FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
Commission file number 0-19254
Lifetime Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Merrick Avenue, Westbury, NY 11590
(Address of Principal Executive Offices) (Zip Code)
(516) 683-6000
(Registrant's Telephone Number, Including Area Code)
Lifetime Hoan Corporation
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or 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 is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
Yes X No _
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 11,074,549 shares outstanding as of July 31, 2005
LIFETIME BRANDS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2005
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
- June 30, 2005 and December 31, 2004 3
Unaudited Condensed Consolidated Statements of
Income - Three and Six Months Ended June 30,
2005 and 2004 4
Unaudited Condensed Consolidated Statements of
Cash Flows - Six Months Ended June 30, 2005 and
2004 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6
Report of Independent Registered Public
Accounting Firm 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 17
Item 4. Controls and Procedures 17
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security 18
Holders
Item 6. Exhibits 19
Signatures
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30,
2005 December 31,
(unaudited) 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $105 $1,741
Accounts receivable, less allowances of
$3,639 in 2005 and $3,477 in 2004 24,437 34,083
Merchandise inventories 67,517 58,934
Prepaid expenses 1,809 1,998
Deferred income taxes 4,705 4,303
Other current assets 3,389 2,366
TOTAL CURRENT ASSETS 101,962 103,425
PROPERTY AND EQUIPMENT, net 21,149 20,003
GOODWILL 16,200 16,200
OTHER INTANGIBLES, net 15,043 15,284
OTHER ASSETS 2,476 2,305
TOTAL ASSETS $156,830 $157,217
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $21,300 $19,400
Accounts payable 10,481 7,892
Accrued expenses 15,646 20,145
Income taxes payable 3,678 5,476
TOTAL CURRENT LIABILITIES 51,105 52,913
DEFERRED RENT & OTHER LONG-TERM LIABILITIES 1,996 2,072
DEFERRED INCOME TAX LIABILITIES 4,602 4,294
LONG-TERM DEBT 5,000 5,000
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, shares
authorized: 25,000,000; shares
issued and outstanding: 11,074,549 in 2005
and 11,050,349 in 2004 111 111
Paid-in capital 65,449 65,229
Retained earnings 29,046 28,077
Notes receivable for shares issued to
stockholders (479) (479)
TOTAL STOCKHOLDERS' EQUITY 94,127 92,938
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $156,830 $157,217
See accompanying independent registered public accounting firm
review report and notes to condensed consolidated financial
statements.
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
Net Sales $46,154 $33,029 $89,272 $70,158
Cost of Sales 26,959 19,154 51,859 40,843
Distribution Expenses 5,807 4,730 11,923 10,377
Selling, General and
Administrative Expenses 10,940 8,683 21,239 17,791
Income from Operations 2,448 462 4,251 1,147
Interest Expense 291 141 490 268
Other Income (13) (16) (26) (31)
Income Before Income Taxes 2,170 337 3,787 910
Tax Provision 825 134 1,439 362
NET INCOME $1,345 $203 $2,348 $548
BASIC AND DILUTED INCOME PER
COMMON SHARE $0.12 $0.02 $0.21 $0.05
WEIGHTED AVERAGE SHARES -
BASIC 11,062 10,967 11,057 10,916
WEIGHTED AVERAGE SHARES AND COMMON
SHARE EQUIVALENTS - DILUTED 11,288 11,230 11,277 11,186
See accompanying independent registered public accounting firm review
report and notes to condensed consolidated financial statements.
LIFETIME BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June
30,
2005 2004
OPERATING ACTIVITIES
Net income $2,348 $548
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,159 1,920
Deferred income taxes (92) (516)
Deferred rent (76) 125
Provision for losses on accounts
receivable 111 18
Reserve for sales returns and
allowances 3,767 3,922
Changes in operating assets and liabilities:
Accounts receivable 5,768 11,813
Merchandise inventories (8,583) (6,533)
Prepaid expenses, other current assets
and other assets (1,005) 95
Accounts payable and accrued expenses (1,856) (6,563)
Accrued income taxes payable (1,773) (2,643)
NET CASH PROVIDED BY OPERATING ACTIVITIES 768 2,186
INVESTING ACTIVITIES
Purchase of property and equipment, net (2,966) (727)
NET CASH USED IN INVESTING ACTIVITIES (2,966) (727)
FINANCING ACTIVITIES
Proceeds from (repayment of) short-term
borrowings, net 1,900 (2,000)
Proceeds from exercise of stock options 195 1,236
Payment of capital lease obligations (154) (63)
Cash dividends paid (1,379) (1,361)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 562 (2,188)
DECREASE IN CASH AND CASH EQUIVALENTS (1,636) (729)
Cash and cash equivalents at beginning of
period 1,741 1,175
CASH AND CASH EQUIVALENTS AT END OF PERIOD $105 $ 446
See accompanying independent registered public accounting firm
review report and notes to condensed consolidated financial
statements.
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States for
interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes
required by U.S. generally accepted accounting principles
for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-
month periods ended June 30, 2005 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2005. It is suggested that these
condensed consolidated financial statements be read in
conjunction with the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2004.
Reclassifications: Certain 2004 balances have been
reclassified to conform with the current presentation. These
items include the reclassification of deferred tax assets
and non-current deferred tax liabilities from income taxes
payable that represent the impact of the state tax rate on
timing differences to conform with the classification
guidelines of SFAS No. 109, "Accounting for Income Taxes".
Note B - Distribution Expenses
Distribution expenses consist primarily of warehousing
expenses, handling costs of products sold and freight-out.
Note C - Credit Facility
In July 2005, the Company amended its $50 million secured
credit facility (the "Credit Facility"), to increase the
size of the facility to $100 million and to extend its
maturity to July 2010. Borrowings under the Credit Facility
are secured by all of the assets of the Company. Under the
terms of the Credit Facility, the Company is required to
satisfy certain financial covenants, including limitations
on indebtedness and sale of assets; a minimum fixed charge
ratio; a maximum leverage ratio and maintenance of a minimum
net worth. At June 30, 2005, the Company was in compliance
with these covenants. Borrowings under the Credit Facility
have different interest rate options that are based on an
alternate base rate, the LIBOR rate and the lender's cost of
funds rate, plus in each case a margin based on a leverage
ratio.
As of June 30, 2005, the Company had $0.4 million of letters
of credit and trade acceptances outstanding and $21.3
million of short-term borrowings and a $5.0 million term
loan under its Credit Facility, and as a result, the
availability under the Credit Facility, prior to the July
2005 amendment, was $23.3 million. The $5.0 million long-
term loan is non-amortizing, bears interest at 5.07% and
matures in August 2009. Interest rates on short-term
borrowings at June 30, 2005 ranged from 4.0% to 4.50%.
Note D - Capital Stock and Stock Options
Cash Dividends: In December 2004, the Board of Directors of
the Company declared a regular quarterly cash dividend of
$0.0625 per share to stockholders of record on February 4,
2005, paid on February 18, 2005. In March 2005, the Board
of Directors declared a regular quarterly cash dividend of
$0.0625 per share to stockholders of record on May 6, 2005,
paid on May 20, 2005. On August 2, 2005, the Board of
Directors of the Company declared a regular quarterly cash
dividend of $0.0625 per share to stockholders of record on
August 5, 2005, to be paid on August 19, 2005.
Earnings Per Share: Basic earnings per share has been
computed by dividing net income by the weighted average
number of common shares outstanding of 11,062,000 for the
three months ended June 30, 2005 and 10,967,000 for the
three months ended June 30, 2004. For the six months ended
June 30, 2005 and June 30, 2004, the weighted average number
of common shares outstanding used to compute basic earnings
per share were 11,057,000 and 10,916,000, respectively.
Diluted earnings per share has been computed by dividing net
income by the weighted average number of common shares
outstanding, including the dilutive effects of stock
options, of 11,288,000 for the three months ended June 30,
2005 and 11,230,000 for the three months ended June 30,
2004. For the six months ended June 30, 2005 and June 30,
2004, the diluted number of common shares outstanding was
11,277,000 and 11,186,000, respectively.
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)
Note D - Capital Stock and Stock Options (continued)
Accounting for Stock Option Plan: The Company has a stock
option plan, which is more fully described in the footnotes
to the financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2004.
The Company accounts for options granted under the plan
under the recognition and measurement principles of APB
Opinion No. 25, "Accounting for Stock Issued to Employees",
and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options
granted under the plan had exercise prices equal to the
market values of the underlying common stock on the dates of
grant. The following table illustrates the effect on net
income and net income per share if the Company had applied
the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" to stock-based
employee compensation.
Three Months Six Months
Ended June 30, Ended June 30,
(in thousands, (in thousands,
except per except per
share data) share data)
2005 2004 2005 2004
Net income as reported $1,345 $203 $2,348 $548
Deduct: Total stock option
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (34) (91) (68) (123)
Pro forma net income 1,311 $112 2,280 $425
Income per common share:
Basic and diluted - as
reported $0.12 $0.02 $0.21 $0.05
Basic and diluted - pro
forma $0.12 $0.01 $0.20 $0.04
In December 2004, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123 (R), "Share Based Payment: and
Amendment to FASB Statements 123 and 95." This statement
requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements. In April
2005, the Securities and Exchange Commission deferred the
implementation of SFAS No. 123 (R). As a result, the Company
plans to adopt SFAS No. 123 (R) effective January 1, 2006. The
Company is currently evaluating the impact of this statement on
its financial statements.
Note E - Excel Acquisition
In July 2004, the Company acquired the business and
certain assets of Excel Importing Corp., ("Excel"), a wholly-
owned subsidiary of Mickelberry Communications Incorporated.
Excel marketed and distributed a diversified line of high quality
cutlery, tabletop, cookware and barware products under well-
recognized premium brand names, including Sabatier(R), Farberware(R),
Retroneu Design Studio(R), Joseph Abboud Environments(R), DBK(TM)-
Daniel Boulud Kitchen and Legnoart(R). The Excel acquisition provided
quality brand names that the Company can use to market many of
its existing product lines and added tabletop product categories
to the Company's current product lines. The purchase price,
subject to post closing adjustments, was approximately $8.5
million, of which $7.0 million was paid in cash at the closing.
The Company has not paid the balance of $1.5 million since it
believes the total of certain estimated post closing inventory
adjustments and certain indemnification claims are in excess of
that amount.
LIFETIME BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)
Note E - Excel Acquisition (continued)
The Company has not yet determined either the amount or the
allocation of the purchase price for the Excel acquisition since
the calculation of post closing adjustments has not yet been
finalized. The acquisition was accounted for under the purchase
method and, accordingly, acquired assets and liabilities are
recorded at their fair values. On a preliminary basis the $7.0
million of the purchase price paid at closing has been allocated
based on management's estimates as follows (in thousands):
Preliminary
Purchase
Price
Allocation
Accounts receivable $ 1,300
Merchandise Inventories 4,800
Current liabilities (5,400)
License intangibles 6,300
Total assets acquired $ 7,000
Note F - Pfaltzgraff Acquisition
On July 11, 2005, the Company acquired the business and
certain assets of The Pfaltzgraff Co ("Pfaltzgraff").
Pfaltzgraff designs, markets, distributes and sells ceramic
dinnerware and tabletop accessories for the home. Its products
are broadly distributed through company-owned factory stores and
retail chains as well as through Internet and catalog operations.
The purchase price, subject to post closing adjustments, was
approximately $34.0 million, which was funded by borrowings under
the amended Credit Facility (see Note C).
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Lifetime
Brands, Inc.:
We have reviewed the unaudited condensed consolidated
balance sheet of Lifetime Brands, Inc. and subsidiaries (the
"Company") as of June 30, 2005 and the related unaudited
condensed consolidated statements of income for the three-
month and six-month periods ended June 30, 2005 and 2004,
and the unaudited condensed consolidated statements of cash
flows for the six-month periods ended June 30, 2005 and
2004. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards of the
Public Company Accounting Oversight Board. A review of
interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than
an audit conducted in accordance with the auditing standards
of the Public Company Accounting Oversight Board, the
objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
unaudited condensed consolidated financial statements
referred to above for them to be in conformity with U.S.
generally accepted accounting principles.
We have previously audited, in accordance with the standards
of the Public Company Accounting Oversight Board, the
consolidated balance sheet of the Company as of December 31,
2004, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended
[not presented herein] and in our report dated March 11,
2005, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2004 is fairly
stated, in all material respects, in relation to the
consolidated balance sheet from which it was derived.
/s/ Ernst & Young LLP
Melville, New York
July 29, 2005
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In June 2005 the name of the Company was changed to Lifetime
Brands, Inc. from Lifetime Hoan Corporation. The new name
better reflects the present business of the Company, a
leading designer, developer and marketer of a broad range of
branded consumer products used in the home, including
Kitchenware, Cutlery and Cutting Boards, Bakeware and
Cookware, Pantryware and Spices, Tabletop and Bath
Accessories. Products are marketed under brand names
including Farberware(R), KitchenAid(R), Cuisinart(R), Hoffritz(R),
Sabatier(R), DBK(TM)-Daniel Boulud Kitchen, Joseph Abboud
Environments(R), Roshco(R), Baker's Advantage(R), Kamenstein(R),
Casa Moda(TM), Hoan(R), Gemco(R) and :USE(R). The Company uses
the Farberware(R) brand name for kitchenware, cutlery and cutting
boards and bakeware pursuant to a 200-year royalty-free
license. The Company licenses the KitchenAid(R), Cuisinart(R),
Sabatier(R), DBK(TM)-Daniel Boulud Kitchen and Joseph Abboud
Environments(R) trade names pursuant to licenses granted by
the owners of those brands. All other brand names listed
above are owned.
Over the last several years, sales growth has come from: (i)
expanding product offerings within current categories, (ii)
developing and acquiring product categories and (iii)
entering new channels of distribution, primarily in the
United States. Key factors in the Company's growth strategy
have been, and will continue to be, the selective use and
management of strong brands and the ability to provide a
steady stream of new products and designs.
For the three-months ended June 30, 2005, net sales were
$46.2 million, which represented a 39.7% growth over the
previous year's corresponding period. The increase in sales
was primarily attributable to higher sales of cutlery
products, including shipments of the Company's new lines of
KitchenAid(R) branded cutlery, increased sales of KitchenAid(R)
branded kitchen tools and gadgets, and sales derived from
the Excel business that was acquired in July 2004.
The Company's gross profit margin is subject to fluctuation
due primarily to product mix and, in some instances,
customer mix. In the second quarter of 2005, our gross
profit margin decreased slightly compared to 2004.
Our operating profit increased significantly in the second
quarter of 2005 compared to the second quarter of 2004 due
primarily to two factors: (i) significant sales growth in
the 2005 quarter and (ii) the leverage gained from
distribution expenses and selling, general and
administrative expenses growing at slower rates than sales.
The Company's business and working capital needs are highly
seasonal, with a majority of sales occurring in the third
and fourth quarters. In 2004, 2003 and 2002, net sales for
the third and fourth quarters combined accounted for 63%,
66% and 61% of total annual net sales, respectively, and
operating profits earned in the third and fourth quarters
combined accounted for 92%, 97% and 100% of total annual
operating profits, respectively. Inventory levels increase
primarily in the June through October time period in
anticipation of the pre-holiday shipping season.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition
and Results of Operations discusses the unaudited condensed
consolidated financial statements which have been prepared
in accordance with U.S. generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
The preparation of these financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-
going basis, management evaluates its estimates and
judgments based on historical experience and on various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The Company believes that the following discussion addresses
its most critical accounting policies. These condensed
consolidated financial statements should be read in
conjunction with the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2004.
Merchandise inventories, consisting principally of finished
goods, are priced under the lower-of-cost (first-in, first-
out basis) or market method. The Company's management
periodically reviews and analyzes the carrying value of
inventory based on a number of factors including, but not
limited to, future product demand for items and estimated
profitability of merchandise.
The Company is required to estimate the collectibility of
its accounts receivable. The Company maintains allowances
for doubtful accounts for estimated losses resulting from
the inability of its customers to make required payments. If
the financial conditions of the Company's customers were to
deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
The Company follows the provision of Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS No. 142, goodwill
and intangible assets with indefinite lives are no longer
amortized but are reviewed at least annually for impairment.
Accordingly, the Company ceased amortizing goodwill
effective January 1, 2002. For the year ended December 31,
2004, the Company completed its annual assessment and based
upon such assessment, no impairment to the carrying value of
goodwill was identified.
The Company follows the provision of SFAS No. 144,
"Accounting for Impairment or Disposal of Long-Lived
Assets". SFAS No. 144 requires that a long-lived asset
shall be tested for impairment whenever events or changes in
circumstances indicate that its carrying amount may not be
recoverable. Based upon such review, no impairment to the
carrying value of any long-lived asset has been identified.
RESULTS OF OPERATIONS
The following table sets forth income statement data of the
Company as a percentage of net sales for the periods
indicated below.
Three Months Six Months Ended
Ended
June 30, June 30,
2005 2004 2005 2004
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 58.4 58.0 58.1 58.2
Distribution expenses 12.6 14.3 13.4 14.8
Selling, general and
administrative expenses 23.7 26.3 23.8 25.4
Income from operations 5.3 1.4 4.7 1.6
Interest expense 0.6 0.4 0.5 0.4
Other income - - - (0.1)
Income before income taxes 4.7 1.0 4.2 1.3
Tax provision 1.8 0.4 1.6 0.5
Net income 2.9 % 0.6 % 2.6 % 0.8 %
Three Months Ended June 30, 2005
Compared to Three Months Ended June 30, 2004
Net Sales
Net sales for the three months ended June 30, 2005 were
$46.2 million, an increase of approximately $13.1 million,
or 39.7%, higher than the comparable 2004 period. Net sales
in the second quarter of 2005 for the Excel business, which
was purchased in July 2004, were approximately $2.3 million.
Excluding the net sales attributable to the Excel business,
net sales totaled approximately $43.9 million, a 32.8%
increase over the second quarter of 2004's sales of $33.0
million. The increase was primarily attributable to higher
sales of cutlery products, including sales of the Company's
newly introduced lines of KitchenAid(R) branded cutlery, and
higher sales of KitchenAid(R) branded kitchen tools and
gadgets.
Net sales for the Company's Outlet Stores increased to $3.7
million for the three months ended June 30, 2005 compared to
net sales of $3.0 million for the comparable 2004 period.
The Outlet Stores incurred operating losses of approximately
$0.5 million for the 2005 quarter compared to $0.7 million
for the 2004 quarter.
Cost of Sales
Cost of sales for the three months ended June 30, 2005 was
$27.0 million, an increase of $7.8 million, or 40.7%, from
the comparable 2004 period. The Company's gross profit
margin is subject to fluctuation due primarily to product
mix and, in some instances, customer mix. Cost of sales as
a percentage of net sales increased slightly, to 58.4% in
2005 from 58.0% in 2004.
Distribution Expenses
Distribution expenses for the three months ended June 30,
2005 were $5.8 million, an increase of $1.1 million, or
22.8%, over the comparable 2004 period. Distribution
expenses as a percentage of net sales were 12.6% in the
second quarter of 2005 as compared to 14.3% in the second
quarter of 2004. This improvement reflects primarily the
benefits of labor savings and efficiencies generated by the
Company's main distribution center in Robbinsville, New
Jersey.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three
months ended June 30, 2005 were $10.9 million, an increase
of 26.0%, or $2.3 million, over the comparable 2004 period.
As a percentage of net sales, selling, general and
administrative expenses for the three months ended June 30,
2005 were 23.7%, as compared to 26.3% for the three months
ended June 30, 2004. The increase in selling, general and
administrative expenses resulted primarily from higher
personnel costs in the Company's sales and marketing
departments, higher selling expenses related to increased
sales volume and the additional operating expenses of the
Excel business acquired in July 2004.
Tax Provision
Income tax expense in the second quarter of 2005 was $0.8
million, compared to $0.1 million in the comparable 2004
quarter. The increase in income tax expense is primarily
related to the growth in income before taxes from 2004 to
2005. The Company's marginal income tax rate decreased to
approximately 38.0% in 2005 compared to 39.8% in 2004 due to
lower state apportionment factors.
Six Months Ended June 30, 2005
Compared to Six Months Ended June 30, 2004
Net Sales
Net sales for the six months ended June 30, 2005 were $89.3
million, an increase of $19.1 million, or 27.2%, as compared
to the six months ended June 30, 2004. Net sales for the
six months ended June 30, 2005 for the Excel business, which
was purchased in July 2004, were approximately $4.1 million.
Excluding the net sales attributable to the Excel business,
net sales for the 2005 period totaled approximately $85.2
million, a 21.4% increase over the $70.2 million of net
sales recorded for the comparable 2004 period. The increase
in sales volume was attributable primarily to higher sales
of cutlery products, including sales of the Company's newly
introduced lines of KitchenAid(R) branded cutlery, and to a
lesser extent, higher sales of KitchenAid(R) branded kitchen
tools and gadgets, and Kamenstein pantryware products .
Net sales for the Company's Outlet Stores increased to $7.2
million for the six months ended June 30, 2005 compared to
net sales of $5.7 million for the comparable 2004 period.
The Outlet Stores incurred operating losses of approximately
$1.1 million in the 2005 period compared to losses of
approximately $1.8 million in the 2004 comparable period.
Cost of Sales
Cost of sales for the six months ended June 30, 2005 was
$51.9 million, an increase of 27.0% over the comparable 2004
period. The Company's gross profit margin is subject to
fluctuation due primarily to product mix and, in some
instances, customer mix. Cost of sales as a percentage of
net sales was 58.1% for the six months ended June 30, 2005
compared to 58.2% for the six months ended June 30, 2004.
Distribution Expenses
Distribution expenses for the six months ended June 30, 2005
were $11.9 million, an increase of $1.5 million or 14.9%
from the comparable 2004 period. Distribution expenses as a
percentage of net sales were 13.4% in the 2005 period
compared to 14.8% in 2004. This improvement reflects
primarily the benefits of labor savings and efficiencies
generated by the Company's main distribution center in
Robbinsville, New Jersey.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six
months ended June 30, 2005 were $21.2 million, an increase
of $3.4 million or 19.4% over the comparable 2004 period.
The increase in selling, general and administrative expenses
resulted primarily from higher personnel costs in the
Company's sales and marketing departments, higher selling
expenses related to increased sales volume and the
additional operating expenses of the Excel business acquired
in July 2004.
Tax Provision
Income tax expense for the six months ended June 30, 2005
was $1.4 million as compared to $0.4 million in the
comparable 2004 period. The increase in income tax expense
is primarily related to the growth in income before taxes
from 2004 to 2005. The Company's marginal income tax rate
decreased to approximately 38.0% in 2005 compared to 39.8%
in 2004 due to lower state apportionment factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of cash to fund liquidity
needs are: (i) cash provided by operating activities and
(ii) borrowings available under its credit facility. Its
primary uses of funds consist of capital expenditures,
acquisitions, funding for working capital increases,
payments of principal and interest on its debt and payment
of cash dividends.
In July 2005, the Company amended its $50 million secured
credit facility (the "Credit Facility"), to increase the
size of the facility to $100 million and to extend its
maturity to July 2010. Borrowings under the Credit Facility
are secured by all of the assets of the Company. Under the
terms of the Credit Facility, the Company is required to
satisfy certain financial covenants, including limitations
on indebtedness and sale of assets; a minimum fixed charge
ratio; a maximum leverage ratio and maintenance of a minimum
net worth. At June 30, 2005, the Company was in compliance
with these covenants. Borrowings under the Credit Facility
have different interest rate options that are based on an
alternate base rate, the LIBOR rate and the lender's cost of
funds rate, plus in each case a margin based on a leverage
ratio.
As of June 30, 2005, the Company had $0.4 million of letters
of credit and trade acceptances outstanding and $21.3
million of short-term borrowings and a $5.0 million term
loan under its Credit Facility, and as a result, the
availability under the Credit Facility, prior to the July
2005 amendment, was $23.3 million. The $5.0 million long-
term loan is non-amortizing, bears interest at 5.07% and
matures in August 2009. Interest rates on short-term
borrowings at June 30, 2005 ranged from 4.0% to 4.50%.
On July 11, 2005, the Company acquired the business and
certain assets of the Pfaltzgraff Co. The purchase price,
subject to post closing adjustments, was approximately $34.0
million, which was funded by borrowings under the amended
Credit Facility.
At June 30, 2005 the Company had cash and cash equivalents
of $0.1 million compared to $1.7 million at December 31,
2004.
In July 2005, the Board of Directors declared a regular
quarterly cash dividend of $0.0625 per share to stockholders
of record on August 5, 2005, to be paid on August 19, 2005.
The dividend to be paid will be approximately $0.7 million.
The Company believes that its cash and cash equivalents,
internally generated funds and its existing credit
arrangements will be sufficient to finance its operations
for at least the next twelve months.
The results of operations of the Company for the periods
discussed have not been significantly affected by inflation
or foreign currency fluctuation. The Company negotiates all
of its purchase orders with its foreign manufacturers in
United States dollars. Thus, notwithstanding any fluctuation
in foreign currencies, the cost of the Company's purchase
orders is generally not subject to change after the time the
order is placed. However, the weakening of the United States
dollar against local currencies could lead certain
manufacturers to increase their United States dollar prices
for products. The Company believes it would be able to
compensate for any such price increase.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 151, Inventory Costs - an amendment of ARB No.
43. This Standard requires abnormal amounts of idle facility
expense, freight, handling costs, and wasted material
(spoilage) to be recognized as current period charges.
Additionally, it requires that fixed production overhead
costs be allocated to inventory based on the normal capacity
of the production facility. The provisions of this Standard
apply prospectively and are effective for us for inventory
costs incurred after January 1, 2006. While we believe this
Standard will not have a material effect on our financial
statements, the impact of adopting these new rules is
dependent on events that could occur in future periods, and
as such, an estimate of the impact cannot be determined
until the event occurs in future periods.
In March 2005, the FASB issued Interpretation No. (FIN) 47,
Accounting for Conditional Asset Retirement Obligations - an
interpretation of FASB Statement No. 143. This
Interpretation clarifies the term conditional asset
retirement obligation as used in SFAS No. 143 and requires a
liability to be recorded if the fair value of the obligation
can be reasonably estimated. The types of asset retirement
obligations that are covered by this Interpretation are
those for which an entity has a legal obligation to perform
an asset retirement activity, however the timing and (or)
method of settling the obligation are conditional on a
future event that may or may not be within the control of
the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value
of an asset retirement obligation. This Interpretation is
effective no later than December 31, 2005. We do not believe
the adoption of FIN 47 will have a material impact on the
Company's financial statements.
In May 2005 the FASB issued Statement No. 154, Accounting
Changes and Error Corrections, a replacement of APB Opinion
No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial
Statements. The Statement applies to all voluntary changes
in accounting principle, and changes the requirements for
accounting for and reporting of a change in accounting
principle. Statement 154 requires retrospective application
to prior periods' financial statements of a voluntary change
in accounting principle unless it is impracticable. Opinion
20 previously required that most voluntary changes in
accounting principle be recognized by including in net
income of the period of the change the cumulative effect of
changing to the new accounting principle. Statement 154 is
effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005.
Earlier application is permitted for accounting changes and
corrections of errors made occurring in fiscal years
beginning after June 1, 2005. We do not believe that the
adoption of SFAS No. 154 will have a material impact on the
Company's consolidated financial position or results of
operations.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or
cash flows of the Company. The Company is exposed to market
risk associated with changes in interest rates. The
Company's revolving credit facility bears interest at
variable rates and, therefore, the Company is subject to
increases and decreases in interest expense on its variable
rate debt resulting from fluctuations in interest rates.
There were no changes in interest rates that would have a
material impact on the consolidated financial position,
results of operations or cash flows of the Company for the
three month and six month periods ended June 30, 2005.
Item 4. Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer
of the Company (its principal executive officer and
principal financial officer, respectively) have concluded,
based on their evaluation as of June 30, 2005, that the
Company's controls and procedures are effective to ensure
that information required to be disclosed by the Company in
the reports filed by it under the Securities and Exchange
Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the SEC's
rules and forms, and include controls and procedures
designed to ensure that information required to be disclosed
by the Company in such reports is accumulated and
communicated to the Company's management, including the
Chief Executive Officer and Chief Financial Officer of the
Company, as appropriate to allow timely decisions regarding
required disclosure.
There were no significant changes in the Company's internal
controls or in other factors during the most recently
completed fiscal quarter that materially affected, or are
likely to materially affect internal controls over financial
reporting.
PART II - OTHER INFORMATION
Forward Looking Statements: This Quarterly Report on Form
10-Q contains certain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, including
statements concerning the products, results of operations
and prospects of Lifetime Brands, Inc. and its wholly-owned
subsidiaries (collectively the "Company"). These forward-
looking statements involve risks and uncertainties,
including but not limited to the following:
our relationships with key customers;
our relationships with key licensors;
our dependence on foreign sources of supply and foreign
manufacturing;
the level of competition in the industry;
changes in demand for the Company's products and the
success of new products;
changes in general economic and business conditions which
could affect customer payment practices or consumer spending;
industry trends;
increases in costs relating to manufacturing and
transportation of products;
the seasonal nature of our business;
the departure of key personnel;
the timing of orders received from customers
Such statements are based on management's current
expectations and are subject to a number of factors and
uncertainties, which could cause actual results to differ
materially from those described in the forward-looking
statements. Except as required by law, we undertake no
obligation to publicly update or revise forward-looking
statements which may be made to reflect events or
circumstances after the date of this filing or to reflect
the occurrence of unanticipated events.
Item 4. Submission of Matters to a Vote of Security-Holders
The Company's annual meeting of stockholders was held on
June 7, 2005. At the meeting, all nine director nominees
were elected, the appointment of Ernst & Young LLP as the
Company's Independent Registered Public Accounting Firm was
ratified and the Restated Certificate of Incorporation of
the Company was amended.
(a)The following directors were elected to hold office
until the next annual meeting of stockholders by the
following vote:
FOR WITHHOLD
Howard Bernstein 9,309,877 17,565
Bruce Cohen 8,832,666 494,776
Michael Jeary 9,312,877 14,565
Sheldon Misher 8,989,634 337,808
Cherrie Nanninga 9,311,675 15,767
Craig Phillips 8,895,052 432,390
Ronald Shiftan 8,572,007 755,435
Jeffrey Siegel 8,894,052 433,390
William Westerfield 9,311,877 15,565
In July 2005, Mr. Bruce Cohen resigned as an employee,
officer and director of the Company.
(b)The appointment of Ernst & Young as the Company's
Independent Registered Public Accounting Firm to audit the
Company's financial statements for the fiscal year ending
December 31, 2005 was ratified by the following vote:
FOR WITHHOLD EXCEPTIONS/ABSTAIN
9,320,098 3,244 2,100
(c) The amendment of the Restated Certificate of
Incorporation of the Company (i) to change the
name of the Company to "Lifetime Brands, Inc.",
(ii) to delete no longer needed provisions regarding
the reclassification of former shares of common stock,
which reclassification took place on April 23, 1991
and (iii) to permit the Board of Directors to amend
the By-Laws of the Company was approved by the
following vote:
FOR WITHHOLD EXCEPTIONS/ABSTAIN BROKER NON VOTE
5,677,113 2,137,810 2,840 1,509,679
Item 6. Exhibit(s) and Reports on Form 8-K.
(a)Exhibit(s) in the second quarter of 2005:
Exhibit 31.1 Certification by Jeffrey Siegel,
Chief Executive Officer, pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of
the Securities and Exchange Act of
1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of
2002.
Exhibit 31.2 Certification by Robert McNally,
Chief Financial Officer, pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of
the Securities and Exchange Act of
1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of
2002.
Exhibit 32 Certification by Jeffrey
Siegel, Chief Executive Officer, and
Robert McNally, Chief Financial
Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 10.44 Amendment No.1 to the Restated
Credit Facility Agreement between
Lifetime Hoan Corporation and the
Bank of New York, dated July 11,
2005.
(b)Reports on Form 8-K in the second quarter of 2005:
On April 22, 2005, the Company filed a report on
Form 8-K announcing the departure of a director.
On May 5, 2005, the Company filed a report on Form
8-K announcing results of operations for and
financial condition as of the end of its first
quarter ended March 31, 2005.
On June 10, 2005, the Company filed a report on
Form 8-K announcing the election of a director, the
appointment of a principal officer and the amendment
of its restated certificate of incorporation to
change the Company name to Lifetime Brands, Inc, to
delete no longer needed provisions regarding the
reclassification of former shares of common stock
and to permit the Board of Directors to amend the By-
Laws of the Company.
On June 24, 2005, the Company filed a report on
Form 8-K announcing its agreement to acquire the
business and certain assets of The Pfaltzgraff Co.
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.
Lifetime Brands, Inc.
August 8, 2005
/s/ Jeffrey Siegel
__________________________________
Jeffrey Siegel
Chief Executive Officer and President
(Principal Executive Officer)
August 8, 2005
/s/ Robert McNally
__________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
Exhibit 31.1
CERTIFICATION
I, Jeffrey Siegel, certify that:
1.I have reviewed this quarterly report on Form 10-Q of
Lifetime Brands, Inc. ("the registrant");
2.Based on my knowledge, this quarterly 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 quarterly report;
3.Based on my knowledge, the financial statements, and
other financial information included in this quarterly
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
quarterly report;
4.The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-14 and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))) for the registrant and have:
a. designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this quarterly 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 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 officers 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 registrant's board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies 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.
Date: August 8, 2005
__/s/ Jeffrey Siegel______________
Jeffrey Siegel
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Robert McNally, certify that:
1.I have reviewed this quarterly report on Form 10-Q of
Lifetime Brands, Inc. ("the registrant");
2.Based on my knowledge, this quarterly 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 quarterly
report;
3.Based on my knowledge, the financial statements, and
other financial information included in this
quarterly 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 quarterly
report;
4.The registrant's other certifying officers and I are
responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-14 and internal
control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f))) for the
registrant and have:
a. designed such disclosure controls and procedures to
be designed under our supervision, to ensure that material
designed such disclosure controls and procedures, or caused
such disclosure controls 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 quarterly 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
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 officers 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
registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies 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.
Date: August 8, 2005
___/s/ Robert McNally___________
Robert McNally
Vice President and Chief Financial Officer
EXHIBIT 32
Certification by Jeffrey Siegel, Chief Executive Officer,
and Robert McNally, Chief Financial Officer,
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
I, Jeffrey Siegel, Chief Executive Officer, and I,
Robert McNally, Chief Financial Officer, of Lifetime Brands,
Inc., a Delaware corporation (the "Company"), each hereby
certifies that:
(1)The Company's periodic report on Form 10-Q for the
period ended June 30, 2005 (the "Form 10-Q") 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 Form 10-Q fairly
presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Jeffrey Siegel /s/ Robert McNally
Jeffrey Siegel Robert McNally
Chief Executive Officer Chief Financial Officer
Date: August 8, 2005 Date: August 8, 2005
EXHIBIT 10.43 Amendment No.1 to the Restated Credit Facility
Agreement between Lifetime Hoan Corporation
and the Bank of New York, dated July 11, 2005.
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
AMENDMENT NO. 1 (this "Amendment"), dated as of July
11, 2005, by and among LIFETIME BRANDS, INC., formerly known
as Lifetime Hoan Corporation (the "Borrower"), the several
financial institutions party hereto (the "Lenders") and THE
BANK OF NEW YORK, as Administrative Agent for the Lenders.
RECITALS
The Borrower, the Lenders and the Administrative Agent are
parties to an Amended and Restated Credit Agreement, dated
as of July 28, 2004 (as it may be amended, restated,
supplemented or otherwise modified from time to time, the
"Credit Agreement"). Unless otherwise defined herein, all
capitalized terms used herein or in the Acknowledgement and
Consent annexed hereto shall have the meanings ascribed to
them in the Credit Agreement.
The Borrower and The Pfaltzgraff Co. ("Pfaltzgraff") are
parties to the Asset Purchase Agreement, dated June 17, 2005
(the "Asset Purchase Agreement"), between Pfaltzgraff,
Pfaltzgraff Investment Co., The Pfaltzgraff Outlet Co.
(collectively, the "Pfaltzgraff Sellers") and the Borrower,
PFZ Acquisition Corp. ("PFZ Acquisition") and Pfaltzgraff
Factory Stores, Inc. ("PFZ Outlet"; and together with PFZ
Acquisition, the "Acquisition Subsidiaries"), pursuant to
which the Borrower and the Acquisition Subsidiaries have
agreed to purchase substantially all of the assets of
Pfaltzgraff Sellers, and to assume certain liabilities of
the Pfaltzgraff Sellers, on the terms and conditions set
forth in the Asset Purchase Agreement, for an aggregate
purchase price $34,000,000 as such purchase price may be
adjusted pursuant to the terms of the Asset Purchase
Agreement (the "Purchase Price"). Such acquisition is
referred to herein as the "Pfaltzgraff Acquisition".
The Borrower has advised the Administrative Agent and the
Lenders that (1) the Borrower changed its name from
"Lifetime Hoan Corporation" to "Lifetime Brands, Inc.", (2)
it has organized the Acquisition Subsidiaries and (3) title
to the assets of its wholly-owned Subsidiary Roshco Inc.
were transferred to the Borrower and Roshco Inc. was
statutorily dissolved by the Secretary of State of the State
of Illinois.
The Borrower has (1) requested that the Administrative Agent
and the Required Lenders (a) consent to the Pfaltzgraff
Acquisition, the change of its name and the organization of
two additional Subsidiaries and (b) waive compliance by the
Borrower with Section 6.03 with respect to the legal
existence of Roshco Inc. and (2) advised the Administrative
Agent and the Lenders that it desires to amend the Credit
Agreement in certain respects.
The Administrative Agent has advised the Borrower that the
Lenders are willing to agree to its requests on the terms
and subject to the conditions set forth in this Amendment.
Accordingly, in consideration of the foregoing, the
parties hereto hereby agree as follows:
Consent and Waiver.
Pfaltzgraff Acquisition. The Administrative Agent and the
Lenders hereby consent to the Pfaltzgraff Acquisition;
provided that (i) the Pfaltzgraff Acquisition is consummated
on or before August 31, 2005 on substantially the terms and
conditions set forth in the Asset Purchase Agreement, (ii)
the aggregate purchase price (including, without limitation,
the principal amount of all indebtedness assumed by the
Borrower or any Subsidiary) shall not exceed the Purchase
Price, (iii) both before and after giving effect to the
Pfaltzgraff Acquisition, no Default shall have occurred and
be continuing and (iv) such consent (A) is limited to the
matters expressly stated in this Section 1(a) and (B) shall
not be deemed to be a waiver of any future violations of
Section 7.04 of the Credit Agreement or a waiver of any
violations of any other provisions of the Credit Agreement.
Name Change. The Administrative Agent and the Lenders
hereby consent to the change in the name of the Borrower
from "Lifetime Hoan Corporation" to "Lifetime Brands, Inc."
; provided that such consent is limited to the matters
expressly stated in this Section 1(b).
Additional Subsidiaries. The Administrative Agent and the
Lenders hereby consent to the organization by the Borrower
of PFZ Acquisition Corp. and Pfaltzgraff Factory Stores,
Inc., each Delaware corporations and wholly-owned
Subsidiaries; provided that such consent is limited to the
matters expressly stated in this Section 1(c).
Roshco Inc. The Administrative Agent and the Lenders hereby
waive non-compliance by the Borrower with Section 6.03 of
the Credit Agreement solely with respect to the statutory
dissolution of Roshco Inc.; provided, that, (i) such waiver
is limited to the matters expressly stated in this Section
1(d); and (ii) such waiver shall not be deemed to be a
waiver of any future violations of Section 6.03 or a waiver
of any violations of any other provisions of the Credit
Agreement.
Amendments to Credit Agreement.
Additional Definitions. Section 1.01 of the Credit
Agreement is hereby amended by adding the following new
definitions in the appropriate alphabetical order:
"Acquisition Documents" means the Asset
Purchase Agreement and the instruments, agreements
and documents executed and delivered in connection
therewith.
"Amendment No. 1" means Amendment No. 1 to
Credit Agreement, dated as of July 11, 2005, among
the Borrower, the Lenders party thereto and the
Administrative Agent.
"Amendment No. 1 Effective Date" means July
11, 2005.
"Asset Purchase Agreement" means the Asset
Purchase Agreement, dated June 17, 2005, between
The Pfaltzgraff Co., Pfaltzgraff Investment Co.,
The Pfaltzgraff Outlet Co. and the Borrower, PFZ
Acquisition Corp. and Pfaltzgraff Factory Stores,
Inc. (formerly known as PFZ Outlet Retail, Inc.)
"PFZ Acquisition" means PFZ Acquisition
Corp., a Delaware corporation and a wholly-owned
Subsidiary of the Borrower.
"PFZ Outlet" means Pfaltzgraff Factory
Stores, Inc., a Delaware corporation and a wholly-
owned Subsidiary of the Borrower.
"Pfaltzgraff Acquisition" has the meaning
ascribed thereto in Amendment No. 1.
"Pfaltzgraff Sellers" means, collectively,
The Pfaltzgraff Co., Pfaltzgraff Investment Co.,
and The Pfaltzgraff Outlet Co.
Amendments to Definitions.
Adjusted LIBO Rate. Section 1.01 of the Credit
Agreement is hereby amended by deleting the definition of
"Adjusted LIBO Rate" in its entirety and substituting the
following therefor:
"Adjusted LIBO Rate" means, with respect
to any Eurodollar Borrowing for any Interest
Period, an interest rate per annum (rounded,
if necessary, to the nearest one hundred-
thousandth of a percentage point) equal to
(a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
Aggregate Revolving Commitment. Section 1.01 of
the Credit Agreement is hereby amended by deleting the
definition of "Aggregate Revolving Commitment" in its
entirety and substituting the following therefor:
"Aggregate Revolving Commitment" means,
at any time, the sum at such time of the
aggregate Revolving Commitments of all
Lenders, which, as of the Effective Date
equals $100,000,000.
Applicable Margin. Section 1.01 of the Credit
Agreement is hereby amended by deleting the first
paragraph of the definition of "Applicable Margin" in its
entirety and substituting the following therefor:
"Applicable Margin" means, at all times
during the applicable periods set forth
below: (a) with respect to ABR Borrowings,
the percentage set forth below under the
heading "ABR Margin" and adjacent to such
period, (b) with respect to Eurodollar
Borrowings, the percentage set forth below
under the heading "Eurodollar Margin" and
adjacent to such period and (c) with respect
to the commitment fees payable under
Section 3.03(b), the percentage set forth
below under the heading "Fee Margin" and
adjacent to such period:
Period Applicable Margin
When the And
Leverage less
Ratio is than
greater or ABR Eurodollar Fee
than equal to Margin Margin Margin
3.00:1.00 0.750% 2.000% 0.500%
2.75:1.00 3.00:1.00 0.500% 1.750% 0.500%
2.50:1.00 2.75:1.00 0.250% 1.500% 0.375%
2.25:1.00 2.50:1.00 0.000% 1.250% 0.250%
2.25:1.00 0.000% 1.000% 0.250%
Revolving Commitment. Section 1.01 of the Credit
Agreement is hereby amended by deleting the last sentence
of the definition of "Revolving Commitment" in its
entirety and substituting the following therefor:
The Aggregate Revolving Commitment on the
Amendment No. 1 Effective Date is
$100,000,000.
Revolving Maturity Date. Section 1.01 of the
Credit Agreement is hereby amended by deleting the
definition of "Revolving Maturity Date" in its entirety
and substituting the following therefor:
"Revolving Maturity Date" means July 9,
2010.
Revolving Note. Section 1.01 of the Credit
Agreement is hereby amended by deleting the definition of
"Revolving Note" in its entirety and substituting the
following therefor:
"Revolving Note" means, with respect to each
Lender, a replacement promissory note evidencing such
Lender's Revolving Loans payable to the order of such
Lender (or, if required by such Lender, to such Lender
and its registered assigns) substantially in the form
of Exhibit A to Amendment No. 1.
Optional Increase in Commitments. Section 2.10(a) of the
Credit Agreement is hereby amended by deleting clause (ii)
thereof its entirety and substituting the following
therefor:
(ii) that immediately after such
increase is made, the Aggregate Revolving Commitment
shall not exceed $130,000,000.
Pfaltzgraff Acquisition. Article 4 of the Credit Agreement
is hereby amended by adding a new Section 4.18 to read in
its entirety as follows:
Section 4.18The Pfaltzgraff Acquisition
The Borrower has heretofore delivered to
the Administrative Agent true, correct and
complete copies of the Acquisition Documents. The
Borrower has, concurrently with the execution and
delivery of Amendment No. 1, consummated the
Pfaltzgraff Acquisition in all material respects
pursuant to the Acquisition Documents, and the
Acquisition Documents set forth the entire
agreement among the parties thereto with respect
to the subject matter thereof. No party to any of
the Acquisition Documents has waived the
fulfillment of any material condition precedent
set forth therein to the consummation of the
Pfaltzgraff Acquisition, no party has failed to
perform any of its material obligations thereunder
or under any instrument or document executed and
delivered in connection therewith, and nothing has
come to the attention of the Borrower that would
cause it to believe that any of the
representations or warranties of any Pfaltzgraff
Seller contained in the Acquisition Documents was
false or misleading in any material respect when
made or when reaffirmed on the Amendment No. 1
Effective Date. No consent or approval,
authorization or declaration of any governmental
authority, bureau or agency, is or will be
required in connection with the Pfaltzgraff
Acquisition, except for consents that have been
obtained prior to the Amendment No. 1 Effective
Date. Neither the execution and delivery of the
Acquisition Documents, nor the performance of the
Borrower's obligations thereunder, will violate
any provision of law or will conflict with or
result in a breach of, or create (with or without
the giving of notice or lapse of time, or both) a
default under, any material agreement to which the
Borrower is a party or by which it is bound or any
of its assets is affected. The Borrower and the
Subsidiaries have acquired by virtue of the
consummation of the Pfaltzgraff Acquisition and
now have good and marketable title to all the
assets transferred pursuant thereto and heretofore
owned by the Pfaltzgraff Sellers, free and clear
of any Lien, except (i) for Permitted Encumbrances
and (ii) for the Liens created and granted by the
Security Documents.
Use of Proceeds. Section 6.08 of the Credit Agreement is
hereby deleted in its entirety and the following substituted
therefor:
The proceeds of the Loans will be used only
to finance Capital Expenditures and Acquisitions
(including, without limitation, the Pfaltzgraff
Acquisition) and for working capital and general
corporate purposes not inconsistent with the terms
hereof. No part of the proceeds of any Loan will
be used, whether directly or indirectly, and
whether immediately, incidentally or ultimately,
to purchase, acquire or carry any Margin Stock or
for any purpose that entails a violation of any of
the regulations of the Board, including
Regulations T, U and X.
Acquisitions. Section 7.04 of the Credit Agreement is
hereby amended by (i) deleting the period at the end of
clause (l) thereof and substituting "; and" therefor and
(ii) adding a new clause (m) thereto to read in its entirety
as follows:
(m)the Pfaltzgraff Acquisition.
Leverage Ratio. Section 7.12 of the Credit Agreement is
hereby deleted in its entirety and the following substituted
therefor:
Section 7.12Leverage Ratio
The Borrower will not permit the
Leverage Ratio at any time during each period set
forth below to be greater than the ratio set forth
below for such period:
Period Ratio
Amendment No. 1 Effective Date
through December 30, 2005 3.50:1.00
December 31, 2005 through June
29, 2006 3.00:1.00
June 30, 2006 through December
30, 2006 3.50:1.00
December 31, 2006 through March
30, 2007 3.00:1.00
March 31, 2007 through June 29, 2.75:1.00
2007
June 30, 2007 through December 3.00:1.00
30, 2007
December 31, 2007 through June 2.75:1.00
29, 2008
June 30, 2008 through December 3.00:1.00
30, 2008
December 31, 2008 through June 2.75:1.00
29, 2009
June 30, 2009 through December 3.00:1.00
30, 2009
December 31, 2009 through June 2.75:1.00
29, 2010
June 30, 2010 and thereafter 3.00:1.00
Commitments. Schedule 2.01 to the Credit Agreement is
hereby deleted in its entirety and Exhibit B to this
Amendment substituted therefor.
Subsidiaries. Schedule 4.12 to the Credit Agreement is
hereby deleted in its entirety and Exhibit C to this
Amendment substituted therefor.
Indebtedness. Schedule 7.01 to the Credit Agreement is
hereby deleted in its entirety and Exhibit D to this
Amendment substituted therefor.
Liens. Schedule 7.02 to the Credit Agreement is hereby
deleted in its entirety and Exhibit E
to this Amendment substituted therefor.
General.
Credit Agreement. All references to "this
Agreement" in the Credit Agreement and to "the Credit
Agreement" in the other Loan Documents shall be deemed to
refer to the Credit Agreement as amended hereby.
Revolving Notes. All references to a "Revolving
Note" or the "Revolving Notes" in the Credit Agreement or
the other Loan Documents shall be deemed to refer to the
replacement Revolving Notes issued pursuant hereto.
Conditions to Effectiveness. This Amendment shall be
effective upon the satisfaction of each of the following
conditions:
The Administrative Agent shall have received an executed
counterpart of this Amendment signed by the Borrower, the
Lenders and the Administrative Agent.
The Administrative Agent shall have received for the account
of each Lender a replacement Revolving Note conforming to
the requirements of the Credit Agreement signed on behalf of
the Borrower.
The Administrative Agent shall have received an executed
counterpart of the acknowledgement and consent annexed
hereto duly executed by each of the Guarantors.
The Administrative Agent shall have received:
a Supplement to the Guarantee Agreement executed
by each of PFZ Acquisition and PFZ Outlet;
a Supplement to the Security Agreement executed
by each of PFZ Acquisition and PFZ Outlet;
a completed Perfection Certificate in the form of
Annex 1 to the Security Agreement, dated the Amendment No.
1 Effective Date and signed by an Authorized Signatory of
each of PFZ Acquisition and PFZ Outlet, together with all
attachments contemplated thereby; and
such other instruments, documents and agreements
as the Administrative Agent may reasonably request in
connection with PFZ Acquisition and PFZ Outlet becoming
parties to the Guarantee Agreement and the Security
Agreement, including, without limitation, Grants of
Security Interest (Trademarks), Grants of Security
Interest (Patents) and Grants of Security Interest
(Copyrights).
The Administrative Agent shall have received the following:
any stock certificates or other instruments
representing the Pledged Equity owned by or on behalf of
any Loan Party as of the Amendment No. 1 Effective Date
(not previously delivered to the Administrative Agent);
any promissory notes and other instruments
evidencing the Pledged Debt owed or owing to any Loan
Party as of the Amendment No. 1 Effective Date (not
previously delivered to the Administrative Agent);
stock powers and instruments of transfer,
endorsed in blank, with respect to such stock
certificates, promissory notes and other instruments;
all instruments and other documents, including
Uniform Commercial Code financing statements, required by
law or reasonably requested by the Administrative Agent to
be filed, registered or recorded to create or perfect (or
continue the perfection of) the Liens intended to be
created under the Security Agreement; and
a completed Perfection Certificate in the form of
Annex 1 to the Security Agreement, dated the Amendment No.
1 Effective Date and signed by an Authorized Signatory of
the Borrower, together with all attachments contemplated
thereby.
The Administrative Agent shall have received a certificate,
dated the Effective Date and signed by a Financial Officer
of the Borrower,
confirming that (1) the Pfaltzgraff Acquisition
has been consummated in accordance with the terms and
conditions of the applicable Acquisition Documents, all of
which shall be in form and substance reasonably
satisfactory to the Administrative Agent, and (2) the
total consideration paid in connection with the
Pfaltzgraff Acquisition was not more than $34,000,000,
subject to adjustment pursuant to the terms of the
Acquisition Documents; and
attaching a true, complete and correct copy of
each of the following (each of which shall be in form and
substance reasonably satisfactory to the Administrative
Agent): (1) each Acquisition Document and (2) any
information the Administrative Agent may reasonably
require regarding the assets and liabilities of the
Borrower and Guarantors after giving effect to the
consummation of the Pfaltzgraff Acquisition.
The Administrative Agent shall be reasonably satisfied that
there is no litigation or administrative proceeding, or
regulatory development, that could reasonably be expected to
have a material adverse effect on (1) the business, assets,
operations, condition (financial or otherwise) or material
agreements of the Borrower and the Subsidiaries, (2) the
business, assets, operations, condition (financial or
otherwise) or material agreements of the Pfaltzgraff
Sellers, (3) the ability of any Loan Party to perform any of
its obligations under any Loan Document, (4) the rights of
or benefits available to any Credit Party under any Loan
Document or (5) the ability of any party to the Acquisition
Documents to perform any of its obligations under the
Acquisition Documents.
The Lenders shall be reasonably satisfied that no material
adverse change in the business, assets, operations,
properties, condition (financial or otherwise), liabilities
(including contingent liabilities) or material agreements of
(i) the Borrower and the Subsidiaries or (ii) the
Pfaltzgraff Sellers has occurred since December 31, 2004.
There shall be no injunction, writ, preliminary restraining
order or other order of any nature issued by any
Governmental Authority in any respect affecting the
transactions provided for in the Loan Documents or the
Acquisition Documents and no action or proceeding by or
before any Governmental Authority shall have been commenced
and be pending or, to the knowledge of the Borrower,
threatened, seeking to prevent or delay the transactions
contemplated by the Loan Documents or the Acquisition
Documents or challenging any other terms and provisions
hereof or thereof or seeking any damages in connection
herewith or therewith, and the Administrative Agent shall
have received a certificate, in all respects reasonably
satisfactory to the Administrative Agent, of a Financial
Officer of the Borrower to the foregoing effect.
All material approvals and consents of all Persons required
to be obtained in connection with the consummation of the
Pfaltzgraff Acquisition shall have been obtained and shall
be in full force and effect, and all required notices have
been given and all required waiting periods shall have
expired, and the Administrative Agent shall have received a
certificate, in all respects reasonably satisfactory to the
Administrative Agent, of a Financial Officer of the Borrower
to the foregoing effect.
The Administrative Agent shall be reasonably satisfied with
the results of their due diligence including, without
limitation, (i) the capital structure and equity ownership
of the Borrower after giving effect to the Pfaltzgraff
Acquisition, (ii) the consolidated financial statements of
The Pfaltzgraff Co. as at and for the fiscal years ending on
December 31, 2002, December 31, 2003 and December 31, 2004,
(iii) the consolidated financial statements of The
Pfaltzgraff Co. as at and for the fiscal quarter ending on
March 31, 2005, (iv) the leases, license agreements and
contracts of the Pfaltzgraff Sellers assumed by the Borrower
or any Subsidiary, (v) financial projections for five years
for the Borrower on a consolidated basis after giving effect
to the Pfaltzgraff Acquisition, (vi) the tax and accounting
treatment of the Pfaltzgraff Acquisition, (vii) any
consultant or other external due diligence reports that were
prepared for the Borrower in connection with the Pfaltzgraff
Acquisition and (viii) environmental, insurance and legal
matters.
The Administrative Agent shall have received and be
satisfied with consolidated and consolidating pro forma
balance sheets of the Borrower and the Subsidiaries as of
the Amendment No. 1 Effective Date, after giving effect to
the Pfaltzgraff Acquisition (including all debt and equity
issuances in connection therewith).
The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by
Section 6.10 of the Credit Agreement is in effect.
As of the Amendment No. 1 Effective Date and after giving
effect to the Pfaltzgraff Acquisition, the Leverage Ratio
shall be not greater than 3.00:1.00 and the Administrative
Agent shall have received a certificate of Financial Officer
of the Borrower, in all respects reasonably satisfactory to
the Administrative Agent, to such effect.
The Administrative Agent shall have received a certificate,
dated the Amendment No. 1 Effective Date and signed by a
Financial Officer of the Borrower, setting forth reasonably
detailed calculations demonstrating compliance with Sections
7.12, 7.13 and 7.14 on a pro forma basis as of the Amendment
No. 1 Effective Date, immediately after giving effect to the
Pfaltzgraff Acquisition.
The Administrative Agent shall have received such documents
and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization,
existence and good standing of each Loan Party (including,
without limitation, the Borrower, PFZ Acquisition and PFZ
Outlet), the authorization of the execution and delivery of
this Amendment, the replacement Revolving Notes, the
Acknowledgment and Consent, the Supplement to the Security
Agreement, the Supplement to the Guarantee Agreement and the
Acquisition Documents and any other legal matters relating
to the Loan Parties, the Loan Documents or the Pfaltzgraff
Acquisition, all in form and substance satisfactory to the
Administrative Agent and its counsel.
The Administrative Agent shall have received favorable
written opinions (each addressed to the Credit Parties and
dated the Amendment No. 1 Effective Date) from Rivkin Radler
LLP and Samuel B. Fortenbaugh, Esq., on behalf of the Loan
Parties, in form and substance satisfactory to the
Administrative Agent covering such matters relating to the
Loan Parties, the Loan Documents or the Pfaltzgraff
Acquisition as the Administrative Agent shall reasonably
request. The Borrower hereby requests such counsel to
deliver such opinions.
The representations and warranties contained in the Credit
Agreement shall be true and correct in all material respects
(except to the extent such representations and warranties
specifically relate to an earlier date) and, after giving
effect to the consents set forth on Section 1 hereof and the
amendments set forth in Section 2 hereof, no Default or
Event of Default shall exist.
The Borrower shall have (i) paid to each Lender executing
this Amendment an amendment fee equal to 0.05% of such
Lender's Revolving Commitment as in effect immediately prior
to the Amendment No. 1 Effective Date and (ii) paid to each
Lender a closing fee equal to 0.20% of the amount of the
increase of such Lender's Revolving Commitment effected
hereby.
The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Amendment
No. 1 Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.
The Borrower shall have paid the reasonable fees and
disbursements of counsel to the Administrative Agent and the
Lenders in connection with this Amendment.
The Administrative Agent shall notify the Borrower and the
Credit Parties of the Amendment No. 1 Effective Date, and
such notice shall be conclusive and binding.
Representations and Warranties. The Borrower hereby
represents and warrants to the Administrative Agent and the
Lenders that:
The representations and warranties set forth in the Loan
Documents (other than the representations and warranties
made as of a specific date) are true and correct in all
material respects as of the date hereof and with the same
effect as though made on and as of the date hereof.
No Default or Event of Default and no event or condition
which, with the giving of notice or lapse of time or both,
would constitute such a Default or Event of Default, now
exists or would exist.
(i) The execution, delivery and performance by the Borrower
of this Amendment is within its organizational powers and
have been duly authorized by all necessary action (corporate
or otherwise) on the part of the Borrower, (ii) this
Amendment is the legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance
with its terms, and (iii) neither this Amendment nor the
execution, delivery and performance by the Borrower hereof:
(A) contravenes the terms of the Borrower's organization
documents, (B) conflicts with or results in any breach or
contravention of, or the creation of any Lien under, any
document evidencing any contractual obligation to which the
Borrower is a party or any order, injunction, writ or decree
to which the Borrower or its property is subject, or (C)
violates any requirement of law
Effect; No Waiver.
The Borrower hereby (i) reaffirms and admits the validity
and enforceability of the Loan Documents and all of its
obligations thereunder and (ii) agrees and admits that it
has no defenses to or offsets against any such obligation.
Except as specifically set forth herein, the Credit
Agreement and the other Loan Documents shall remain in full
force and effect in accordance with their terms and are
hereby ratified and confirmed. The execution, delivery and
effectiveness of this Amendment shall not operate as a
waiver of any existing or future Default or Event of
Default, whether known or unknown or any right, power or
remedy of the Administrative Agent or the Lenders under the
Credit Agreement, nor constitute a waiver of any provision
of the Credit Agreement, except as specifically set forth
herein.
The Borrower hereby (i) reaffirms all of its agreements and
obligations under the Security Documents, (ii) reaffirms
that all Obligations of the Borrower under or in connection
with the Credit Agreement as amended hereby are
"Obligations" as that term is defined in the Security
Documents, (iii) reaffirms that all such Obligations
continue to be secured by the Security Documents, which
remains in full force and effect and is hereby ratified and
confirmed, (iv) confirms that all assets acquired by it in
connection with the Pfaltzgraff Acquisition are and shall be
deemed included in the Collateral and (v) agrees that all
references in the Security Agreement to (A) "the Credit
Agreement" shall be deemed to refer to the Credit Agreement
and (B) "Loans", "Letter of Credit Exposure" and "Bankers
Acceptance Exposure" shall be deemed to refer to Loans,
Letter of Credit Exposure and Banker Acceptance Exposure,
respectively, under the Credit Agreement as amended hereby.
Miscellaneous.
The Borrower and each other Loan Party will cause all assets
acquired in connection with the Pfaltzgraff Acquisition to
be subjected to a Lien securing the Obligations and will
take, and cause such other Loan Parties to take, such
actions as shall be necessary or reasonably requested by the
Administrative Agent to grant and perfect such Liens,
including, with out limitation, executing any and all
further documents, financing statements, agreements and
instruments, and taking all such further actions (including
the filing and recording of financing statements, fixture
filings, and any other instrument or agreement of assignment
that the Administrative Agent may reasonably request in the
United States Patent and Trademark Office and the United
States Copyright Office), that may be required under any
applicable law, or which the Administrative Agent or the
Required Lenders may reasonably request, to effectuate the
transactions contemplated hereby or to grant, preserve,
protect or perfect the Liens created or intended to be
created by the Security Documents or the validity or
priority of any such Lien, all at the expense of the
Borrower.
The Borrower shall pay the Administrative Agent upon demand
for all reasonable expenses, including reasonable attorneys'
fees and expenses of the Administrative Agent, incurred by
the Administrative Agent in connection with the preparation,
negotiation and execution of this Amendment.
THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICTS OF LAW PROVISIONS, BUT INCLUDING SECTIONS 5-1401
AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK) AND DECISIONS OF THE STATE OF NEW YORK.
This Amendment shall be binding upon the Borrower, the
Administrative Agent and the Lenders and their respective
successors and assigns, and shall inure to the benefit of
the Borrower, the Administrative Agent and the Lenders and
the respective successors and assigns of the Administrative
Agent and the Lenders.
This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed
to be an original and all of which taken together shall
constitute one and the same instrument.
[Signature pages follow.]
AS EVIDENCE of the agreement by the parties hereto to
the terms and conditions herein contained, each such party
has caused this Amendment to be executed on its behalf.
LIFETIME BRANDS, INC.
(formerly known as Lifetime
Hoan Corporation)
By:
Name:
Title:
THE BANK OF NEW YORK, as
Administrative Agent and as a
Lender
By:
Name:
Title:
HSBC BANK USA, NATIONAL
ASSOCIATION
By:
Name:
Title:
CITIBANK, N.A.
By:
Name:
Title:
WACHOVIA BANK, NATIONAL
ASSOCIATION
By:
Name:
Title:
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned Guarantors hereby (1) consents
to the execution and delivery by the Borrower of the
foregoing Amendment No. 1; (2) agrees that the definition of
"Obligations" (and any other term referring to the
indebtedness, liabilities and obligations of the Borrower to
the Administrative Agent or any of the Lenders) in the
Guarantee Agreement and the other Loan Documents shall
include the Indebtedness of the Borrower under the forgoing
Amendment No. 1; (3) agrees that the definition of "Credit
Agreement" in the Guarantee Agreement and the other Loan
Documents to which it is a party is hereby amended to mean
the Credit Agreement as amended by the foregoing Amendment
No. 1; (4) reaffirms its continuing liability under its
Guarantee Agreement (as modified hereby); (5) reaffirms all
of its agreements and obligations under the Security
Documents; (6) reaffirms that all Obligations of the
Borrower under or in connection with the Credit Agreement as
amended by the foregoing Amendment No. 1 are "Obligations"
as that term is defined in the Security Documents; (7)
reaffirms that all such Obligations continue to be secured
by the Security Documents, which remain in full force and
effect and are hereby ratified and confirmed; (8) confirms
that all assets acquired by it in connection with the
Pfaltzgraff Acquisition are and shall be deemed included in
the Collateral; and (9) confirms and agrees that it is a
Guarantor party to the Guarantee Agreement and a Grantor
party to the Security Agreement and that the Guarantee
Agreement, the Security Agreement and the other Loan
Documents to which it is a party are, and shall continue to
be, in full force and effect in accordance with their
respective terms.
OUTLET RETAIL STORES, INC.
By:
Name:
Title:
M. KAMENSTEIN CORP.
By:
Name:
Title:
EXHIBIT A
TO
AMENDMENT NO. 1 TO CREDIT AGREEMENT
FORM OF REPLACEMENT REVOLVING NOTE
$_____________ July __, 2005
New York, New
York
FOR VALUE RECEIVED, the undersigned, LIFETIME BRANDS,
INC. (formerly known as Lifetime Hoan Corporation), a
Delaware corporation (the "Borrower"), hereby promises to
pay to the order of _______________________________________
(the "Lender") ______________ DOLLARS ($_____________) or if
less, the unpaid principal amount of the Revolving Loans
made by the Lender to the Borrower, in the amounts and at
the times set forth in the Amended and Restated Credit
Agreement, dated as of July 28, 2004 (as the same may be
amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among the Borrower, the
Lenders party thereto, and The Bank of New York, as
Administrative Agent, and to pay interest from the date
hereof on the principal balance of such Revolving Loans from
time to time outstanding at the rate or rates and at the
times set forth in the Credit Agreement, in each case at the
office of the Administrative Agent located at One Wall
Street, New York, New York, or at such other place as the
Administrative Agent may specify from time to time, in
lawful money of the United States of America in immediately
available funds. Terms defined in the Credit Agreement are
used herein with the same meanings.
The Revolving Loans evidenced by this Revolving Note are
prepayable in the amounts, and under the circumstances, and
their respective maturities are subject to acceleration upon
the terms, set forth in the Credit Agreement. This
Revolving Note is subject to, and should be construed in
accordance with, the provisions of the Credit Agreement and
is entitled to the benefits and security set forth in the
Loan Documents.
This Revolving Note shall be deemed to be in complete
substitution for and replacement of, and not a repayment of
the Revolving Note dated July 28, 2004 made by the Borrower
payable to the Lender (the "Prior Revolving Note") and all
interest accrued and unpaid under such Prior Revolving Note
shall be deemed evidenced by this Revolving Note and payable
hereunder from and after the date of accrual thereof. The
execution and delivery of this Revolving Note shall not be
construed (i) to have constituted repayment of any amount of
principal or interest on the Prior Revolving Note, or (ii)
to release, cancel, terminate or otherwise impair all or any
part of any lien or security interest granted to the Lenders
party to the Original Credit Agreement or their agents as
collateral security for the Prior Revolving Note.
The Lender is hereby authorized to record on the
schedule annexed hereto, and any continuation sheets which
the Lender may attach hereto, (a) the date of each Revolving
Loan made by the Lender, (b) the class, Type and amount
thereof, (c) the interest rate (without regard to the
Applicable Margin) and Interest Period applicable to each
Eurodollar Loan and (d) the date and amount of each
conversion of, and each payment or prepayment of the
principal of, any such Revolving Loan. The entries made in
such schedule shall be prima facie evidence of the existence
and amounts of the obligations recorded therein, provided
that the failure to so record or any error therein shall not
in any manner affect the obligation of the Borrower to repay
the Revolving Loans in accordance with the terms of the
Credit Agreement.
Except as specifically otherwise provided in the Credit
Agreement, the Borrower hereby waives presentment, demand,
notice of dishonor, protest, notice of protest and all other
demands, protests and notices in connection with the
execution, delivery, performance, collection and enforcement
of this Revolving Note.
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
LIFETIME BRANDS, INC.
(formerly known as Lifetime
Hoan Corporation)
By:
Name:
Title:
SCHEDULE TO REPLACEMENT REVOLVING NOTE
Amount of Interest Interest
Date Type of Amount principal rate on Period Notation
Loan of Loan converted, Eurodollar for made by
paid or Loans Eurodollar
prepaid Loans
EXHIBIT B
TO
AMENDMENT NO. 1 TO CREDIT AGREEMENT
SCHEDULE 2.01
Amendment No. 1 Effective Date Commitments
Lender Commitment
The Bank of New York $30,000,000
HSBC Bank USA, National Association $26,000,000
Citibank, N.A. $22,000,000
Wachovia Bank, National Association $22,000,000
TOTAL $100,000,000
EXHIBIT C
TO
AMENDMENT NO. 1 TO CREDIT AGREEMENT
SCHEDULE 4.12
Subsidiaries
Subsidiary % Owned
Outlet Retail Stores, Inc. 100%
Incorporated in the state of Delaware
M. Kamenstein Corp. 100%
Incorporated in the state of Delaware
Lifetime Hoan LTD (Hong Kong) - (non-operating) 100%
PFZ Acquisition Corp. 100%
Incorporated in the state of Delaware
Pfaltzgraff Factory Stores, Inc. 100%
Incorporated in the state of Delaware
EXHIBIT D
TO
AMENDMENT NO. 1 TO CREDIT AGREEMENT
SCHEDULE 7.01
Existing Indebtedness
Outstanding Borrowings under credit lines:
Description Amount Date
Lifetime Brands, Inc. - borrowings under
BONY credit facility $26,300,000 June 30, 2005
Outstanding Loans to Subsidiary:
None.
Guarantee(s) of Indebtedness:
None.
Capitalized Leases:
Lender Description Total Amount
outstanding at
June 30, 2005
Navistar Kamenstein Warehouse $768
Equipment
Strata Systems Westbury Design $33,581
Equipment
Crown Robbinsville $504,676
Warehouse Vehicles
Raymond Robbinsville $352,253
Warehouse Vehicles
Light Source Energy Lighting System $52,132
Services, Inc. Upgrade
Notes Payable Related to Acquisitions:
None.
EXHIBIT E
TO
AMENDMENT NO. 1 TO CREDIT AGREEMENT
SCHEDULE 7.02
Exiting Liens
[Note that this schedule does not include liens in favor of
lender.]
Debtor Secured Location of Date of Filing Collateral
Party Filing Filing Number
Lifetime Crown Credit Delaware October 20, 32729484 Specific equipment, including
Hoan Company Secretary of 2003 lift trucks, batteries and
Corporation State chargers
Lifetime Crown Credit Delaware November 3, 32878497 Specific equipment, including
Hoan Company Secretary of 2003 lift trucks, batteries and
Corporation State chargers
Lifetime Wells Fargo Delaware January 21, 40365546 Cannon digital color copier
Hoan Financial Secretary of 2004 system with peripherals
Corporation Leasing State
Lifetime Crown Credit Delaware October 18, 42922807 Specific equipment, including
Hoan Company Secretary of 2004 lift trucks, batteries and
Corporation State chargers
Lifetime Crown Credit Delaware October 28, 43044114 Specific equipment, including
Hoan Company Secretary of 2004 lift trucks, batteries and
Corporation State chargers
Lifetime Crown Credit Delaware October 28, 43044171 Specific equipment, including
Hoan Company Secretary of 2004 lift trucks, batteries and
Corporation State chargers
Lifetime Raymond Delaware October 8, 42837757 Specific equipment, including
Hoan Leasing Secretary of 2004 turett trucks
Corporation Corporation State
Lifetime Cannon Delaware December 22, 43618198 Specific photocopier and
Hoan Financial Secretary of 2004 related equipment
Corporation Services State
Outlet Cookware Delaware December 7, 11644116 Certain goods delivered to
Retail Concepts Secretary of 2001 debtor on consignment pursuant
Stores, State to a 1997 agreement between the
Inc. parties
M. Safeco Delaware January 27, 40210437 Specific equipment, including
Kamenstein Credit Co. Secretary of 2004 pallet trucks
Corp. Inc. State
