under paragraphs 2 and 5 of the Agreement to which I am or may become entitled to pursuant to the terms of such paragraphs, (ii) my rights as an equity or security holder in the Company or its affiliates or (iii) any claim relating to directors’ and officers’ liability insurance coverage or any right of indemnification under the Company’s organizational documents or otherwise.

 

6. In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state or local statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to the terms of the Agreement. I further agree that in the event I should bring a Claim seeking damages against the Company, or in the event I should seek to recover against the Company in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims to the maximum extent permitted by law. I further agree that I am not aware of any pending claim of the type described in paragraph 2 above as of the execution of this General Release.

 

7. I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.

Exhibit A to Separation Agreement — General Release


8. I represent that I am not aware of any claim by me other than the claims that are released by this General Release. I acknowledge that I may hereafter discover claims or facts in addition to or different than those which I now know or believe to exist with respect to the subject matter of the release set forth in paragraph 2 above and which, if known or suspected at the time of entering into this General Release, may have materially affected this General Release and my decision to enter into it.

 

9. Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect any rights or claims arising out of any breach by the Company or by any Released Party of the Agreement after the date hereof.

 

10. Whenever possible, each provision of this General Release shall be interpreted in, such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:

1. I HAVE READ IT CAREFULLY;

2. I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;

3. I VOLUNTARILY CONSENT TO EVERYTHING IN IT;

4. I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION, I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;

5. I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE TO CONSIDER IT, AND THE CHANGES MADE SINCE MY RECEIPT OF THIS RELEASE ARE NOT MATERIAL OR WERE MADE AT MY REQUEST AND WILL NOT RESTART THE REQUIRED 21 DAY PERIOD;

6. I UNDERSTAND THAT I HAVE SEVEN (7) DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;

7. I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND

Exhibit A to Separation Agreement — General Release


8. I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

 

SIGNED:   /s/ Jeffrey J. Gordman

DATED:

  March 24, 2014

Exhibit A to Separation Agreement — General Release

Exhibit 10.2

EXECUTION VERSION

WAIVER AND FIRST AMENDMENT TO LOAN, GUARANTY AND SECURITY AGREEMENT

WAIVER AND FIRST AMENDMENT, dated as of June 9, 2014 (this “ Amendment ”), to the Loan, Guaranty and Security Agreement, dated as of August 27, 2013 (as amended, restated, supplemented or otherwise modified from time to time prior to the date hereof, the “ Financing Agreement ”), by and among Gordmans, Inc., a Delaware corporation (the “ Borrower ”), the guarantors from time to time party thereto and Cerberus Business Finance, LLC, a Delaware limited liability company (“ Cerberus ”), as collateral agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the “ Collateral Agent ”), and Cerberus, 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 “ Agent ”). All terms used herein that are defined in the Financing Agreement and not otherwise defined herein shall have the meanings assigned to them in the Financing Agreement.

WHEREAS, the Loan Parties, the Agent and the Lenders wish to amend certain terms and provisions of the Financing Agreement as hereafter set forth and waive the Existing Defaults (as hereinafter defined).

NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto hereby agree as follows:

1. Amendments.

(a) New Definitions . The following new definitions are added to Section 1.1 of the Financing Agreement in their appropriate alphabetical order:

‘First Amendment ’ means the Waiver and First Amendment to Financing Agreement, dated as of June 9, 2014, by and among the Borrower, the Guarantors, the Lenders party thereto and the Agent.”

First Amendment Effective Date ” has the meaning specified therefor in Section 3 of the First Amendment.

Liquidity ” shall mean “Availability” as defined in the Revolver Agreement as in effect on the date hereof plus unrestricted cash and Cash Equivalents of the Borrower and its Subsidiaries.

Liquidity Test Period ” shall mean at any time that, as of the most recently ended month for which financial statements have been delivered to the Agent, Consolidated EBITDA is less than $30,000,000 or the Fixed Charge Coverage Coverage Ratio is less than 1.00:1.00.

(b) Applicable Margin . The definition of “Applicable Margin” in Section 1.1 of the Financing Agreement is hereby amended and restated in its entirety:


“Applicable Margin” means, as of any date of determination, with respect to the interest rate of any Term Loan or any portion thereof, from the Closing Date until the Maturity Date, the relevant Applicable Margin shall be set at (i) 6.25% for a Reference Rate Loan, and (ii) 8.00% for a LIBOR Rate Loan; provided that in the event that Consolidated EBITDA is greater than or equal to $30,000,000 in any trailing twelve month period and the Fixed Charge Coverage Ratio is greater than or equal to 1.00:1.00 as of the last day of such trailing twelve month period, the Applicable Margin shall be thereafter set at (i) 5.25% for a Reference Rate Loan, and (ii) 7.00% for a LIBOR Rate Loan until such time as Consolidated EBITDA is less than $30,000,000 in any trailing twelve month period or the Fixed Charge Coverage Ratio is less than 1.00:1.00 as of the last day of any trailing twelve month period. Any increase or decrease in the Applicable Margin as set forth in the proviso in the immediately preceding sentence shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered for such trailing twelve month period.

(c) Applicable Prepayment Premium . The definition of “Applicable Prepayment Premium” in Section 1.1 of the Financing Agreement is hereby amended and restated in its entirety as follows:

“Applicable Prepayment Premium” means as of any date of determination, with respect to any termination of this Agreement at any time prior to the Maturity Date, an amount equal to (a) during the period of time from and after the First Amendment Effective Date up to and including the date that is the first anniversary of the First Amendment Effective Date Date, 2.0% times the principal amount of any prepayment of the Term Loans on such date, (b) during the period of time after the date that is the first anniversary of the First Amendment Effective Date, up to and including the date that is the second anniversary of the First Amendment Effective Date, 1.0% times the principal amount of any prepayment of the Term Loans on such date, and (c) thereafter, zero.

(d) Consolidated EBITDA . The definition of “Consolidated EBITDA” in Section 1.1 of the Financing Agreement is hereby modified by (i) deleting the “and” at the end of clause (j), (ii) replacing the “.” at the end of clause (k) with “; and” and adding a new clause (l) as follows: “(l) severance, recruiting, relocation and signing bonuses in an aggregate amount not to exceed $1,300,000 during the term of this Agreement.”

(e) Fixed Charge Coverage Ratio Definition . Clause (a)(i) of the definition of “Fixed Charge Coverage Ratio” in Section 1.01 of the Financing Agreement is hereby amended and restated in its entirety as follows:

“(i) Capital Expenditures (except those financed with Permitted Indebtedness (other than Revolver Debt or the Term Loans) or the proceeds of equity issuances); provided that for the fiscal quarters ending on July 31, 2014 through and including July 31, 2015, this clause (i) shall be reduced by an amount of up to $2,500,000 of unpaid cash receivables owing to the Loan Parties by their landlords”

 

2


(f) References to Section 7.16 . The Financing Agreement is hereby amended by changing all references therein to “7.16” to “7.15”.

(g) Fixed Charge Coverage Ratio Covenant . Section 7.16(a) of the Financing Agreement is hereby amended and restated in its entirety as follows:

“(a) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio of the Ultimate Parent and its Subsidiaries as of the last day of each period of four (4) consecutive fiscal quarters of Ultimate Parent and its Subsidiaries (commencing with the fiscal quarter ending closest to April ) to be less than the amount set forth opposite such fiscal quarter below:

 

Fiscal Quarter

   Minimum Fixed Charge Coverage
Ratio

July 31, 2014

   1.10:1.00

October 31, 2014

   0.84:1.00

January 31, 2014

   1.03:1.00

April 30, 2015

   1.05:1.00

July 31, 2015 and each fiscal quarter end thereafter

   1.10:1.00

(h) Leverage Ratio . Section 7.16(b) of the Financing Agreement is hereby amended and restated in its entirety as follows:

“(b) Leverage Ratio. Permit the Leverage Ratio of Ultimate Parent and its Subsidiaries as of the last day of any fiscal quarter ending nearest to the dates set forth below to be greater than the applicable ratio set forth below:

 

Fiscal Quarter

   Maximum Leverage Ratio

July 31, 2014

   1.93:1.00

October 31, 2014

   2.81:1.00

January 31, 2014

   2.04:1.00

April 30, 2015

   1.27:1.00

July 31, 2015

   1.61:1.00

October 31, 2015

   2.14:1.00

January 31, 2016

   1.82:1.00

April 30, 2016

   1.00:1.00

July 31, 2016

   1.50:1.00

October 31, 2016

   2.20:1.00

January 31, 2017

   1.65:1.00

April 30, 2017 and each fiscal quarter end thereafter

   1.50:1.00”

 

3


(i) Capital Expenditures . Section 7.16(c) of the Financing Agreement is hereby amended and restated in its entirety as follows:

“(c) Capital Expenditures. Permit the maximum amount of Capital Expenditures of Ultimate Parent and its Subsidiaries for any twelve month period ending on the last day of any fiscal year to exceed the amount set forth in the following table for the applicable period:

 

Fiscal Quarter

   Capital Expenditures

January 31, 2015

   $19,211,000

January 31, 2016

   $15,393,000

January 31, 2017

   $16,848,000

January 31, 2018

   $15,882,000”

(j) Liquidity . A new Section 7.16(d) is hereby added to the Financing Agreement immediately after Section 7.16(c) as follows:

“(d) Liquidity . Permit Liquidity to be less than $20,000,000 at any time that a Liquidity Test Period is continuing.”

 

4


2. Representations and Warranties. Each Loan Party hereby jointly and severally represents and warrants to the Agent and the Lenders as follows:

(a) Representations and Warranties; No Event of Default . The representations and warranties herein, in Section 5 of the Financing Agreement and in each other Loan Document, certificate or other writing delivered by or on behalf of any Loan Party to the Agent or any Lender pursuant to the Financing Agreement or any other Loan Document on or prior to the First Amendment Effective Date (as defined below) are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to “materiality” or “Material Adverse Effect” in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such date as though made on and as of such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to “materiality” or “Material Adverse Effect” in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification)), and, except for the Existing Defaults, no Default or Event of Default has occurred and is continuing as of the First Amendment Effective Date or would result from this Amendment becoming effective in accordance with its terms.

(b) Authorization; Enforceability . The execution, delivery and performance of this Amendment by each Loan Party, and the performance of the Financing Agreement, as amended hereby (i) are within the power and authority of each such Loan Party and have been duly authorized by all necessary action and (ii) have been duly authorized, executed and delivered by each such Loan Party and constitute legal, valid and binding obligations of each such Loan Party, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally.

3. Conditions to Effectiveness . This Amendment shall become effective as of the date first written above only upon satisfaction in full, in a manner reasonably satisfactory to the Collateral Agent, of the following conditions precedent (the first date upon which all such conditions shall have been satisfied being herein called the “ First Amendment Effective Date ”):

(a) The Collateral Agent shall have received this Amendment, duly executed by each Loan Party, each Agent and each Lender signatory hereto.

(b) The Borrower shall pay to the Administrative Agent[, for the account of each of the Lenders on a pro rata basis, ]a modification and waiver fee in the amount of $450,000, which fee shall be due on the First Amendment Effective Date and shall be deemed fully earned as of the First Amendment Effective Date.

(c) The Borrower shall pay concurrently with the closing of the transactions evidenced by this Amendment, all fees, costs, expenses and taxes then payable pursuant to Section 12.04 of the Financing Agreement.

(d) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against the Borrower, any Guarantor, the Agent, or any Lender.

 

5


(e) Representations and Warranties; No Event of Default . The representations and warranties herein, in Article VI of the Financing Agreement and in each other Loan Document, certificate or other writing delivered by or on behalf of any Loan Party to the Agent or any Lender pursuant to the Financing Agreement or any other Loan Document on or prior to the First Amendment Effective Date are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to “materiality” or “Material Adverse Effect” in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such date as though made on and as of such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to “materiality” or “Material Adverse Effect” in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification)), and, except for the Existing Defaults, no Default or Event of Default has occurred and is continuing as of the First Amendment Effective Date or would result from this Amendment becoming effective in accordance with its terms or any transactions contemplated herein. The Collateral Agent shall have received a certificate of an Authorized Officer, secretary or assistant secretary of each Loan Party, certifying as to the foregoing.

4. Waiver of Existing Defaults.

(a) Pursuant to the request of the Loan Parties, but subject to satisfaction of the conditions set forth in Section 3 hereof, and in reliance upon (i) the representations and warranties of Loan Parties set forth herein and in the Financing Agreement and the other Loan Documents and (ii) the agreements of the Loan Parties set forth herein, the Lenders hereby waive the Events of Default arising under Section 8.2(a) of the Financing Agreement as a result of the Loan Parties’ failure to comply with the financial covenants set forth in Sections 7.16(a) of the Financing Agreement for the fiscal quarter ended on May 3, 2014 (the “ Existing Events of Default ”), and (ii) nothing herein, nor any communications among any Loan Party, the Agent, or any Lender, shall be deemed a waiver with respect to any Events of Default, other than the Existing Defaults, or any future failure of the Loan Parties to comply fully with any provision of the Financing Agreement or any provision of any other Loan Document, and in no event shall this waiver be deemed to be a waiver of enforcement of any of the Agent’s or Lenders’ rights or remedies under the Financing Agreement and the other Loan Documents, at law (including under the UCC), in equity, or otherwise including, without limitation, the right to declare all Obligations immediately due and payable pursuant to Section 8 of the Financing Agreement, with respect to any other Defaults or Events of Default now existing or hereafter arising. Except as expressly provided herein, each Agent and each Lender hereby reserves and preserves all of its rights and remedies against the Borrower and each other Loan Party under the Financing Agreement and the other Loan Documents, at law (including under the UCC), in equity, or otherwise including, without limitation, the right to declare all Obligations immediately due and payable pursuant to Section 8 of the Financing Agreement.

 

6


(b) The waiver and consent in this Section 4 shall be effective only in this specific instance and for the specific purposes set forth herein and does not allow for any other or further departure from the terms and conditions of the Financing Agreement or any other Loan Document, which terms and conditions shall remain in full force and effect.

5. Continued Effectiveness of the Financing Agreement and Other Loan Documents . Each Loan Party hereby (a) acknowledges and consents to this Amendment, (b) confirms and agrees that the Financing Agreement and each other Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the First Amendment Effective Date all references in any such Loan Document to “the Financing Agreement”, the “Agreement”, “thereto”, “thereof”, “thereunder” or words of like import referring to the Financing Agreement shall mean the Financing Agreement as amended by this Amendment, and (c) confirms and agrees that to the extent that any such Loan Document purports to assign or pledge to the Collateral Agent for the benefit of the Agent and the Lenders, or to grant to the Collateral Agent for the benefit of the Agent and the Lenders a security interest in or Lien on, any Collateral as security for the Obligations or Guaranteed Obligations, as the case may be, of any Loan Party from time to time existing in respect of the Financing Agreement (as amended hereby) and the other Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. This Amendment does not and shall not affect any of the obligations of any Loan Party, other than as expressly provided herein, including, without limitation, the Borrower’s obligation to repay the Loans in accordance with the terms of Financing Agreement, or the obligations of any other Loan Party under any Loan Document to which it is a party, all of which obligations shall remain in full force and effect. Except as expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or any Lender under the Financing Agreement or any other Loan Document, nor constitute a waiver of any provision of the Financing Agreement or any other Loan Document.

6. Release by the Loan Parties .

Effective on the First Amendment Effective Date, each Loan Party, for itself and on behalf of its successors, assigns, and officers, directors, employees, agents and attorneys, and any Person acting for or on behalf of, or claiming through it, hereby waives, releases, remises and forever discharges each Agent, each Lender, each of their respective Affiliates, and each of their respective successors in title, past, present and future officers, directors, employees, limited partners, general partners, investors, attorneys, assigns, subsidiaries, shareholders, trustees, agents and other professionals and all other persons and entities to whom the Agent or any Lender would be liable if such persons or entities were found to be liable to the Loan Parties (each a “ Releasee ” and, collectively, the “ Releasees ”), from any and all past, present and future claims, suits, liens, lawsuits, adverse consequences, amounts paid in settlement, debts, deficiencies, diminution in value, disbursements, demands, obligations, liabilities, causes of action, damages, losses, costs and expenses of any kind or character, whether based in equity, law, contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (each a “ Claim ” and collectively, the “ Claims ”), whether known or unknown, fixed or contingent, direct, indirect, or derivative, asserted or unasserted, matured or unmatured, foreseen or unforeseen, past or present, liquidated or unliquidated, suspected or unsuspected, which any Loan Party ever had from the beginning of the world, now has, or might hereafter have against any such Releasee, which Claims relate, directly or indirectly, to any act or omission by any Releasee that occurred on or prior to the date of this Amendment and relate, directly or indirectly, to the Financing Agreement, any other Loan Document, or any acts or omissions of any such Releasee that occurred on or prior to the date of this Amendment with respect to the Financing Agreement or any other Loan Document, or the lender-borrower relationship evidenced by the Loan Documents, except for the duties and obligations set forth in this Amendment and the duties and obligations set forth in the Loan Documents to be performed on or after the date of this Amendment. As to each and every Claim released hereunder, each Loan Party hereby represents that it has received the advice of legal counsel with regard to the releases contained herein, and having been so advised, specifically waives the benefit of the provisions of Section 1542 of the Civil Code of California which provides as follows:

 

7


“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

As to each and every Claim released hereunder, each Loan Party also waives the benefit of each other similar provision of applicable federal or state law (including without limitation the laws of the state of New York), if any, pertaining to general releases after having been advised by its legal counsel with respect thereto.

Each Loan Party acknowledges that it may hereafter discover facts different from or in addition to those now known or believed to be true with respect to such Claims, and agrees that this instrument shall be and remain effective in all respects notwithstanding any such differences or additional facts. Each Loan Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

Each Loan Party, for itself and on behalf of its successors, assigns, and officers, directors, employees, agents and attorneys, and any Person acting for or on behalf of, or claiming through it, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee above that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and discharged by such Person pursuant to the above release. Each Loan Party further agrees that it shall not dispute the validity or enforceability of the Financing Agreement or any of the other Loan Documents or any of its obligations thereunder, or the validity, priority, enforceability or the extent of Collateral Agent’s Lien on any item of Collateral under the Financing Agreement or the other Loan Documents. If any Loan Party or any of its respective successors, assigns, or officers, directors, employees, agents or attorneys, or any Person acting for or on behalf of, or claiming through it violate the foregoing covenant, such Person, for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all attorneys’ fees and costs incurred by such Releasee as a result of such violation.

 

8


7. Reaffirmation.

(a) Borrowers . The Borrower hereby reaffirms its obligations under each Loan Document to which it is a party. The Borrower hereby further ratifies and reaffirms the validity and enforceability of all of the Liens and security interests heretofore granted, pursuant to and in connection with the Security Agreement or any other Loan Document to the Collateral Agent, on behalf and for the benefit of each Agent and each Lender, as collateral security for the obligations under the Loan Documents in accordance with their respective terms, and acknowledges that all of such Liens and security interests, and all collateral heretofore pledged as security for such obligations, continues to be and remain collateral for such obligations from and after the date hereof.

(b) Guarantor . Each Guarantor hereby (i) consents to this Amendment; (ii) acknowledges and reaffirms all obligations owing by it to the Agent and Lenders under any Loan Document to which it is a party and represents and warrants that, after giving effect to this Amendment, all of its representations and warranties contained in the Loan Documents to which such Guarantor is a party are true, accurate and complete in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as if made the date hereof (unless any such representation or warranty is expressly made as of a specific date, in which event it shall be true, accurate and complete as of such specified date), (iii) agrees that each Loan Document to which it is a party is and shall remain in full force and effect and shall not be impaired or otherwise affected by the execution of this Amendment or any other document or instrument delivered in connection herewith, (iv) ratifies and reaffirms the validity and enforceability of all of the Liens and security interests heretofore granted by it, pursuant to and in connection with the Security Agreement and any other Loan Document to which such Guarantor is a party, to the Collateral Agent, on behalf and for the benefit of each Agent and each Lender, as collateral security for the Guaranteed Obligations of such Guarantor, and acknowledges that all of such Liens and security interests, and all collateral heretofore pledged as security for such obligations, continues to be and remain collateral for such obligations from and after the date hereof, and (v) ratifies and confirms its consent to any previous amendments of the Financing Agreement and any previous waivers granted with respect to the Financing Agreement. Although each of the Guarantors have been informed of the matters set forth herein and have acknowledged and agreed to same, each of the Guarantors understands that the Agent and the Lenders shall have no obligation to inform the Guarantors of such matters in the future or to seek the Guarantors’ acknowledgement or agreement to future amendments, waivers, or modifications, and nothing herein shall create such a duty.

8. Miscellaneous.

(a) 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 facsimile or electronic mail shall be equally effective as delivery of an original executed counterpart of this Amendment.

 

9


(b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

(c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

(d) Each Loan Party hereby acknowledges and agrees that this Amendment constitutes a “Loan Document” under the Financing Agreement. Accordingly, it shall be an Event of Default under the Financing Agreement if (i) any representation or warranty made by a Loan Party under or in connection with this Amendment shall have been incorrect in any material respect when made, or (ii) a Loan Party shall fail to perform or observe any term, covenant or agreement contained in this Amendment.

(e) Any provision of this Amendment that 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.

(f) The Borrower will pay on demand all reasonable fees, costs and expenses of the Agent and the Lenders in connection with the preparation, execution and delivery of this Amendment or otherwise payable under the Financing Agreement, including, without limitation, reasonable fees, costs and expenses of Schulte Roth & Zabel LLP, counsel to the Collateral Agent.

(g) Sections 1.4 and 18 of the Financing Agreement are incorporated herein by reference, mutatis mutandis.

[Remainder of page intentionally left blank]

 

10


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date set forth on the first page hereof.

 

BORROWER:
GORDMANS, INC.
By:   /s/ Michael D. James
  Name: Michael D. James
  Title: Chief Financial Officer
GUARANTORS
GORDMANS MANAGEMENT COMPANY, INC.
By:   /s/ Michael D. James
Name:   Michael D. James
Title:   Chief Financial Officer
GORDMANS DISTRIBUTION COMPANY, INC.
By:   /s/ Michael D. James
Name:   Michael D. James
Title:   Chief Financial Officer
GORDMANS INTERMEDIATE HOLDINGS CORP.
By:   /s/ Michael D. James
Name:   Michael D. James
Title:   Chief Financial Officer


GORDMANS STORES, INC.
By:   /s/ Michael D. James
  Name: Michael D. James
  Title: Chief Financial Officer
GORDMANS LLC
By:   /s/ Michael D. James
  Name: Michael D. James
  Title: Chief Financial Officer


ADMINISTRATIVE AGENT AND COLLATERAL AGENT:
CERBERUS BUSINESS FINANCE, LLC
By:   /s/ Daniel Wolf
 

Name: Daniel Wolf

 

Title: President


LENDERS

 

CERBERUS NJ CREDIT OPPORTUNITIES FUND, L.P.

By: Cerberus NJ Credit Opportunities GP, LLC
Its: General Partner
By:   /s/ Daniel Wolf
Name:   Daniel Wolf
Title:   Senior Managing Director
CERBERUS ASRS FUNDING LLC
By:   /s/ Daniel Wolf
Name:   Daniel Wolf
Title:   Vice President
ABLECO CAPITAL LLC
By:   /s/ Daniel Wolf
Name:   Daniel Wolf
Title:   Vice President
CERBERUS ONSHORE LEVERED II LLC
By:   /s/ Daniel Wolf
Name:   Daniel Wolf
Title:   Vice President
CERBERUS ONSHORE II CLO LLC
By:   /s/ Daniel Wolf
Name:   Daniel Wolf
Title:   Vice President


CERBERUS AUS LEVERED LP
By: CAL I GP LLC
Its: General Partner
By:   /s/ Daniel Wolf
Name:   Daniel Wolf
Title:   Vice President
CERBERUS OFFSHORE LEVERED II LP
By: COL II GP Inc.
Its: General Partner
By:   /s/ Daniel Wolf
Name:   Daniel Wolf
Title:   Vice President

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, T. Scott King, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Gordmans Stores, 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 Rule 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 12, 2014

 

/s/ T. SCOTT KING

T. Scott King

Interim Chief Executive Officer, President,

Secretary and Chairman of the Board of Directors

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael D. James, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Gordmans Stores, 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 Rule 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 12, 2014

 

/s/ MICHAEL D. JAMES

Michael D. James

Chief Financial Officer, Senior Vice President, Treasurer and Assistant Secretary

(Principal Financial Officer and Principal

Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Gordmans Stores, Inc. (the “Company”) for the quarterly period ended May 3, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, T. Scott King, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ T. SCOTT KING

T. Scott King

Interim Chief Executive Officer, President,

Secretary and Chairman of the Board of Directors

(Principal Executive Officer)

June 12, 2014

This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Gordmans Stores, Inc. (the “Company”) for the quarterly period ended May 3, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. James, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ MICHAEL D. JAMES

Michael D. James

Chief Financial Officer, Senior Vice President,

Treasurer and Assistant Secretary

(Principal Financial Officer and Principal

Accounting Officer)

June 12, 2014

This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.