FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended Commission File Number 1-4814
FEBRUARY 3, 1996
ARIS INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 22-1715274
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 FIFTH AVENUE, NEW YORK, NEW YORK 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 686-5050
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Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE ONE ($.01) CENT PER SHARE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the
<PAGE>
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of April 19, 1996, 11,925,416 shares of the registrant's Common Stock were
outstanding. The aggregate market value of the 2,558,082 shares of voting stock
of the registrant held by non-affiliates of the registrant at April 19, 1996 was
$159,880.
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ARIS INDUSTRIES, INC.
TABLE OF CONTENTS
Page
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PART I.................................................................... 4
Item 1. Business................................................. 4
Item 2. Properties............................................... 10
Item 3. Legal Proceedings........................................ 11
Item 4. Submission of Matters to a Vote of Security
Holders................................................. 11
PART II................................................................... 12
Item 5. Market for Registrant's Common Equity
and Related Security Holder Matters..................... 12
Item 6. Selected Financial Data.................................. 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation............................................... 14
Item 8. Financial Statements and Supplementary Data.............. 26
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................. 27
PART III.................................................................. 27
Item 10 Directors and Executive Officers of the
Registrant.............................................. 27
Item 11 Executive Compensation................................... 30
Item 12 Security Ownership of Certain Beneficial
Owners and Management................................... 38
Item 13 Certain Relationships and Related
Transactions............................................ 40
PART IV................................................................... 43
Item 14 Exhibits, Financial Statement, Schedules and
Reports on Form 8-K..................................... 43
SIGNATURES................................................................ 58
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EXHIBIT 21 List of Subsidiaries..................................... 59
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EXHIBIT 23 Consent of Deloitte & Touche LLP........................ E-1
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PART I
Item 1. Business.
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Aris Industries, Inc. (the "Company", the "Registrant" or "Aris") is engaged in
the design, manufacture, importing and distribution of men's and young men's
outerwear and sportswear, and ladies' sportswear and other apparel. The
Company's operations are conducted primarily through two wholly-owned
subsidiaries: Europe Craft Imports, Inc. ("ECI") and Perry Manufacturing Company
("Perry"), both of which were acquired by the Company in 1987. The Company was
incorporated in the State of New York in 1947.
Narrative Description of Businesses
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Men's Apparel
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ECI designs, imports and distributes men's outerwear, including cloth and
leather jackets, and sportswear, including knit and woven shirts, under the
"Members Only" and other tradenames. ECI has granted licenses to licensees for
men's woven and knit shirts, men's tailored suits and sportcoats, men's wallets
and leather goods, men's and boys' hosiery and socks, and eyeglasses, among
others. In addition, exclusive distributorships have been granted in Canada and
Central America. ECI has also been granted licenses to manufacture and
distribute men's outerwear and raincoats under the "Perry Ellis" name. ECI also
designs, develops, sources and imports men's and boys' outerwear product lines
as an agent for various national store chains selling such products under ECI's
name or through their own private label division.
The products of ECI are marketed nationally in department stores, specialty
stores and national retail chains. ECI also operates three stores located in
factory outlet malls.
Women's Apparel
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Perry manufactures and distributes moderately-priced misses', women's, junior
and petite sportswear in knit and woven fabrics. Perry is a large supplier of
private label goods to national chain stores such as Hunt Club for J.C. Penny
and Jaclyn Smith for K-Mart. In addition, Perry manufactures goods for large
customers such as Liz Claiborne and Lands End.
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The Apparel Industry
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The apparel industry is volatile and unpredictable due to cyclical and seasonal
swings caused, in part, by consumer buying patterns. Due to the lead time
necessary for fabric delivery, product design, manufacture and distribution,
manufacturers must make commitments prior to the related selling season to
purchase raw materials sufficient to produce most of the apparel they expect to
sell. The Company utilizes lines of credit to finance inventory purchases and
production costs. The Company has attempted to moderate its exposure in the
marketplace by following a strategy of selling a diversified line of apparel
rather than relying on the success of one design style.
Most of the Company's sales are factored with terms of sales maturing in a
period of 30-60 days. Advances are made available to Perry as a percentage of
immediately factored sales. ECI factors on a maturity basis. These subsidiaries
pay interest and commission charges.
Design and Manufacturing
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Generally, products sold by the Company are manufactured to the designs and
specifications (including fabric selections) of designers employed by the
Company's subsidiaries. The Company designs and produces fashion apparel and has
been an important supplier of clothing for its customers. For example, Perry,
together with other suppliers, supplies a segment of J.C. Penney's Hunt Club and
Worthington lines for both its retail and catalog businesses. Perry also
manufactures a segment of the Jaclyn Smith regular sportswear line for K-Mart.
Perry's manufacturing facilities are located in North Carolina, El Salvador and
Honduras. These plants produce a majority of the apparel sold by Perry. The
balance of the apparel sold by Perry is produced by independent factories and
contractors in the United States, Latin America and South America.
Perry manufacturing operations consist of designing, cutting, sewing and
packaging. The principal raw materials for Perry apparel consist of natural
fibers, synthetics and blends. Fabric is transported to a cutting operation,
which is performed on both a manual and computer-aided basis, during which
specific garment parts such as sleeves, collars, cuffs and bodies are cut for
sewing.
The cut parts are in most cases distributed to operators operating individual
sewing machines on incentive piece rates. To increase efficiency, each operator
specializes in particular functions, such as sewing waistbands on skirts.
Various sewing threads, stitches, trims and colors are mixed and matched to
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achieve the desired style. For certain items, a label bearing the customer's
brand name or desired logo is sewn into the garment. Finished garments are then
inspected, folded and packaged based on customer requirements.
Perry has improved its manufacturing process by utilizing micro-processor
controlled pressing machinery which can provide the exact amount of heat,
moisture, dwell and vacuum required. Other improvements utilized in Perry's
operations include micro-processor controlled sewing machines, curing ovens,
warehouse bagging, computer marking and product movement aids.
All of the products of ECI are manufactured overseas by independent factories
each selected by ECI or its agents. In order to qualify as a manufacturer for
ECI's products, factories must satisfy strict quality and delivery standards
required by ECI. ECI presently imports most of its products from Hong Kong,
Korea, China, India, Philippines, Bangladesh, Sri Lanka, Indonesia, and the
U.A.E. Foreign independent manufacturers contract with ECI to supply apparel
made pursuant to design samples and specifications. To ensure quality, ECI
supervises production at these factories at various stages throughout the
production process with ECI's own or its agent's own quality control teams.
Customers, Marketing and Distribution
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Perry sells most of its products to mass merchandisers, the three largest of
which account for approximately 89.0% of Perry's total revenues for the fiscal
year ended February 3, 1996 (which individually accounted for 53.5%, 21.1% and
14.4% of such revenues, respectively). ECI sells its products primarily to
department and specialty stores. ECI's largest customer accounts for 10.9% of
its total revenues.
On a consolidated basis, sales to the three largest customers represented
approximately 33.6%, 17.4% and 10.7%, respectively, of the Company's revenues
for the fiscal year ended February 3, 1996. Although ECI and Perry have
traditionally had strong relationships with these customers, the loss of any of
these customers could have a material adverse effect on the Company.
Competition
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The industries in which Perry competes are highly competitive and are
characterized by a high degree of fragmentation and the absence of brand names.
Other than consumer acceptance of the fabrics and designs of the products, Perry
competes primarily on the basis of its reliability and its ability to deliver
quality products on a timely basis at competitive prices. Perry has both U.S.
and offshore operations.
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By contrast, the products of ECI are sold to a more upscale consumer market
which places a premium on identifiable brand names. ECI competes with other
apparel manufacturers based on style, quality, value and brand recognition.
Materials and Supplies
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The principal raw materials used by the Company in manufacturing apparel are
fabrics made from natural fibers, leather, synthetics and blends. In addition,
the Company uses yarn, thread and accessories such as buttons, snaps, elastic
and zippers which are purchased from many suppliers. The Company believes the
raw materials they are currently using are readily available at comparable
prices and quality from sources other than those now being used.
Trademarks
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The Company has registered a variety of trade names, service marks and
trademarks (the "Trademarks") with the United States Patent and Trademark Office
renewable for as long as the use thereof continues. The Company considers
certain of its Trademarks to be of material importance to its business and
actively defends and enforces such Trademarks.
Employees
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As of February 3, 1996, the Company and its subsidiaries had approximately 3,737
full and part-time employees (including approximately 3,609 for Perry and 128
for ECI), none of whom are covered by collective bargaining agreements except
for approximately 10 employees at ECI's new New Jersey warehouse. The Company
regards its employee relations as satisfactory.
Foreign Sales
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The Company does not have significant sales to customers in foreign countries.
Segment Data
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The Company is in the single industry of designing, manufacturing, importing and
distributing apparel.
Financing
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The Company's principal long-term indebtedness includes the debt obligations of
the Company to Heller Financial, Inc. ("Heller"), BNY Financial Corporation
("BNY") and AIF-II, L.P., a Delaware limited partnership and an affiliate of
Apollo Advisors, L.P. ("AIF II"). On October 27, 1995, and more recently on May
1, 1996, the loan agreements relating to such
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indebtedness were amended to provide less restrictive financial covenants and to
defer certain principal and interest payments as described below.
o On June 30, 1993, the Company entered into a Senior Secured Note
Agreement with Heller pursuant to which Heller received a note in the
original principal amount of $50,857,148, to be repaid over seven
years, with interest at 2% over prime. Heller retained a pledge of the
stock (but not the assets) of certain of the Company's subsidiaries:
Europe Craft Imports, Inc. ("ECI"), Perry Manufacturing Company
("Perry") and Above the Belt, Inc. ("ATB"). Heller has agreed to loan
to the Company the amounts necessary to pay the quarterly interest
payments under such note due for the period May 6, 1996 through
November 4, 1996 inclusive, which additional loan will be due February
3, 1997. Heller's remaining note of $49,857,000 is required to be paid
on the following schedule, which was amended on May 1, 1996 to be more
advantageous to the Company. Additionally, the Company must make annual
prepayments equal to 50% of certain "excess cash flow" for the
preceding four fiscal quarters.
DATE AMOUNT
June 3, 1997 ................... $4,000,000
November 3, 1997 ............... 7,000,000
November 3, 1998 ............... 10,000,000
November 3, 1999 ............... 10,000,000
November 3, 2000 ............... 18,857,000
o On June 30, 1993, the Company entered into a Series A Junior Secured
Note Agreement with BNY, pursuant to which BNY received a nine-year, $7
million note, bearing interest at a rate of 7% per annum. BNY shares
with AIF II a second lien on Heller's collateral. With the consent of
BNY, the quarterly interest payments under such note due for the period
May 6, 1996 through February 3, 1997 inclusive will not be made in cash
and instead will be added to the principal of such note. BNY's note
is required to be paid in six annual installments, payable on November
3 of each year commencing in 1997 as follows:
YEAR AMOUNT
1997 ......................... $ 300,000
1998 ......................... 300,000
1999 ......................... 500,000
2000 ......................... 600,000
2001 ......................... 1,100,000
2002 ......................... 4,200,000
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o On June 30, 1993, the Company entered into a Series B Junior Secured
Note Agreement with AIF II pursuant to which AIF II received a $7.5
million note bearing interest at 13% per annum. AIF II shares with BNY
a second lien on Heller's collateral. With the consent of AIF II, the
quarterly interest payments under such note due for the period February
5, 1996 through February 3, 1997 inclusive will not be made in cash and
instead will be added to the principal of such note. AIF II's note is
required to be paid in two equal installments payable on November 3 in
each of 2001 and 2002.
Once the Heller obligations are paid in full, AIF II and BNY will share
in mandatory prepayments based upon 50% of certain "excess cash flows".
The Company's agreements with Heller, BNY and AIF II contain certain affirmative
and negative covenants on the operation of the Company. The Company has in the
past and recently sought and obtained amendments to certain of these covenants
to adjust to seasonal and other performance factors and the Company may seek
additional amendments in the future.
Implementation of 1993 Plan of Reorganization
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On June 30, 1993 ("Effective Date"), the Plan of Reorganization of the Company
and its wholly-owned subsidiary, Marlene Industries Corporation ("Marlene"),
under Chapter 11 of the U.S. Bankruptcy Code (the "Plan") became effective
following confirmation by the U.S. Bankruptcy Court for the Southern District of
New York.
Pursuant to the Plan, (i) Apollo Aris Partners, L.P., a Delaware limited
partnership, an affiliate of AIF II ("Apollo Aris"), invested $1 million in the
Registrant in exchange for 5,804,820 shares of the Company's Common Stock, which
shares constitute approximately 48.8% of the Company's capital stock issued and
outstanding as of the Effective Date, (ii) AIF II invested $6.5 million in the
Company in exchange for a promissory note in the principal amount of $7.5
million issued by Registrant,and (iii) the Company entered into the Senior
Secured Note Agreement with Heller, the Series A Junior Secured Note Agreement
with BNY and the Series B Junior Secured Note Agreement with AIF II, as
described above in "Financing".
On October 11, 1991, Marlene and the Company entered into a Composition
Agreement with the Unofficial Committee of Unsecured Creditors of Marlene
providing for an out-of-court common law composition and extension agreement for
the benefit of Marlene's trade creditors. On September 6, 1995, the Company and
Marlene completed all required payments under the Composition Agreement.
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Trade Legislation
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The North American Free Trade Agreement ("NAFTA"), which went into effect during
1993, affords certain reduced customs duties and related benefits for products
manufactured in Mexico and imported into the United States. While the Company
cannot predict the ultimate competitive impact of NAFTA on its operations, it
could in the long term make Perry's Central American production (at its plants
in El Salvador, Honduras and Costa Rica) less price competitive unless the U.S.
NAFTA legislation is amended to extend such trade benefits to these Central
American nations.
The 1993 General Agreement on Trade and Tariffs ("GATT"), provides trade
benefits to certain countries, such as China, which have the least costly
apparel production, to be phased in over ten years. While the Company cannot
predict the ultimate competitive impact of the 1993 GATT on its operations, it
may be potentially disadvantageous to the Company over the long term, in that
Perry's production is in the U.S. and in Central American nations not able to
utilize these trade benefits. This impact might be reduced by customer
preferences for shorter lead times offered by Perry's production in these
locations compared to Asian sources.
Item 2. Properties.
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Perry owns four plants in North Carolina and Virginia, one plant in Costa Rica,
and three plants in El Salvador, with an aggregate of approximately 477,000
square feet of space, and leases an aggregate of approximately 242,000 square
feet of manufacturing and warehousing space in North Carolina, El Salvador and
Honduras. Perry also leases an 11,200 square foot warehouse and distribution
center in Miami and sales offices with aggregate square footage of approximately
13,500 in New York City and Dallas. Perry has restructured its Costa Rica
facility whose production capacity has been wound down and continues to function
as a warehouse; Perry continues to evaluate the feasibility of a continued
presence in this location.
ECI has approximately 17,400 square feet of leased space for its executive and
sales offices and showrooms in New York, and also leases approximately 29,600
square feet of space in New Jersey which serves as its general business,
accounting and management information service headquarters. In March, 1996, ECI
leased an additional 120,000 square feet of warehouse space adjacent to its New
Jersey offices, consolidated warehouse and distribution functions at this
location, and substantially reduced use of a
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Los Angeles independent warehouse. ECI has three retail outlet stores in Ohio,
Virginia, and Tennessee with an aggregate of approximately 5,200 square feet.
Aris Corporate's executive offices were co-located with ECI's executive offices
in New York on December 1, 1995. Aris Corporate's former New York office lease
of approximately 3,000 square feet was subleased on April 1, 1996 for the
remainder of its term through January 31, 1998.
During the fiscal year ended February 3, 1996, Perry sold a small plant in North
Carolina and Marlene sold its only remaining facility, located in Tennessee.
Until 1981 the Company operated a department store in Akron, Ohio, and since
that time continued to sublease 115,000 square feet of space in a shopping
center. On May 1, 1996, the Company sold this leasehold interest.
Most of the Company's owned manufacturing and warehousing facilities are
encumbered by mortgages. Most leases have renewal options and are subject to
increase based upon a measure of inflation such as the Consumer Price Index. See
the consolidated financial statements filed in item 8 with this Annual Report
for additional information.
Item 3. Legal Proceedings.
The Company and/or its subsidiaries, in the ordinary course of their business,
from time to time may be the subject of, or a party to, various legal actions
involving private interests. While the Company cannot guaranty the outcome of
any litigation, the Company and/or its subsidiaries believe that any ultimate
liability arising from any such actions which may be pending will not have a
material adverse effect on its consolidated financial statements at February 3,
1996.
Item 4. Submission of Matters to a Vote of Security Holders.
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None during the fourth quarter of fiscal year ended February 3, 1996.
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PART II
Item 5. Market for Registrant's Common Equity
and Related Security Holder Matters.
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The Company's Common Stock is traded in the over-the-counter (OTC) market under
the symbol AISI (formerly ARIN). Set forth below are the high and low bid prices
for a share of the Common Stock for each of the fiscal quarters to date of the
current fiscal year and for each fiscal quarter during the prior two fiscal
years, as reported in published financial sources. Pursuant to the terms of the
Company's loan agreements with Heller, BNY and AIF II, the Company has agreed
not to declare or pay any dividends (other than stock dividends) on the Common
Stock without the prior written consent of such lenders. The Company has not
paid any dividends over the last two fiscal years. The price quotations set
forth below reflect inter-dealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions.
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HIGH LOW
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Fiscal Year Ending
January 28, 1995
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First Quarter $ 2.00 $ 1.00
Second Quarter 1.625 1.00
Third Quarter 1.938 1.00
Fourth Quarter 1.25 .625
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Fiscal Year Ending
February 3, 1996
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First Quarter .75 .50
Second Quarter .625 .125
Third Quarter .25 .0625
Fourth Quarter .125 .01
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Fiscal Year Ending
February 1, 1997
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First Quarter .12 .0625
(through date of
April 19, 1996)
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There were approximately 4,227 shareholders of record as of April 19, 1996 and
the closing bid price of a share of the Common Stock was $.0625 on April 19,
1996.
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Item 6. Selected Financial Data.
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<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA - ARIS INDUSTRIES, INC.
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(In thousands except for per share data)
<CAPTION>
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52-53 WEEKS ENDED
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2/3/96 1/28/95 1/29/94 1/30/93 2/01/92
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<S> <C> <C> <C> <C> <C>
Net revenues $173,990 $188,143 $192,583 $193,241 $237,021
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Income (loss) from
continuing operations
before discontinued
operations and
extraordinary items (8,057) 2,216 1,998 (17,285) (7,050)
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Net income (loss) (8,057) 2,216 31,206 (16,629) (4,729)
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Primary income (loss) per
share before discontinued
operations and
extraordinary items per
common and common
equivalent share (.68) 0.19 0.21 (6.18) (2.56)
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Primary net income (loss)
per share (.68) 0.19 3.29 (5.94) (1.72)
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Total assets 93,928 98,932 97,481 100,173 111,139
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Long-term obligations 66,505 64,239 66,973 51,112 6,768
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Working capital/
(deficiency) 30,540 34,979 37,128 (16,483) (55,677)
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Stockholders'
equity/(deficiency) 564 8,611 6,544 (27,612) (10,809)
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</TABLE>
1. No common stock dividends were paid during any of the years presented.
2. Included in the $(7,050) (loss) from operations before discontinuing
operations and before extraordinary items for the 52 weeks ended February 1,
1992 is pretax (loss) of $(700), relating to the restructuring of its Marlene
and RJMJ, Inc. ("RJMJ") subsidiaries and disposal of certain operating units.
In addition, the January 30, 1993 period reflects a goodwill writeoff of
$7,960 and reorganization expenses of $600 in the loss from continuing
operations before discontinued operations and extraordinary items.
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3. Working capital deficiency at January 30, 1993 included $53,100,000 of
pre-petition liabilities subject to compromise that were classified as
long-term liabilities on the Company's balance sheet as of January 30, 1993
(at which time the Company was in Chapter 11), such liabilities were
previously classified as current liabilities.
4. All per share data have been restated for comparative purposes to reflect
one-for-ten reverse stock split effective June 30, 1993.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
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Introduction
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The following analysis of the Company's financial condition and results of
operations should be read in conjunction with the consolidated financial
statements, including the notes thereto, and the "Selected Financial Data"
included on pages F-1 through F-26 and page 13, respectively, of this Annual
Report.
Forward Looking Statements
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Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the SEC:
o The apparel industry in general is volatile and unpredictable due to
cyclical and seasonal swings caused in part by consumer buying
patterns.
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o During the past fiscal year and at the current time, there is an
extremely adverse environment in the retail apparel industry, which is
likely to continue to impact the Company, and increase the risk of
reduced orders, loss of particular customers or particular selling
programs of customers, shorter production lead times, reduced margins
and earlier and more extensive borrowing against working capital
lines.
o Trade legislation such as NAFTA and GATT could make the production
sources of the Company's Perry subsidiary, located in the United
States and in Central America, less price competitive.
o The Company's ECI subsidiary, which sells primarily outerwear, is
particularly impacted by unusually warm weather or late arrival of
cold weather.
o Interest on the Company's corporate and subsidiary level debt
obligations could increase substantially with changes in the prime
lending rate.
o Virtually all of the Company's corporate cash flow is required to
service its principal long-term debt obligations.
o While in the past two fiscal years, the Company has been able to
obtain the necessary waivers and amendments, and the Company considers
its relationship with its lenders to be good, there are no assurances
that the Company will continue to obtain amendments to its secured
debt obligations to adjust financial covenants and debt service
schedules to offset the impact of the adverse retail apparel
environment and other adverse factors affecting the Company's
financial results.
o Depending upon the performance of the Company's operating
subsidiaries, which in turn are dependent on a number of factors,
including the retail apparel industry environment, the Company may be
required, in the future, to obtain additional waivers under its
existing corporate-level secured debt obligations and/or its
subsidiary working capital lines. There are no assurances that the
Company will be able to obtain such reductions in its debt service
requirements.
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o There has been a substantial consolidation of formerly independent
major department store chains such that the consolidated customers
exert greater influence on suppliers such as the Company, resulting in
greater demands for price reductions, advertising support, returns and
markdowns of apparel products.
o Numerous retail organizations in the apparel industry have undergone
Chapter 11 reorganizations, bankruptcy liquidations, downsizing and/or
cessation of business, and others have suffered credit difficulties
whereby factors delay or deny credit to such retail organizations. As
a result, the Company may experience difficulty in obtaining factoring
and credit approval on certain customers.
o Although the Company's ECI and Perry subsidiaries market a wide
variety of products, they must compete with other apparel suppliers
which specialize in particular niche products which may have greater
resources, reputation and efficiencies in such particular product
areas.
o The substantial portion of the Company's products are manufactured
overseas, subjecting the Company to the generic risks of import and
delivery from distant locations, delays due to U.S. or foreign
government regulation and controls, and customs and transportation
difficulties. For example, at the present time, the United States is
proposing a 100% tariff on various categories of Chinese imports to
the United States, including apparel. Should these tariffs go into
effect and should they include outerwear, the Company would be
materially adversely affected.
o ECI imports its products primarily from manufacturing plants which it
does not own. While ECI through its agents exercises quality control
over such factories, there are inherent risks in such manufacturing
which can result in delivery delays and ultimately in cancellation of
orders by ECI's customers.
o Increasingly, retail customers of the Company are ordering their
products closer to the actual delivery date and selling season. In
order for the Company to deliver such products on time, it must often
now commit to production in advance of obtaining hard orders from its
retail customers.
o There is an increasing trend by retail customers to develop their own
private label apparel lines to compete with products supplied by
importers and manufacturers such as the Company.
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o The Company's apparel products are sold on the main selling floor
areas of its retail store customers and are facing increasing
competition from such customer's expanded dedication of retail floor
space to "designer collections".
FINANCIAL CONDITION
Working Capital and Liquidity
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As of February 3, 1996, the Company had working capital of approximately
$30,540,000 compared to $34,979,000 at January 28, 1995. The decrease in working
capital is due to the establishment of accrued liabilities at ECI relating to
its repositioning program and additional borrowings at the ECI and Perry level
due to the adverse retail environment, offset by a decrease in current
maturities of debt to Heller as a result of amendment of the loan agreements.
(See "Financing" on page 7.)
Cash used in operating activities during the fiscal year ended February 3, 1996
("fiscal 1995") was $4,458,000 as compared to $2,870,000 of cash used in
operating activities during the fiscal year ended January 28, 1995 ("fiscal
1994"). The increase in funds used in operating activities in fiscal 1995 was
due primarily to the operating loss generated by the Company offset by the
decrease in outstanding receivables at Perry along with the increase in accrued
expenses at ECI as part of its repositioning program.
Cash used in investing activities during fiscal 1995 was $962,000 as compared to
$4,441,000 of cash used in investing activities during fiscal 1994. The change
is due to decreases in capital expenditures during the 1995 fiscal year compared
to the 1994 fiscal year in which there was a purchase by an El Salvador
subsidiary of Perry Manufacturing Company of three manufacturing plants it
formerly leased. Cash used in investing activities in the 1995 fiscal year
reflects proceeds from the sale of a certain small Perry plant in North
Carolina.
Cash provided by financing activities during fiscal 1995 was $4,477,000 as
compared to $422,000 of funds used in financing activities during fiscal 1994.
This increase is primarily due to increases in short term borrowings at Perry
and ECI.
-17-
<PAGE>
Under the debt agreements of the operating subsidiaries, net assets of the
subsidiaries in the aggregate amount of $37,691,000 are restricted to the
subsidiaries' use and cannot be upstreamed to the parent. At this time, the
Company believes that its current cash reserves, together with available credit
facilities and cash flow from operations, will be sufficient for the Company's
capital expenditure program and amended debt service requirements, as well as
on-going working capital needs, for the fiscal year ending February 1, 1997.
Debt Service and Capital Needs
- ------------------------------
The Company's principal long-term indebtedness includes the debt obligations of
the Company to Heller Financial, Inc. ("Heller"), BNY Financial Corporation
("BNY") and AIF-II, L.P., a Delaware limited partnership and an affiliate of
Apollo Advisors, L.P. ("AIF II"). Most recently on May 1, 1996, the loan
agreements relating to such indebtedness were amended to provide less
restrictive financial covenants and to defer certain principal and interest
payments as described below.
o On June 30, 1993, the Company entered into a Senior Secured Note
Agreement with Heller pursuant to which Heller received a note in the
original principal amount of $50,857,148, to be repaid over seven
years, with interest at 2% over prime. Heller retained a pledge of the
stock (but not the assets) of certain of the Company's subsidiaries:
Europe Craft Imports, Inc. ("ECI"), Perry Manufacturing Company
("Perry") and Above the Belt, Inc. ("ATB"). Heller has agreed to loan
to the Company the amounts necessary to pay the quarterly interest
payments under such note due for the period May 6, 1996 through
November 4, 1996, inclusive, which additional loan will be due February
3, 1997. Heller's remaining note of $49,857,000 is required to be paid
on the following schedule, which was amended on May 1, 1996 to be more
advantageous to the Company. Additionally, the Company must make annual
prepayments equal to 50% of certain "excess cash flow" for the
preceding four fiscal quarters.
DATE AMOUNT
June 3, 1997 .................... 4,000,000
November 3, 1997 ................ 7,000,000
November 3, 1998 ................ 10,000,000
November 3, 1999 ................ 10,000,000
November 3, 2000 ................ 18,857,000
-18-
<PAGE>
o On June 30, 1993, the Company entered into a Series A Junior Secured
Note Agreement with BNY, pursuant to which BNY received a nine-year,
$7 million note, bearing interest at a rate of 7% per annum. BNY
shares with AIF II a second lien on Heller's collateral. With the
consent of BNY, the quarterly interest payments under such note due
for the period May 6, 1996 through February 3, 1997 inclusive, will
not be made in cash and instead will be added to the principal of such
note. BNY's note is required to be paid in six annual installments,
payable on November 3 of each year commencing in 1997 as follows:
YEAR AMOUNT
1997 ......................... $ 300,000
1998 ......................... 300,000
1999 ......................... 500,000
2000 ......................... 600,000
2001 ......................... 1,100,000
2002 ......................... 4,200,000
o On June 30, 1993, the Company entered into a Series B Junior Secured
Note Agreement with AIF II pursuant to which AIF II received a $7.5
million note bearing interest at 13% per annum. AIF II shares with BNY
a second lien on Heller's collateral. With the consent of AIF II, the
quarterly interest payments under such note due for the period
February 5, 1996 through February 3, 1997 will not be made in cash and
instead will be added to the principal of such note. AIF II's note is
required to be paid in two equal installments payable on November 3 in
each of 2001 and 2002.
Once the Heller obligations are paid in full, AIF II and BNY will share
in mandatory prepayments based upon 50% of certain "excess cash flows".
The Company's agreements with Heller, BNY and AIF II contain certain affirmative
and negative covenants on the operation of the Company. The Company has in the
past and recently sought and obtained amendments to certain of these covenants
to adjust to seasonal and other performance factors and the Company may seek
additional amendments in the future.
Capital Expenditures
- --------------------
Capital expenditures were $1,501,000 for fiscal 1995 compared to $4,582,000 in
fiscal 1994, during which there was a purchase, by an El Salvador subsidiary of
Perry, of three manufacturing plants it formerly leased.
-19-
<PAGE>
Primarily all other capital expenditures were for equipment acquisitions by
Perry and ECI.
Results of Operation
- --------------------
The 1995 Fiscal Year: The Company reported a net loss of $8,057,000 for the 1995
fiscal year as compared to net income of $2,216,000 for the 1994 fiscal year.
Decreases in net income were experienced at both Perry and ECI.
The decrease in net income at Perry was due to a decrease in sales of $4,102,000
which caused a related decrease in gross profit. In addition, margins were
adversely affected due to a restructuring charge of $430,000 as a result of
transferring sewing capacity from Perry's Costa Rica subsidiary to its
subsidiaries located in El Salvador and Honduras as well as additional interest
costs of $585,000 due to increases in the prime rate from the prior year and
additional borrowings from Perry's factors.
At ECI, the decrease in net income was due to a general slowdown in the retail
apparel environment resulting in a reduction in sales of $10,051,000 which
caused a related decrease in gross profit. In addition, during the 1995 fiscal
year, ECI was impacted by approximately $3,100,000 of costs incurred as part of
a comprehensive repositioning program. Interest costs increased by $450,000 for
the same reasons as at Perry described above. ECI was further negatively
impacted by a California public warehouse utilized by ECI having encountered
severe financial difficulties which required ECI to find alternative warehousing
which increased warehousing costs.
Revenues
- --------
The Company's revenues decreased from $188,143,000 in fiscal 1994 to
$173,990,000 in fiscal 1995. This decrease of $14,153,000 or 7.5% is
attributable to a decrease in merchandise sales at both Perry and ECI. The
revenue decrease at Perry of $4,102,000 from fiscal 1994 to fiscal 1995 was
primarily attributable to the loss of a customer which ceased operations and had
contributed $10,390,000 in sales during fiscal 1994 and the loss of certain
reorders under existing successful programs which were not placed as a result of
the difficult retail environment. These sales decreases were partially offset by
an increase of $2,200,000 in sales to a catalog customer and an increase of
$5,500,000 in sales to a major chain for two new programs. Perry's sales include
a gain of $350,000 relating to a sale of a U.S. property.
The decrease in merchandise sales at ECI of $10,051,000 from fiscal 1994 to
fiscal 1995 was primarily due to the general
-20-
<PAGE>
slowdown of the retail apparel environment. In addition, ECI merchandise sales
were impacted by the ongoing consolidation in the retail industry along with the
loss of a sportswear program with a major chain.
Cost of Sales
- -------------
The cost of sales of the Company represented 77.8% and 80.5% of revenues for the
fiscal years 1994 and 1995 respectively. This percentage increase was due to
lower margins at both Perry and ECI. At Perry, margins were adversely affected
by the unusually adverse retail environment that caused customers to shift
orders to future periods which in turn caused some unfavorable manufacturing
variances, in addition to the loss of a customer which accounted for $10,390,000
of sales during fiscal 1994 at a significant gross margin percentage. The
wind-down of Perry's Costa Rican subsidiary and subsequent transfer of sewing
operations to El Salvador and Honduras resulted in closure and start up costs
that impacted cost of sales. At ECI, margins were affected by the general
slowdown in the retail environment, sale of slow moving inventory and continued
pressure to reduce margins by major retailers.
Selling and Administrative
- --------------------------
Selling and administrative expenses increased $353,000 or 1.1% from fiscal 1994
to 1995. Selling and administrative expenses as a percentage of revenue were
18.4% as compared to 16.8% for the prior year. The percentage increase for the
1995 fiscal year as compared to the same period last year was due to a
significant decrease in sales that could not be offset by a corresponding
decrease in expenses due to the fixed nature of much of the Company's expense
structure.
Perry's selling and administrative expenses increased due to Perry, whose
manufacturing base is in the Caribbean Basin, opening a warehouse and
distribution center in Miami during fiscal 1995. This facility cost, although an
increase in selling and administrative expense, should translate into greater
savings by reducing the cost of goods sold. This facility cost increase has been
offset by the gain on the sale by Perry of a manufacturing facility in North
Carolina. Perry has also added two new salesmen who have strong ties with major
retailers which should improve sales.
ECI's selling and administrative expense increased during fiscal 1995, as
compared to the same period last year, due to the public warehouse being used by
ECI in California having encountered financial difficulties, which required ECI
simultaneously to utilize a second warehouse while it shipped
-21-
<PAGE>
and removed goods from the troubled warehouse. This increased warehouse expenses
along with legal and professional fees necessary to terminate ECI's relationship
with the original warehouse. In addition, ECI settled a lawsuit, which incurred
legal fees and other expenses.
Interest and Debt Expense
- -------------------------
Interest and debt expense increased by $1,832,000 or 23.5% from $7,812,000 in
fiscal 1994 to $9,644,000 in fiscal 1995. This increase is primarily due to
increases in the prime lending rate during fiscal 1995 by as much as 300 basis
points from the rates during fiscal 1994 for both Aris', Perry's and ECI's
variable rate debt. In addition, due to the softness in the retail environment,
Perry and ECI had to borrow earlier in fiscal 1995 from their lenders than for
the comparable period in fiscal 1994, resulting in higher average borrowing
levels.
The 1994 Fiscal Year
- --------------------
The Company reported net income of $2,216,000 for the 1994 fiscal year as
compared to net income of $31,206,000 for the 1993 fiscal year, which included
an extraordinary gain of $29,208,000 due to the forgiveness of indebtedness on
the Effective Date (June 30, 1993) of the Company's Plan of Reorganization and
on the reorganization of its RJMJ subsidiary effected December 21, 1993.
Operating income of the Company in fiscal 1994 was $10,171,000 compared to
operating income of $9,326,000 for the 1993 fiscal year. This favorable increase
in operating income was due to greater profit margins at Perry due to its
improved financial position and manufacturing efficiencies as well as the
programs implemented by the Company in order to increase profitability,
partially offset by lower profitability at ECI. The reduction in profits at ECI
was due to the unseasonably warm weather throughout the U.S. which adversely
affected retailers and fall and winter related apparel companies including
outerwear companies. ECI's revenues and profits were expected to and did
continue to be impacted during the first half of the fiscal year which commenced
January 29, 1995 by the warm weather difficulties affecting the outerwear
apparel industry.
Revenues
- --------
The Company's revenues decreased from $192,583,000 in fiscal 1993 to
$188,143,000 in fiscal 1994. This decrease of $4,440,000 or 2.3% is attributable
to a decrease in merchandise sales at Perry of $6,120,000 from fiscal 1993 to
fiscal 1994, offset by an increase in merchandise sales at ECI of $4,203,000
from fiscal 1993 to fiscal 1994. Above the Belt, Inc. ("ATB"), a subsidiary
whose operations were phased out in the second quarter of the 1993 fiscal year,
had no
- 22 -
<PAGE>
sales for the 1994 fiscal year compared to $1,511,000 for the 1993 fiscal year.
Excluding ATB sales, the Company's revenue decreased by $2,929,000 or 1.5% from
fiscal 1993 to fiscal 1994. The revenue decrease at Perry was primarily
attributable to a program which was not repeated this year by a particular
customer, along with Perry, due to its improved financial position, declining to
take sales at reduced margins. This decrease was offset by revenue increases at
ECI caused by a change in private label customers opting in fiscal 1994 to have
ECI perform complete sourcing, financing, production and distribution for their
private label programs. In fiscal 1993, ECI only acted as sourcing agent for
some of these private label customers and oversaw production of merchandise for
a commission, in which case ECI has no ownership or risk in the inventory.
Cost of Sales
- -------------
The cost of sales of the Company represented 77.8% and 77.6% of revenues for the
fiscal years 1994 and 1993 respectively. This relatively flat cost of sales
resulted from higher margins at Perry due to its improved financial position and
manufacturing efficiencies, offset by lower margins at ECI due to the
unseasonably warm weather throughout the U.S., which adversely affected
retailers and fall and winter related apparel companies including outerwear
companies.
Selling and Administrative
- --------------------------
Selling and administrative expenses decreased $2,176,000 or 6.4% from fiscal
1993 to 1994. The selling and administrative expenses of ECI and Perry
represented 16.8% of revenues as compared to 17.6% for the prior year. The
reduction in these expenses is attributable to cost reduction programs
Company-wide and the phasing out of ATB.
Interest and Debt Expense
- -------------------------
Interest and debt expense for the year increased by $1,131,000 or 16.9% from
$6,681,000 to $7,812,000. The increase is primarily due to a full year of
interest payable on the Company's long-term debt to BNY and Apollo during fiscal
1994, compared to a partial year of interest payable in fiscal 1993 during which
interest was not accrued on such debt until the Effective Date (June 30, 1993)
of the Company's Plan of Reorganization. In addition, there were five increases
in the prime lending rate during fiscal 1994. This was partially offset by a
reduction in interest at Perry during fiscal 1994 due to its vastly improved
financial condition.
- 23 -
<PAGE>
Extraordinary Items
- -------------------
During fiscal 1993 the Company realized an extraordinary gain of $26,025,000
relating to the debt restructuring as a result of the implementation of the
Company's Plan of Reorganization; an extraordinary gain of $475,000 relating to
the Marlene Composition Agreement; and an extraordinary gain of $2,708,000
resulting from the implementation of the Plan of Reorganization of RJMJ, Inc., a
wholly owned subsidiary of the Company ("RJMJ"). The $26,025,000 realized on the
Company's Plan of Reorganization was due to the forgiveness of debt and accrued
interest on various obligations which were settled at less than their recorded
value. Similarly, $2,708,000 realized on RJMJ's Plan of Reorganization was due
to forgiveness of debt and other obligations which were settled at less than
their recorded value. These gains are separately identified as an extraordinary
item in the Company's consolidated statements of operation for fiscal 1993. As a
result of the above extraordinary gains, the Company lost approximately
$12,000,000 of net operating loss carryforwards, resulting in approximately
$94,000,000 of net operating loss carryforward remaining at January 29, 1994.
Availability of Net Operating Loss Carryforwards
- ------------------------------------------------
The Company has approximately $99,000,000 of Net Operating Losses at February 3,
1996. Any significant loss or restriction on the use of the Company's net
operating loss carryforwards could have a material adverse effect upon the
Company's future earnings and resulting cash flows and could limit the Company's
ability to service its debt obligations. The conclusions drawn by the Company in
monitoring and calculating the requirements of New Section 382 of the Internal
Revenue Code for activity subsequent to the Company's prior 1986 restructuring
involve many complex and technical questions. The Internal Revenue Service could
disagree with the Company's position and should such a dispute arise it would be
difficult to predict the outcome.
The Company's Plan of Reorganization should qualify under New Section 382(l)(5)
of the Internal Revenue Code and therefore should preserve a substantial portion
of the net operating loss carryforward of the Company.
For the fiscal year ended February 3, 1996, the Company incurred a tax basis net
operating loss of approximately $4,000,000, which can be carried forward to
offset future taxable income.
- 24 -
<PAGE>
Reduction of Indebtedness and Effect on NOL Carryforwards
- ---------------------------------------------------------
As a result of the implementation of the Company's Plan of Reorganization on
June 30, 1993, and the reorganization of its RJMJ subsidiary effected December
21, 1993, the Company recognized an extraordinary gain of $29,208,000 relating
to debt restructuring during the fiscal year ended January 29, 1994, and all
prior defaults on indebtedness were discharged and eliminated.
When debt is discharged in a Chapter 11 case, no ordinary income to the debtor
results. Instead, certain tax attributes otherwise available to the debtor are
reduced, in most cases by an amount equal to the adjusted issue price of the
indebtedness forgiven. As a result of the extraordinary gain recognized by the
Company due to implementation of the Plan, the Company's net operating loss
carryforwards were decreased by approximately $12,000,000, with approximately
$94,000,000 remaining at January 29, 1994. Tax attributes need not, however, be
reduced to the extent that payment of the indebtedness forgiven would have given
rise to a deduction. Tax attributes are generally subject to reduction in the
following order: (i) net operating losses for the current year ("NOLs") and NOL
carryforwards; (ii) general business credit carryforwards; (iii) capital losses
and carryforwards; (iv) the tax basis of the debtors' depreciable and
nondepreciable assets, but not in an amount greater than the excess of the
aggregate tax bases of the property held by the debtor immediately after the
discharge over the aggregate of the debtor's liabilities immediately after the
discharge; and (v) foreign tax credit carryforwards. The Company's most
significant tax attributes subject to reduction are NOL carryforwards. Attribute
reduction occurred after the determination of tax for the year ending January
29, 1994, which includes the Effective Date. To the extent the stock for debt
exception applies to stock issued in exchange for debt, tax attributes are not
reduced.
Ownership Changes and Effect on NOL Carryforwards
- -------------------------------------------------
The Company believes that it and its consolidated group currently have
substantial NOL carryforwards. (See Note 14 to the financial statements included
in this Annual Report). Sections 382 and 383 of the Internal Revenue Code of
1986, as amended ("Code"), and Temporary and Proposed Treasury regulations
implementing those sections, severely limit the amount of income each year that
a loss corporation may offset with its NOL and credit carryforwards after
certain changes in ownership of its stock. The Company experienced an "ownership
change" for purposes of Sections 382 and 383 of the Code on
- 25 -
<PAGE>
the Effective Date. However, the Section 382 and Section 383 limitations should
not apply to the Company's and Marlene's reorganization pursuant to the Plan
because immediately after the Effective Date at least 50% of the Company's
Common Stock was held by pre-reorganization stockholders of the Company and
creditors of the Company that had held their claims for at least 18 months prior
to the filing date of the Chapter 11 proceeding, by virtue of their status as
shareholders or creditors, respectively.
Although the general Section 382 and Section 383 limitations will not apply, the
Company's tax attributes were reduced, in addition to the attribute reductions
described above, by half of the income excluded under the "stock-for-debt
exception." In addition, the Company's pre-change losses and excess credits were
reduced by the amount of interest paid or accrued by the Company during the
three full taxable years prior to the taxable year ending January 29, 1994 and
during the portion of the taxable year ending January 29, 1994 that includes the
Effective Date, on its indebtedness exchanged for Common Stock.
Section 269
- -----------
If a group acquires control of a corporation for the principal purpose of
evasion or avoidance of Federal income tax by securing the benefit of a
reduction or credit it might otherwise not enjoy, that benefit may be
disallowed. The determination of the principal purpose of an acquisition is
based on all the facts and circumstances surrounding the acquisition. However, a
regulatory presumption that certain acquisitions in bankruptcy proceedings have
as their principal purpose the evasion or avoidance of Federal income tax should
not apply to Company's reorganization, because some members of the Company's
consolidated group will continue to carry on their business after the
reorganization.
Effect of Inflation
- -------------------
The Company does not believe that inflation has had any material impact on its
operating results for any of the fiscal periods discussed in the management's
discussion and analysis.
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board (FASB) has issued Statement No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-lived Assets to be
Disposed of. The effect on the Company of implementing this new standard is not
expected to be material.
The FASB also issued Statement No. 123, Accounting for Stock-Based Compensation,
which encourages, but does not require, employers to adopt a fair value method
of accounting for employee stock-based compensation, and which requires
increased stock-based compensation disclosures if expense recognition is not
adopted. The Company has not yet determined the effect of adopting the new
Statement on their consolidated financial statements.
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------
The financial statements listed in the accompanying Index at Part IV, Item
14(a)1 are filed as a part of this report.
- 26 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
- --------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
Set forth below are the name, age and principal occupation of the members of the
Board of Directors and the executive officers of the Company, their positions
with the Company, their business experience during the last five years and the
year each was first elected a director of the Company.
==========================================================================
Name Age Position
- --------------------------------------------------------------------------
Charles S. Ramat 45 Director, Chairman of the Board, President,
Chief Executive Officer and Assistant
Secretary of the Company and of its wholly
owned subsidiary Europe Craft Imports, Inc.
("ECI")
- --------------------------------------------------------------------------
John J. Hannan 43 Director
- --------------------------------------------------------------------------
Edward M. Yorke 37 Director
- --------------------------------------------------------------------------
Robert A. Katz 29 Director
- --------------------------------------------------------------------------
David N. Schreiber 52 Director
- --------------------------------------------------------------------------
Herbert I. Wexler 79 Director
- --------------------------------------------------------------------------
Paul Spector 54 Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
- --------------------------------------------------------------------------
Vincent F. Caputo 42 Vice President, Assistant Treasurer and
Assistant Secretary
==========================================================================
CHARLES S. RAMAT, 45, has been a Director and President of the Company since
December 1986, Chairman of the Board of Directors and Chief Executive Officer
since August 1991 and Assistant Secretary since January 1988. Mr. Ramat has also
been Chairman of the Board, President and Chief Executive Officer of ECI since
December, 1995. Mr. Ramat has also engaged in private real estate activity from
prior to 1990. Mr. Ramat is the brother-in-law of David N. Schreiber.
JOHN J. HANNAN, 43, has been a Director of the Company since June 1993. Mr.
Hannan is one of the founding principals of Apollo Advisors, L.P. which was
organized in 1990 and which, together with an affiliate, acts as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
- 27 -
<PAGE>
Investment Fund III, L.P., private securities investment funds, and of Lion
Advisors, L.P., also organized in 1990 which acts as financial advisor to and
representative for certain institutional investors with respect to securities
investments. From 1986 to 1990, Mr. Hannan served as a managing director with
Drexel Burnham Incorporated. Mr. Hannan is a director of Converse, Inc., The
Florsheim Shoe Company, Inc., Furniture Brands International, Inc. and United
Auto Group, Inc.
EDWARD M. YORKE, 37, has been a Director of the Company since June 1993. Since
1992, Mr. Yorke has been an officer of Apollo Capital Management, Inc., the
general partner of Apollo Advisors, L.P. and Lion Capital Management, Inc., the
general partner of Lion Advisors, L.P. Mr. Yorke is a limited partner of Apollo
Advisors, L.P. and Lion Advisors, L.P. From 1990 to 1992, Mr. Yorke was a Vice
President in the high yield capital markets group of BT Securities Corp. From
prior to 1987 to 1990, Mr. Yorke was a member of the mergers and acquisitions
group of Drexel Burnham Lambert Incorporated. Mr. Yorke is also a director of
Big Flower Press, Inc., Salant Corporation and Telemundo Group, Inc.
ROBERT A. KATZ, 29, has been a Director of the Company since June 1993. Since
1995, Mr. Katz has been an officer of Apollo Capital Management, Inc. and Lion
Capital Management, Inc. Mr. Katz is a limited partner of Apollo Advisors, L.P.
and Lion Advisors, L.P., with which he has been associated since 1990. During
1990, Mr. Katz was an associate with Smith Barney, Harris Upham & Co. and, from
1988 to 1990, was an analyst with Drexel Burnham Lambert Incorporated. Mr. Katz
is also a director of Salant Corporation.
DAVID N. SCHREIBER, 52, has been a Director of the Company since December 1986.
Mr. Schreiber is currently the Vice President of A.H. Schreiber Co. Inc., a
manufacturer of women's and children's swim wear and intimate apparel, a
position he has held since prior to 1988. Mr. Schreiber served as Chairman of
the Board of Directors of Servtex from May 1991 to November 1992 and as Vice
President from 1987 to 1991. Mr. Schreiber is Mr. Ramat's brother-in-law.
HERBERT I. WEXLER, 79, has been a Director of the Company since 1973. Mr. Wexler
was a consultant to the Company from December 1986 until December 1991.
PAUL SPECTOR, 54, has been Senior Vice President and Chief Financial Officer of
the Company since May 1992 and Treasurer and Secretary of the Company since
August 1991. From 1986 until May 1992, Mr. Spector was Vice President of the
Company
- 28 -
<PAGE>
and from 1983 until August 1991 Mr. Spector was Controller of the Company.
VINCENT F. CAPUTO, 42, has been Vice President, Assistant Treasurer and
Assistant Secretary of the Company since May 1992. From April 1988 until May
1992, Mr. Caputo was Director of Taxes for the Company. From January 1986 until
March 1988, Mr. Caputo was the Corporate Tax Manager for Automatic Data
Processing, Inc.
Pursuant to the Company's Plan of Reorganization, on June 30, 1993, a New
Shareholders Agreement was entered into among Apollo and the previous management
shareholders of the Company (consisting of Alexander M. Goren, James G. Goren,
certain entities affiliated with the Gorens, Robert K. Lifton, Charles S. Ramat,
Howard L. Weingrow and the trustees of certain trusts for the benefit of Mr.
Ramat's children) providing that from and after June 30, 1993 (the Effective
Date of the Plan), the shareholder parties thereto agree to vote their shares
such that the prior management shareholders will be entitled to elect one member
of the Board of Directors, who shall be Charles S. Ramat, as long as Mr. Ramat's
Executive Employment Agreement with the Company (entitling him to be elected a
Director of the Company) is in effect. On the Effective Date and pursuant to the
Plan, the Board of Directors of Aris was established as Charles S. Ramat, David
N. Schreiber, Herbert I. Wexler, and three additional Directors designated by
Apollo Aris (John J. Hannan, Edward M. Yorke and Robert Katz).
Board Meetings and Committees
- -----------------------------
The Board held four meetings during the fiscal year ended February 3, 1996.
The Board's Audit Committee consists of Messrs. Katz and Schreiber. The Audit
Committee is charged with reviewing matters relating to the annual consolidated
financial statements prepared by the Company's management and audited by the
Company's independent auditors, reviewing interim financial statements and
evaluating internal controls and systems established by the Company.
The Board's Compensation and Stock Option Committee consists of Messrs. Hannan,
Yorke and Katz. The Compensation and Stock Option Committee is charged with
reviewing and making determinations with respect to compensation to be paid to
officers and other employees of the Company and with administering and making
determinations under the Company's stock option plan.
- 29 -
<PAGE>
Election of Directors and Officers
- ----------------------------------
The Company's current Board of Directors were appointed on June 30, 1993
pursuant to, and on the Effective Date of, the Company's Plan of Reorganization.
From and after such time as the next Annual Meeting of Shareholders of the
Company is held, Directors shall be elected by vote of the shareholders.
Directors so appointed or elected shall serve until the next Annual Meeting of
Shareholders and until their respective successors are elected and qualify,
provided that vacancies occurring in the Board of Directors may be filled by
vote of the Directors. The Board does not have a standing nominating committee.
Mr. Ramat's term of office is set forth in his Executive Employment Agreement.
See Item 11, Executive Compensation, Employment Agreements. Other officers of
the Company serve at the pleasure of the Board of Directors of the Company.
Item 11. Executive Compensation.
- ---------------------------------
The following table presents certain specific information regarding the
compensation of the Chief Executive Officer of the Company and the only other
executive officers of the Company.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
========================================================================================================
Annual Compensation Long-Term All Other
------------------- Compensation Compensation
------------ ------------
- --------------------------------------------------------------------------------------------------------
Securities
Underlying
Name and Principal Fiscal Salary Stock
Position Year ($) Bonus ($) Options (#)
-------- ---- --- --------- -----------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles S. Ramat, 1995 $531,093 -0- 400,000 (1) $ 136,919 (3)(4)
President, 1994 515,000 82,484 (2) -0- 325,000 (3)
Chairman and Chief 1993 488,248 125,082 (2) 400,000 (1) 189,581 (3)
Executive Officer
of the Company and
Europe Craft
Imports, Inc.
- --------------------------------------------------------------------------------------------------------
Paul Spector, 1995 $125,000 $ -0- 50,000 (1) $ 1,500 4)
Senior Vice 1994 115,769 10,000 -0- -0-
President and Chief 1993 115,000 20,000 50,000 (1) -0-
Financial Officer
- --------------------------------------------------------------------------------------------------------
Vincent Caputo, 1995 $72,500 $ -0- 5,000 (1) $ 675 (4)
Vice President, 1994 70,654 2,000 -0- -0-
Assistant Treasurer 1993 70,500 5,000 5,000 (1) -0-
& Assistant Secy.
========================================================================================================
</TABLE>
- 30 -
<PAGE>
(1) These options were granted on August 2, 1993 under the Company's 1993 Stock
Incentive Plan with respect to shares of the Company's Common Stock, and
vest in three equal annual installments. On June 26, 1995, all outstanding
options under the Company's 1993 Stock Incentive Plan (including these
options) were repriced to have an exercise price of fifty cents (the market
price on such date), rather than two dollars, per share. Pursuant to SEC
regulations, the repriced options are required to be reported as a grant in
fiscal year 1995 (during which they were repriced) for purposes of this
Summary Compensation Table, even though they are the same options granted
in fiscal year 1993. The total number of options held by Charles S. Ramat
is 400,000, by Paul Spector is 50,000, and by Vincent Caputo is 5,000.
(2) Represents portion of bonus (50%) earned for the applicable fiscal year to
be paid in cash upon completion of such fiscal year. Pursuant to Mr.
Ramat's Executive Employment Agreement with the Company, the additional
portion of the bonus (50%) earned for the applicable fiscal year will be
paid three years after completion of such fiscal year contingent on the
market value of the Company's Common Stock at such later time. The amount
of such additional portion of the bonus which will actually be paid is not
calculable at the present time. See "Employment Agreements".
(3) Includes amounts paid in the applicable fiscal year to Mr. Ramat with
respect to the aggregate $650,000 in performance compensation in connection
with the effectiveness of the Plan, which Mr. Ramat received in 24 equal
monthly installments, without interest, commencing on the Effective Date.
Such amount was $135,419 in fiscal 1995.
(4) Includes amounts paid as matching contributions by the Company under its
401(k) Plan, which were $1,500 for Mr. Ramat, $1,500 for Mr. Spector and
$675 for Mr. Caputo in fiscal 1995.
Stock Option Plan and Stock Options
- -----------------------------------
1993 Stock Incentive Plan
- -------------------------
Pursuant to the Company's Plan of Reorganization, on June 30, 1993, a new 1993
Stock Incentive Plan was adopted by the Company (the "1993 Stock Incentive
Plan"). The 1993 Stock Incentive Plan authorizes the Company's Board of
Directors (or a committee thereof), to award to employees and directors of, and
consultants to, the Company and its subsidiaries (i) options to acquire Common
Stock of the Company at prices determined when the options are granted, (ii)
stock appreciation rights (entitling the holder to a payment equal to the
appreciation in market value of a specified number of
- 31 -
<PAGE>
shares of Common Stock over a specified period), (iii) restricted shares of
Common Stock whose vesting is subject to terms and conditions specified at the
time of grant, and (iv) performance shares of Common Stock that are granted upon
achievement of specified performance goals. Options granted pursuant to the 1993
Stock Incentive Plan may be either "incentive stock options" within the meaning
of Section 422A of the United States Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options. A maximum of 1.2 million shares of
Common Stock (subject to anti-dilution adjustments) can be covered by awards
under the 1993 Stock Incentive Plan.
The 1993 Stock Incentive Plan provides that any shares subject to an option
under the such plan which terminate, are cancelled or expire without being
exercised may again be subjected to an option under that plan, subject to the
earlier termination of that plan. As at April 30, 1996, 965,000 options
(excluding expired options) had been granted under 1993 Stock Incentive Plan. On
June 26, 1995, all outstanding options under the 1993 Stock Option Plan were
repriced to have an exercise price of fifty cents (the market price on such
date), rather than two dollars, per share. At April 30, 1996, none of such
options had been exercised and all of such options were outstanding. All of such
options provide for vesting in three equal annual installments from the date of
grant; as at April 30, 1996, a total of 643,366 options were exercisable. At
such date, there were 30 eligible participants with options outstanding under
the 1993 Stock Incentive Plan. During the fiscal year ended February 3, 1996, no
options were granted to Directors of the Company, nor were any options held by
Directors exercised.
Option Grants
- -------------
There were no new options granted by the Company during the fiscal year ended
February 3, 1996 to the Chief Executive Officer of the Company or any other
executive officers of the Company. On June 26, 1995, all outstanding options
under the Company's 1993 Stock Incentive Plan (including those held by executive
officers) were repriced to have an exercise price of fifty cents (the market
price on such date), rather than two dollars, per share. Pursuant to SEC
regulations, the repriced options for executive officers are required to be
reported as a grant in fiscal 1995 (during which they were repriced) for
purposes of this Option Grant Table, even though they are the same options
granted in fiscal year 1993. The total number of options held by Charles S.
Ramat is 400,000, by Paul Spector is 50,000, and by Vincent Caputo is 5,000.
- 32 -
<PAGE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
% of Potential
Total Realizable Value
Options at Assumed Annual
Number of Granted Rates of Stock
Securities to Exercise Market Price Appreciation
Underlying Employees or Base Price on For Option Term
Options in Fiscal Price Date of Expiration ----------------
Name Granted (#) Year ($/SH) Grant Date 5% ($) 10% ($)
- ---------- ----------- --------- --------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles S. Ramat ... 400,000 38.6% $0.50 $0.50 8/2/2003 95,000 230,000
Paul Spector ....... 50,000 4.8% $0.50 $0.50 8/2/2003 12,000 29,000
Vincent Caputo ..... 5,000 0.5% $0.50 $0.50 8/2/2003 1,000 3,000
</TABLE>
Exercised/Unexercised Stock Options
- -----------------------------------
The following table sets forth the February 3, 1996 fiscal year-end value of
unexercised options held by the executive officers of the Company on an
aggregated basis. There were no exercises of stock options by any of the
executive officers of the Company during the fiscal year ended February 3, 1996.
All options referred to below were granted under the 1993 Stock Incentive Plan.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
-----------------------------------------------
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money Options
on Exercise Realized Options at FY-End (#) at FY-End ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- -------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Charles S. Ramat ...... 0 0 266,667/133,333 0/0
Paul Spector .......... 0 0 33,334/16,666 0/0
Vincent Caputo ........ 0 0 3,334/1,666 0/0
</TABLE>
Compensation of Directors
- -------------------------
During the past fiscal year ended February 3, 1996, each Director (other than
Mr. Ramat) received director's fees of $18,000. Each of these directors are also
entitled to receive reimbursement for expenses incurred in attending meetings of
the Board or committees thereof on which they serve. In
- 33 -
<PAGE>
addition, outside directors (Messrs. Wexler and Schreiber) are entitled to
receive $500 per meeting of the Committees of the Board to which they are
assigned (Mr. Schreiber is a member of the Audit Committee). Mr. Ramat receives
no additional compensation for service as a Director.
On August 2, 1993, Mr. Schreiber and Mr. Wexler were each granted options to
purchase 10,000 shares of Common Stock pursuant to the Company's 1993 Stock
Incentive Plan. Such options vest in three equal annual installments; on June
26, 1995, all outstanding options under the 1993 Stock Incentive Plan were
repriced to have an exercise price of fifty cents (the market price on such
date), rather than two dollars, per share.
Employment Agreements
- ---------------------
Charles S. Ramat is employed pursuant to the Executive Employment Agreement
between him and the Company dated as of February 1, 1988, as amended ("Ramat
Agreement"), pursuant to which Mr. Ramat serves as the Company's Chairman of the
Board, President and Chief Executive Officer, and will continue to be nominated
to serve on the Company's Board of Directors.
On October 3, 1995, the Ramat Agreement was amended to extend the term of Mr.
Ramat's employment for the period through June 30, 1998. This term will be
further extended on a year-to-year basis unless terminated by either party by
notice given not less than 60 days prior to the end of the then-current
employment term.
Commencing June 30, 1993, Mr. Ramat is entitled to receive a base salary of
$500,000 per year (subject to an annual increase in an amount equal to the
proportionate annual increase in the Consumer Price Index - All Items), which
annual increases resulted in a base salary of $530,450 for fiscal 1995. In
addition, Mr. Ramat is entitled to receive an annual bonus in an amount ("Annual
Bonus Amount") not to exceed 125% of his base salary for the year of the bonus
("Bonus Year"), equal to 3-1/3% of "Excess Cash Flow" for such Bonus Year.
"Excess Cash Flow" is defined as the Company's net after-tax consolidated
income, including the benefit of any net operating loss carryforwards or tax
credits, but subject to adjustments to add back certain non-cash charges, in
excess of $700,000. On October 3, 1995, the Excess Cash Flow definition was
amended, in favor of the Company, to exclude from such computation extraordinary
items occurring or accruing after September 18, 1995, other than any sale of the
stock, assets or business of Aris' wholly-owned subsidiary, Perry Manufacturing
Company ("Perry"), which sale of Perry ("Perry Sale") would be included in the
computation. The exclusion for extraordinary items does not apply to the benefit
of any net operating loss carryforwards or tax credits, which shall be included
in such Excess Cash Flow computation.
- 34 -
<PAGE>
The annual bonus for a particular Bonus Year is payable as follows: an initial
amount equal to one half of the Annual Bonus Amount for such Bonus Year is
payable no later than ten days following the Company's filing of its Annual
Report on Form 10-K with the SEC for such Bonus Year, and the balance of such
bonus (other than the portion relating to a Perry Sale) is paid 20 days after
the third anniversary of such Bonus Year, in an amount equal to the sum of (a)
the product of (i) the average closing price for the Company's Common Stock for
the 60 consecutive trading days ending immediately prior to the third
anniversary of the end of such Bonus Year and (ii) the number of shares (the
"Bonus Shares") of the Company's Common Stock that could be purchased with one
half of the Annual Bonus Amount for such Bonus Year assuming a price per share
equal to the average closing price for the Common Stock for the 60 consecutive
trading days ending immediately prior to the last day of such Bonus Year plus
(b) the aggregate amount of all dividends, if any, that would have been paid on
account of such Bonus Shares during the three years ending on such third
anniversary if such Bonus Shares had been issued at the beginning of such
three-year period. The deferred portion of the Annual Bonus Amount will be paid
only if (i) Mr. Ramat is employed by the Company or one of its subsidiaries or
affiliates on the third anniversary of the end of the pertinent Bonus Year or
(ii) payment is accelerated by certain earlier termination events, described
below.
As provided in the October 3, 1995 amendment to the Ramat Agreement, the balance
of such bonus relating to a Perry Sale shall be paid in 36 equal consecutive
monthly installments, without interest, commencing ten days following the
Company's filing of its Annual Report on Form 10-K with the SEC for the fiscal
year in which the Perry Sale occurs, and is not subject to adjustment for price
changes in the Company's Common Stock.
If (a) the Company fails to extend the term of the Ramat Agreement, (b) Mr.
Ramat, after reaching the age of 65, retires or resigns, (c) Mr. Ramat dies or
becomes totally disabled, (d) the Ramat Agreement is terminated by the Company
without cause or (e) there is a sale or liquidation of all or substantially all
of the operating assets of the Company (the Company's Ohio real estate interests
are not considered operating assets for this purpose), then all Annual Bonus
Amounts that would otherwise have been deferred as above described for Bonus
Years prior to the year in which such event occurs, accelerate and become due
and payable to Mr. Ramat in the same manner as if the applicable third
anniversary had fallen on the date of such occurrence; the entire remaining
amount of all bonus payments relating to a Perry Sale shall be accelerated and
paid in full in a lump sum to Mr. Ramat; and the Company remains obligated to
pay Mr. Ramat any previously earned unpaid bonuses for prior years and a pro
rata portion of the initial one half bonus amount for the year in which such
event occurs.
- 35 -
<PAGE>
Recognizing that Mr. Ramat assumed the duties of Chairman, President and Chief
Executive Officer of ECI on December 5, 1995, in addition to his duties in such
positions with the Company, the Company amended the Ramat Agreement on March 20,
1996 to provide that Mr. Ramat would be paid 35% of the ECI Bonus Pool
established for key employees of ECI for the fiscal year commencing February 4,
1996. The amount of the ECI Bonus Pool for such fiscal year is calculated as the
sum of the following percentages of net income of ECI computed prior to
provisions for taxes, for payment of management fees to the Company, or for
payment of such Bonus Pool: 10% of such income up to the first $1,000,000; 15%
of such income in excess of $1,000,000 and up to $2,000,000; 35% of such income
in excess of $2,000,000 and up to $3,000,000; and 10% of such income in excess
of $3,000,000 and up to $4,000,000. Such ECI Bonus Pool participation would be
paid to Mr. Ramat following completion of such fiscal year, and all payments
which Mr. Ramat receives from the ECI Bonus Pool for such fiscal year shall be
credited against the Annual Bonus Amount (as described above) provided to Mr.
Ramat for such fiscal year commencing February 4, 1996, so that there is no
duplication, but there is no credit or reduction of that portion of the annual
bonus relating to a Perry Sale.
In the event of Mr. Ramat's death or total disability, he will be entitled to a
death or disability benefit equal to 150% of his annual base salary in effect on
the date of death or certification of disability, and if a "change in control"
(as defined in the Ramat Agreement) occurs, Mr. Ramat will have the right to
terminate the Ramat Agreement, in which event he will entitled to receive a lump
sum severance payment in an amount equal to 299% of his average annual
compensation (including bonus, other than bonus relating to a Perry Sale) from
the Company for the preceding five calendar years. Mr. Ramat will also be
entitled to receive such severance payment if he is terminated by the Company
without cause. On October 3, 1995, the Ramat Agreement was amended to clarify
the definition of "change in control" to include, among other events, the sale
or liquidation of the stock, assets or business of both Perry and ECI, unless at
such time the Company had acquired another operating subsidiary with a net worth
and net income not less than that of ECI at such time and which undertakes the
same contractual obligations that Perry and ECI have to Mr. Ramat).
Mr. Ramat is also entitled to participate, at the Company's expense, in all
insurance and medical plans of the Company available to its employees, is
entitled to reimbursement for business and entertainment expenses and is
entitled to an allowance of $500 per month towards a leased automobile.
The Ramat Agreement is subject, at the Company's option, to termination only for
cause upon 90 days' written notice if Mr. Ramat has been convicted for any
material act of fraud, misappropriation, embezzlement, disloyalty, dishonesty or
breach of trust against the Company or any of its subsidiaries
- 36 -
<PAGE>
or affiliated companies. Notwithstanding such termination, the Company will
remain obligated to pay Mr. Ramat his annual base salary through the date of
termination and, to the extent not therefore paid, the initial one half portion
of the Annual Bonus Amount with respect to all years proceeding such
termination.
The Ramat Agreement provides for indemnification by the Company for all claims
relating to Mr. Ramat's service as an officer and director of the Company, and
for advancement of expenses, except in those circumstances where indemnification
would be precluded by Section 721 of the New York Business Corporation Law
("BCL") and requires that during the term of his employment thereunder, (a) the
Company's Certificate of Incorporation and/or By-Laws (as required by law) must
contain the provisions required by the BCL to provide for indemnification of
officers and directors to the fullest extent set forth in BCL Section 721 and to
provide for the limitation of liability of directors to the fullest extent set
forth in Section 402(b) of the BCL, and (b) the Company must maintain in full
force and effect directors and officers liability insurance, to the extent
available, providing coverage comparable to the insurance policy the Company had
in effect on August 2, 1991.
In accordance with the Company's Plan of Reorganization effective June 30, 1993,
Mr. Ramat received $650,000 in performance compensation in connection with the
effectiveness of the Plan which was paid in 24 equal monthly installments,
without interest, commencing on June 30, 1993.
Mr. Paul Spector, the Company's Senior Vice President and Chief Financial
Officer, is contractually entitled to a severance payment if he is terminated by
the Company for reasons other than cause. The severance payment will equal
one-half of Mr. Spector's annual salary at the time of termination.
401(k) Plan
- -----------
The Company has no pension plan but affords its executive officers the
opportunity to participate in a 401(k) Plan established for all of the Company's
employees, for which the Company may make a discretionary matching contribution
of up to 25% of a maximum of four percent (4%) of salary (up to $150,000)
contributed by the employee.
- 37 -
<PAGE>
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The members of the Company's Compensation and Stock Option Committee are Messrs.
Hannan, Yorke and Katz, none of whom were (i) during the 1995 Fiscal Year, an
officer of the Company or any of its subsidiaries or (ii) formerly an officer of
the Company or any of its subsidiaries.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
- ------------------------------------------------------------
The table below sets forth the beneficial ownership of the Company's Common
Stock on March 31, 1996 by certain holders. Those holders are persons who either
(i) are beneficial owners of 5% or more of the Company's Common Stock, or (ii)
are officers or directors of the Company. This information is based on the
Company's current information concerning the ownership of its securities.
As a result of the agreements relating, among other things, to the nomination
and election of directors and the acquisition and disposition of Common Stock of
the Company set forth in the New Shareholders Agreement and Equity Registration
Rights Agreement, entered into June 30, 1993, Apollo Aris and the Non-Apollo
Subject Shareholders referred to therein (each a "Non-Apollo Subject
Shareholder" and collectively the "Non-Apollo Subject Shareholders") may be
deemed to constitute a "group" within the meaning of Section 13(d)(3) under the
Securities Exchange Act of 1934, as amended. As such, the Non-Apollo Subject
Shareholders and Apollo Aris may be deemed to have shared voting and dispositive
power over all of the 9,111,039 shares of Common Stock owned in the aggregate by
the Non-Apollo Subject Shareholders and Apollo Aris on June 30, 1993, or 76.6%
of the total number of shares of Common Stock then outstanding. Reference is
made to such statements on Schedule 13D as have been or may be filed with the
Securities and Exchange Commission by Apollo Aris and the Non-Apollo Subject
Shareholders regarding such parties and their respective ownership of Common
Stock.
=============================================================================
Name and Address Shares of Common Percent
of Beneficial Owner (1) Stock of Class
- -----------------------------------------------------------------------------
Apollo Aris Partners, L.P. 5,804,820 (2)(3) 48.8%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
- ----------------------------------------------------------------------------
Chemical Banking Corporation 833,973 7.0%
350 Fifth Avenue
New York, New York 10018
- ----------------------------------------------------------------------------
- 38 -
<PAGE>
- ----------------------------------------------------------------------------
Robert K. Lifton 702,355 (2) 5.9%
805 Third Avenue
New York, New York 10022
- ----------------------------------------------------------------------------
Howard L. Weingrow 702,469 (2) 5.9%
805 Third Avenue
New York, New York 10022
- ----------------------------------------------------------------------------
Charles S. Ramat 863,299 (2)(4) 7.24%
475 Fifth Avenue (6)
New York, New York 10017
- ----------------------------------------------------------------------------
James G. and Alexander M. Goren 1,199,627 (2)(5) 10.1%
805 Third Avenue
New York, New York 10022
- ----------------------------------------------------------------------------
David N. Schreiber 111,802 (4)(6) 0.9%
c/o A.H. Schreiber & Co, Inc.
460 West 34th Street, 10th Floor
New York, New York 10001
- ----------------------------------------------------------------------------
Herbert I. Wexler 82,963 (6) 0.7%
26 Burr Farm Road
Westport, Connecticut 06880
- ----------------------------------------------------------------------------
Paul Spector 33,334 (6) 0.3%
475 Fifth Avenue
New York, New York 10017
- ----------------------------------------------------------------------------
Vincent Caputo 3,334 (6) 0.1%
475 Fifth Avenue
New York, New York 10017
- ----------------------------------------------------------------------------
All persons who are officers 1,094,732 (7) 9.18%
or directors of the Company,
as a group (eight persons)
============================================================================
(1) Except as noted in these footnotes or as otherwise stated above, each
person has sole voting and investment power.
(2) These and certain related persons are parties to the New Shareholders
Agreement, described below.
(3) This table does not reflect any beneficial ownership by Messrs. Yorke, Katz
or Hannan, directors of Registrant associated with Apollo Aris. Such
persons do not directly own any shares of Common Stock, and such persons
disclaim beneficial ownership of all shares held by Apollo Aris Partners,
L.P.
(4) With respect to 105,135 of the shares listed next to Mr. Schreiber's name:
Mr. Schreiber is co-trustee, with Ora Ramat, the wife of Charles S. Ramat,
of three trusts for the benefit of three children of Mr. and Mrs. Ramat
that own these shares. Mr. Schreiber and Mrs. Ramat disclaim
- 39 -
<PAGE>
beneficial ownership of these shares. These shares are not included in the
number of shares listed next to Mr. Ramat's name.
(5) James and Alexander Goren are brothers. These shares are beneficially owned
as follows: James Goren individually owns 267,857 shares of Common Stock.
Alexander Goren, individually owns 327,381 shares of Common Stock. 476,191
shares are owned by MGI Associates, L.P., a Delaware limited partnership,
of which James Goren is the managing general partner and Alexander Goren is
a general partner, and over which shares James Goren has full voting and
dispositive power. 9,151 shares are owned by Goren Brothers, a New York
general partnership of which the Gorens are the only partners. 119,048
shares are held in two trusts for the children of Alexander Goren, of which
trusts the Gorens are co-trustees.
(6) Includes options to purchase the following numbers of shares of Common
Stock of the Company under the 1993 Stock Incentive Plan which became
exercisable on or prior to February 3, 1996: Charles S. Ramat (266,667),
David N. Schreiber (6,667), Herbert I. Wexler (6,667), Paul Spector
(33,334) and Vincent Caputo (3,334).
(7) These shares are attributed to Messrs. Ramat, Schreiber, Wexler, Spector
and Caputo.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
Pursuant to the Plan and an Addendum dated June 30, 1993 to the (old)
Shareholders Agreement dated May 26, 1988 among the Company and the certain of
the Non-Apollo Subject Shareholders, (i) all shareholders agreements and
registration rights agreements in effect prior to the Effective Date (including
those previously reported to be in effect between the Company and certain
Non-Apollo Subject Shareholders) were terminated in all respects, and (ii) the
Registrant, Apollo Aris and the Non-Apollo Subject Shareholders have entered
into the New Shareholders Agreement and the Equity Registration Rights Agreement
regarding their holdings of Common Stock of the Company.
New Shareholders Agreement
- --------------------------
Pursuant to the New Shareholders Agreement, Apollo Aris and the Non-Apollo
Subject Shareholders have agreed that, if any such party shall have nominated
any individual for election as a director of the Registrant pursuant to such
shareholder's rights under the Registrant's Certificate of Incorporation and/or
By-Laws, each of Apollo Aris and the Non-Apollo Subject Shareholders will vote
in favor of the election of each such nominee (or, if there are no such
nominees, in favor of the
- 40 -
<PAGE>
candidates nominated by a majority of the Board of Directors) all shares of
Common Stock over which such person has voting power; provided, that each of
Apollo Aris and the Non-Apollo Subject Shareholders have agreed to vote in favor
of the election of Charles S. Ramat (the Chairman of the Board, President and
Chief Executive Officer of the Company) as a director at such times as Mr. Ramat
is nominated as a director and entitled to be so nominated pursuant to any
agreement between the Company and Mr. Ramat. Pursuant to the Company's Restated
Certificate of Incorporation and By-Laws, only a shareholder that owns, or
together with its affiliates owns, shares of Common Stock possessing a majority
of the voting power of the outstanding Common Stock is entitled to nominate
candidates for election as directors.
The New Shareholders Agreement provides that each Non-Apollo Subject Shareholder
is required to obtain the consent of Apollo Aris (or its successor or their
designees) to transfer shares of Common Stock owned by such Non-Apollo Subject
Shareholder, other than transfers of shares received pursuant to an employee
stock option or purchase plan, transfers to certain persons affiliated with or
otherwise related to the Non-Apollo Subject Shareholder, transfers by a
Non-Apollo Subject Shareholder's estate, transfers pursuant to the Equity
Registration Rights Agreement, and transfers not exceeding an annual aggregate
of 10% of the shares of Common Stock owned by such Non-Apollo Subject
Shareholder on the Effective Date. Pursuant to the New Shareholders Agreement,
Apollo Aris is required to allow the Non-Apollo Subject Shareholders to
participate in any private sale to a non-affiliate of an annual aggregate of
more than 10% of the shares of Common Stock owned by Apollo Aris on June 30,
1993.
The New Shareholders Agreement requires that the Non-Apollo Subject Shareholders
must obtain the consent of Apollo Aris (or its successor or their designees)
prior to the acquisition of additional shares of Common Stock, other than shares
acquired pursuant to an employee stock option or stock purchase plan, and shares
that (when aggregated with shares acquired pursuant to such employee stock plans
or acquired by certain persons affiliated with or otherwise related to a
Non-Apollo Subject Shareholder that are not parties to the New Shareholders
Agreement) do not exceed an annual aggregate of 10% of the shares of Common
Stock owned by such Non-Apollo Subject Shareholder on the Effective Date.
The New Shareholders Agreement will terminate on the earliest to occur of (i)
the seventh anniversary of the Effective Date, (ii) in certain circumstances,
upon the election of the Non-Apollo Subject Shareholders following the transfer
by Apollo Aris resulting in the occurrence of certain reductions in Apollo
Aris's ownership interest in the Company, (iii) the end of the first fiscal year
of the Company for which the total amount of NOL carryforwards available for
later taxable years
- 41 -
<PAGE>
is less than $2.5 million, and (iv), as to Apollo Aris and any Non-Apollo
Subject Shareholder, the date on which such party owns shares equal to less than
10% of the shares of Common Stock owned by such party on the Effective Date. In
addition, Apollo Aris may terminate the New Shareholders Agreement with respect
to any Non-Apollo Subject Shareholders who are not "affiliates" of the
Registrant within the meaning of Rule 144(a)(1) under the Securities Act of
1933, as amended.
Equity Registration Rights Agreement
- ------------------------------------
Pursuant to the Equity Registration Rights Agreement, any party that owns, or
together with its affiliates owns, 25% or more of the shares of Common Stock
subject to such agreement is entitled to require the Company to register under
the Securities Act of 1933, as amended, the offer and sale of Common Stock owned
by such person. Each of Apollo Aris and the Non-Apollo Subject Shareholders is
entitled to have shares of Common Stock owned by such person included in any
such registration statement initiated by a party to the Equity Registration
Rights Agreement or by the Company. The Equity Registration Rights Agreement
also provides that Apollo Aris is required to allow the Non-Apollo Subject
Shareholders to participate in a non-underwritten public offering in which
Apollo Aris sells an annual aggregate of more than 10% of the shares of Common
Stock owned by Apollo Aris on the Effective Date.
Pursuant to a letter agreement dated June 28, 1993 among Apollo Advisors, L.P.
("Apollo Advisors") and the Company, the Company is required to reimburse Apollo
Advisors upon request for all reasonable counsel fees and disbursements incurred
in connection with Apollo Advisor's investment in the Company up to a maximum of
$450,000. Pursuant to a letter agreement dated October 29, 1992, the Company,
ECI, ATB and Perry have agreed, subject to certain exceptions, to indemnify each
of Apollo Advisors, its partners and certain other related persons from and
against all losses, claims, liabilities, damages, costs and expenses or actions
in respect thereof arising out of any actual or threatened claim against such
party by a person other than the Company related to or arising out of or in
connection with, among other things, the Plan or any actions taken by any
indemnified party pursuant thereto or the transactions contemplated thereby.
Director's Indemnification Agreements
- -------------------------------------
On the Effective Date, the Company entered into separate Indemnification
Agreements with each new and continuing member of its Board of Directors which
provide such Directors with contractual indemnification to the fullest extent
permitted by law, and for the advancement of legal fees and other expenses, and
require the Company to use its best efforts to maintain designated director and
officer liability insurance coverage.
- 42 -
<PAGE>
Agreements with Prior Management
- --------------------------------
Four persons who resigned as directors of the Company prior to the Effective
Date (Messrs. Robert K. Lifton, Howard L. Weingrow, James Goren and Alexander
Goren) received an aggregate of $210,000 fifty-three weeks after the Effective
Date, in settlement of various pre-petition claims in connection with employment
and consulting arrangements which were terminated pursuant to the Plan of
Reorganization.
ECI leases approximately 29,600 square feet of office space in New Jersey from a
partnership, some of whose partners are former officers and/or directors of ECI
(but not of the Company). Such lease was in effect when the Company acquired ECI
in 1987.
In March 1996, ECI entered into a sublease of approximately 120,000 square feet
of warehouse space in New Jersey (adjacent to ECI's offices) of which the ground
lessee is the same New Jersey partnership, some of whose partners are former
officers and/or directors of ECI (but not of the Company).
PART IV
Item 14. Exhibits, Financial Statement, Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements and Independent Auditors' Report
------------------------------------------------------
Page
----
Independent Auditors' Report............................ F-l
Financial Statements:
Consolidated Balance Sheets as of
February 3, 1996 and January 28, 1995.................. F-2
Consolidated Statements of Operations
for the 53 Weeks Ended February 3, 1996, and 52 weeks
ended January 28, 1995 and January 29, 1994............ F-3
Consolidated Statements of Stockholders'
Equity (Deficiency) for the 53 weeks Ended
February 3, 1996, and 52 weeks ended January 28, 1995
and January 29, 1994 ................................... F-4
Consolidated Statements of Cash Flows for
the 53 Weeks Ended February 3, 1996, and 52 weeks ended
January 28, 1995 and January 29, 1994 ................. F-5
Notes to Consolidated Financial Statements.............. F-6
- 43 -
<PAGE>
2. Financial Statement Schedules
-----------------------------
The following financial statement schedules should be read in
conjunction with the consolidated financial statements in Item
8 of this Annual Report on Form 10-K:
Schedule I - Condensed Financial Information
of Registrant........................... F-22
Schedule II - Valuation and Qualifying
Accounts................................ F-26
All other schedules are omitted because they are not
applicable or because the required information is included in
the financial statements or notes thereto.
3. Exhibits
--------
Incorporated herein by reference is a list of the Exhibits contained
in the Exhibit Index included in Item 14(c) below, numbered in
accordance with Item 601 of Regulation S-K.
(b) Reports on Form 8-K
-------------------
Current Report on Form 8-K dated October 27, 1995 with respect to
amendment to the Company's Senior Secured Note Agreement with Heller
Financial, Inc., which amendment adjusted certain financial covenants
and modified the amortization schedule so that they would be more
advantageous to the Company.
Current Report on Form 8-K dated February 2, 1996 with respect to
amendment to the Company's Series B Junior Secured Note Agreement with
AIF-II, L.P. to permit payment in kind of quarterly interest due
February 5, 1996.
(c) INDEX TO EXHIBITS
-----------------
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
2. Second Amended Joint Plan of ***
Reorganization dated March 26,
1993, as amended May 11 and
June 9, 1993
(Note: Annexes omitted)
- -------------------------------------------------------------------------------
- 44 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
3.1 Restated Certificate of *
Incorporation as filed with the New York Secretary of State
on December 22, 1986.
- -------------------------------------------------------------------------------
3.2 Amendment to Restated Certificate *
of Incorporation as filed with the
New York Secretary of State on
August 24, 1988.
- -------------------------------------------------------------------------------
3.3 Restated Certificate of ***
Incorporation filed on June 30,
1993
- -------------------------------------------------------------------------------
3.3 By-Laws. *
- -------------------------------------------------------------------------------
3.4 Amended and Restated By-Laws ***
effective June 30, 1993
- -------------------------------------------------------------------------------
4.1 Specimen Certificate Evidencing *
Common Stock.
- -------------------------------------------------------------------------------
4.2 Specimen Certificate Evidencing *
Participating Preferred Stock.
- -------------------------------------------------------------------------------
4.3 Specimen Certificate Evidencing *
Convertible Preferred Stock.
- -------------------------------------------------------------------------------
4.4 Representative Senior Convertible *
Note, dated December 23, 1986.
- -------------------------------------------------------------------------------
4.5 Representative Subordinated Note, *
dated December 23, 1986.
- -------------------------------------------------------------------------------
4.6 Indenture dated as of February 15, *
1987, between the Company and
IBJ Schroder Bank & Trust Company, as Trustee, relating to
the 13-3/4% Senior Subordinated Notes due March 1, 1995 (the
"Senior Subordinated Notes").
- -------------------------------------------------------------------------------
4.7 Representative Senior Subordinated *
Note, dated February 26, 1987.
- -------------------------------------------------------------------------------
4.8 Warrant Agreement, dated as of *
February 15, 1987, between the
Company and IBJ Schroder Bank &
Trust Company, as Warrant Agent.
- -------------------------------------------------------------------------------
4.9 Representative warrant certificate *
issued with the Senior
Subordinated Notes.
- -------------------------------------------------------------------------------
4.10 Indenture, dated as of October 1, *
1987, by and among Marcade,
Marlene and IBJ Schroder Bank &
Trust Company as Trustee, relating
to the 12.5% Senior Subordinated
Convertible Debentures due
October 1, 1999.
- -------------------------------------------------------------------------------
- 45 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
4.11 First Supplemental Indenture and *
Guarantee Agreement, dated as of
October 1, 1987, to the Indenture,
dated as of February 15, 1987
between the Company and IBJ
Schroder Bank & Trust Company,
as Trustee.
- -------------------------------------------------------------------------------
4.12 Form of Purchase Agreement, dated *
as of February 15, 1987, among the
Company and purchasers of the
Senior Subordinated Notes and the
Warrants.
- -------------------------------------------------------------------------------
4.13 Registration Rights Agreement, *
dated as of February 15, 1987,
among the Company and the
purchasers of the Senior
Subordinated Notes and the
Warrants.
- -------------------------------------------------------------------------------
4.14 Securities Purchase Agreement, *
dated as of February 15, 1987, by and among the Company,
Marlene and each of the purchasers named by the signature
pages thereto.
- -------------------------------------------------------------------------------
4.15 Registration Rights Agreement, *
dated as of February 15, 1987, and amended and restated as of
October 1, 1987, by and among the Company, marlene and each
of the other signatories thereto.
- -------------------------------------------------------------------------------
4.16 Lock-up Agreements, dated as of *
various dates, addressed to each
of the purchasers of the Convertible Debentures and
Increasing Rate Notes from certain banks and certain other
holders of securities of the Company who are party thereto.
- -------------------------------------------------------------------------------
9.1 Voting Agreement, dated as of *
December 23, 1986 among the Banks.
- -------------------------------------------------------------------------------
9.2 Investor Group Voting Agreement, *
dated as December 23, 1986, among
Marcade, Marlene, the Banks,
Robert K. Lifton, Charles S.
Ramat, Howard L. Weingrow and
Herbert I. Wexler.
- -------------------------------------------------------------------------------
9.3 Stockholders Agreement, dated as *
of September 29, 1987, by and
among Robert K. Lifton, Charles S.
Ramat, Howard L. Weingrow and the
Perry Stockholders.
- -------------------------------------------------------------------------------
- 46 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
9.4 Shareholder Agreement, dated *
as of May 26, 1988, by and among
the Company, James G. Goren,
Alexander M. Goren, Robert K.
Lifton, Howard L. Weingrow,
Charles S. Ramat, Hana Trust and
Abraham Trust.
- -------------------------------------------------------------------------------
10.1 Restructuring Agreement, dated as *
of August 8, 1986, among the
Company, Marlene, the Banks,
LRW Corporation and the Management
Group.
- -------------------------------------------------------------------------------
10.2 Amendment No. 1 to the *
Restructuring Agreement dated as
of August 8, 1986 among the
Company, Marlene, the Banks, LRW
Corporation and the Management
Group.
- -------------------------------------------------------------------------------
10.3 Management Services Agreement *
dated as of December 23, 1986,
between the Company and the
Management Group.
- -------------------------------------------------------------------------------
10.4 Amendment No. 1 to the Management *
Services Agreement, dated as of
December 23, 1986, between the
Company and the Management Group.
- -------------------------------------------------------------------------------
10.5 Registration Rights Agreement, *
dated as of December 23, 1986, as
amended and restated February 26,
1987, among the Banks, the Company
Robert K. Lifton, Charles S.
Ramat, Howard L. Weingrow and
Herbert I. Wexler.
- -------------------------------------------------------------------------------
10.6 Tax Allocation Capital *
Contribution Agreement dated as of
December 23, 1986, among the
Company, Marlene, Restricted
Subsidiaries and Active
Subsidiaries.
- -------------------------------------------------------------------------------
10.7 Confirmation Agreement, dated *
December 23, 1986, among the
Company, Marlene, Restricted
Subsidiaries Active Subsidiaries
and the Banks.
- -------------------------------------------------------------------------------
10.8 Second Amended and Restated *
Guaranty, dated December 23, 1986
among the Company, the Banks and
Restricted Subsidiaries.
- -------------------------------------------------------------------------------
10.9 Real Property Agreement, dated as *
of December 23, 1986, among the
Company, Marlene and the Banks.
- -------------------------------------------------------------------------------
- 47 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.10 Exchange Agreement, dated December *
23, 1986, between the Company and
the Banks.
- -------------------------------------------------------------------------------
10.11 Conversion Agreement, dated *
December 23, 1986, among Marcade,
Marlene, the Banks, Robert K.
Lifton, Charles S. Ramat, Howard
L. Weingrow and Herbert I. Wexler.
- -------------------------------------------------------------------------------
10.12 Participating Preferred Stock *
Agreement, dated as of December 23, 1986, as amended and
restated as of February 26, 1987, among the Company, Marlene
and the Banks.
- -------------------------------------------------------------------------------
10.13 Convertible Preferred Stock *
Agreement, dated as of December 23, 1986, as amended and
restated as of February 26, 1987, among the Company and the
Banks.
- -------------------------------------------------------------------------------
10.14 Consent, Confirmation and Amending *
Agreement, dated as of February
15, 1987, among the Company, the
Banks and the New Investor Group.
- -------------------------------------------------------------------------------
10.15 Consulting and Non-Competition *
Agreement, dated as of December 3,
1986, among the Company, Marlene
and Herbert I. Wexler.
- -------------------------------------------------------------------------------
10.16 Medical Benefits Agreement, dated *
as of December 3, 1986, among the
Company, Marlene and Elaine
Wexler.
- -------------------------------------------------------------------------------
10.17 Severance Agreement between the *
Company and Lawrence Brustein
dated as of December 15, 1986.
- -------------------------------------------------------------------------------
10.18 Severance Agreement between the *
Company and Herman Greitzer dated
as of December 15, 1986.
- -------------------------------------------------------------------------------
10.19 Registration Rights Agreement, *
dated as of September 29, 1987, by
and among the Company and the
Perry Stockholders.
- -------------------------------------------------------------------------------
10.20 Registration Rights Agreement, *
dated as of October 9, 1987, by
and among the Company and the ECI
Stockholders.
- -------------------------------------------------------------------------------
10.21 Indenture, dated as of October 1, *
1987, by and among the Company,
Marlene and Bankers Trust Company,
as Trustee, relating to the
Increasing Rate Notes.
- -------------------------------------------------------------------------------
- 48 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.22 Employment Agreement between the *
Company and John Kuehn dated as of
December 15, 1987.
- -------------------------------------------------------------------------------
10.23 Marcade's 1980 Stock Option and *
Stock Appreciation Rights Plan.
- -------------------------------------------------------------------------------
10.24 Stock Purchase Agreement, dated as *
of July 28, 1987, by and among the Company, Unishops, Inc.,
Perry and the Perry Stockholders.
- -------------------------------------------------------------------------------
10.25 First Amendment, Waiver and *
Consent to the Stock Purchase
Agreement, dated September 29, 1987.
- -------------------------------------------------------------------------------
10.26 Escrow Agreement dated as of *
September 29, 1987, by and among
the Company, Unishops, Perry, the
Perry Stockholders, William K.
Woltz Sr., William K. Woltz Jr.,
and Frederick E. Woltz as
Stockholders' Agent, and IBJ
Schroder Bank & Trust Company,
Escrow Agent.
- -------------------------------------------------------------------------------
10.27 Employment Agreement, dated as of *
September 29, 1987, by and between
Perry and William K. Woltz Sr.
- -------------------------------------------------------------------------------
10.28 Employment Agreement, dated as of *
September 29, 1987, by and between
Perry and William K. Woltz Jr.
- -------------------------------------------------------------------------------
10.29 Stock Purchase Agreement, dated as *
of August 29, 1987, by and among
the Company and the ECI
Stockholders.
- -------------------------------------------------------------------------------
10.30 Employment Agreement, dated as of *
October 9, 1987, by and between
the Company and Herbert Goldsmith.
- -------------------------------------------------------------------------------
10.31 Agreement, dated as of January 21, *
1988, between Caven Point Company,
L.P. and the Company, relating to
the assignment or surrender of the
Lease.
- -------------------------------------------------------------------------------
10.32 Assignment and Assumption of *
Lease, dated March 2, 1988, between the Company, as
assignor,and Caven Point, as assignee, with respect to the
Lease.
- -------------------------------------------------------------------------------
10.33 Release dated March 2, 1988, from *
Caven Point to the Company.
- -------------------------------------------------------------------------------
10.34 Release dated March 2, 1988, from *
the Company to Caven Point.
- -------------------------------------------------------------------------------
- 49 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.35 Indenture of Lease, dated May 12, *
1969, between Caven Point, as landlord, and the Company
(under its former name, Unishops, Inc.) as tenant, covering
the premises at 21 Caven Point Road, Jersey City, New Jersey,
together with Agreement, dated March 15, 1975, between Caven
Point as landlord, and the Company, as tenant, amending said
indenture of Lease.
- -------------------------------------------------------------------------------
10.36 Assignment and Assumption of *
Sublease, dated March 2, 1988,
between Marcade, as assignor, and
Caven Point, as assignee.
- -------------------------------------------------------------------------------
10.37 Sublease, dated as of February 4, *
1985, between the Company, as
sublessor, and Umberto Brothers
Storage Warehousing Inc., as
sublessee, relating to a
subletting of a portion of the
Premises.
- -------------------------------------------------------------------------------
10.38 Agreement dated January 24, 1985, *
between Marcade, as landlord, and
Central Textile, Inc. as tenant,
relating to a subletting of a
portion of the Premises.
- -------------------------------------------------------------------------------
10.39 Assignment and Assumption of *
Service Contracts, dated March 2,
1988, between Marcade, as assignor
and Caven Point as assignee.
- -------------------------------------------------------------------------------
10.40 Letter dated April 8, 1988 from *
James G. and Alexander M. Goren to
Marcade.
- -------------------------------------------------------------------------------
10.41 Employment Agreement dated *
February 1, 1988 between the
Company and Robert K. Lifton.
- -------------------------------------------------------------------------------
10.42 Employment Agreement dated *
February 1, 1988 between the
Company and Charles S. Ramat.
- -------------------------------------------------------------------------------
10.43 Employment Agreement dated *
February 1, 1988 between the
Company and Howard L. Weingrow.
- -------------------------------------------------------------------------------
10.44 Letter dated March 14, 1988 from *
Heller Financial, Inc. to Marcade
respecting a proposed $30,000,000
five-year loan.
- -------------------------------------------------------------------------------
10.45 Amended and Restated Loan and *
Security Agreement dated as of
January 30, 1990 by and between
Marcade and Heller Financial, Inc.
- -------------------------------------------------------------------------------
- 50 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.46 Promissory Note dated as of August *
2, 1988 of the Company.
- -------------------------------------------------------------------------------
10.47 Guaranty, dated as of August 2, *
1988, by Booth Bay, Ltd. in favor
of Heller.
- -------------------------------------------------------------------------------
10.48 Guaranty, dated as of August 2, *
1988, by Marlene in favor of
Heller.
- -------------------------------------------------------------------------------
10.49 Amending Agreement to the *
Factoring Agreement between
Booth Bay Ltd. and Heller dated as
of August 2, 1988 by and between
Booth Bay Ltd. and Heller.
- -------------------------------------------------------------------------------
10.50 Amending Agreement to the *
Factoring Agreement between
Marlene and Heller dated as of
August 2, 1988 by and between
Marlene and Heller.
- -------------------------------------------------------------------------------
10.51 Pledge Agreement dated as of *
August 2, 1988 between Marcade and
Heller.
- -------------------------------------------------------------------------------
10.52 Stock Purchase Agreement, dated *
June 6, 1989, by and among The Marcade Group Inc. and Above
the Belt, Inc., as amended under date of June 9, 1989 filed
as Exhibit (2)(i) to the report of the Company on Form 8-K
dated July 21, 1989 and incorporated herein by reference.
- -------------------------------------------------------------------------------
10.52(a) Amendment No. 1 to the report on
Form 8-K dated July 21, 1989 on
Form 8 filed September 13, 1989
and incorporated herein by
reference.
- -------------------------------------------------------------------------------
10.53 Acquisition Agreement for the RJMJ
Group dated as of July 21, 1989 by
and among The Marcade Group Inc.,
MGX Acquisition Corp., MGX Holding
Corp., RJMJ Properties Corp.,
RJMJ, Incorporated, Shannon
Manufacturing Company, Inc.,
Renfield Manufacturing Company,
Inc., Robert Shipman and
375 Bridgeport Associates filed as
Exhibit 2.1 to the report of the
Company on Form 8-K dated July 31,
1989 and incorporated herein by
reference.
- -------------------------------------------------------------------------------
- 51 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.53(a) Amendment No. 1 to the report on *
Form 8-K dated July 31, 1989 on Form 8 filed October 13, 1989
and incorporated herein by reference.
- -------------------------------------------------------------------------------
10.53(b) Amendment No. 2 to the report on *
Form 8-K dated July 31, 1989 on Form 8 filed January 31, 1990
and incorporated herein by reference.
- -------------------------------------------------------------------------------
10.54 Extension Agreement, dated March *
28, 1991 by and between the
Registrant and Heller Financial, Inc. ("Heller") with respect
to the Amended and Restated Loan Agreement dated as of
January 30, 1990, by and between the Registrant and Heller,
the Inventory Loan and Security Agreement dated January 25,
1991 between Marlene Industries Corporation, a wholly owned
subsidiary of Registrant ("Marlene") and Heller, the
Supplemental Inventory Loan and Security Agreement dated
January 29, 1991 between Marlene and Heller, the Letter
Agreement dated January 31, 1991 between Registrant and
Heller, and the Factoring Agreements between Heller and
Marlene and Booth Bay Ltd. (merged into Marlene).
- -------------------------------------------------------------------------------
10.54(a) Letter Agreement, dated *
January 31, 1990 by and between
the Registrant and Heller
Financial, Inc. with regard to the
Amended and Restated Loan
Agreement dated as of January 30,
1990, by and between the
Registrant and Heller Financial,
Inc.
- -------------------------------------------------------------------------------
10.54(b) Inventory Loan and Security *
Agreement dated January 25, 1991
between Marlene Industries
Corporation and Heller Financial,
Inc.
- -------------------------------------------------------------------------------
10.54(c) Supplemental Inventory Loan and *
Security Agreement dated
January 31, 1991 between Marlene
Industries Corporation and Heller
Financial, Inc.
- -------------------------------------------------------------------------------
- 52 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.55 Letter of Intent dated March 27, *
1991 between Marlene Industries
Corporation, a wholly-owned
subsidiary of the Registrant
("Marlene"), and Mr. Blake
Griffith and Mr. Barry Lakis,
regarding the proposed sale of
certain assets of Marlene to an
acquiring corporation to be owned
by Messrs. Griffith and Lakis.
- -------------------------------------------------------------------------------
10.56 Forbearance Agreement, dated May *
21, 1991 by and between the Registrant, Marlene Industries
Corporation, a wholly owned subsidiary of Registrant
("Marlene") and Heller Financial, Inc. ("Heller") with
respect to the Amended and Restated Loan Agreement dated as
of January 30, 1990, by and between the Registrant and
Heller, the Inventory Loan and Security Agreement dated
January 25, 1991 between Marlene and Heller, the Supplemental
Inventory Loan and Security Agreement dated January 29, 1991
between Marlene and Heller, the Letter Agreement dated
January 31, 1991 between Registrant and Heller, and the
Factoring Agreements between Heller and Marlene and Booth Bay
Ltd. (merged into Marlene).
- -------------------------------------------------------------------------------
10.57 Second Amended and Restated Loan **
and Security Agreement dated
August 29, 1991 by and among the Registrant, Marlene
Industries Corporation, a wholly-owned subsidiary of
Registrant ("Marlene") and Heller Financial,
Inc. ("Heller").
- -------------------------------------------------------------------------------
10.58 Composition Agreement dated **
October 11, 1991 by and among Marcade, Marlene and the
Creditors Committee of Marlene.
- -------------------------------------------------------------------------------
10.59 Forbearance Agreement dated **
October 9, 1991 between BNY
Financial Corporation and The
Marcade Group, Inc.
- -------------------------------------------------------------------------------
10.60 Amendment dated as of August 2, **
1991 to Executive Employment
Agreement dated February 1, 1988
Between the Registrant and Charles
S. Ramat.
- -------------------------------------------------------------------------------
- 53 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.61 Amendment dated August 15, 1991 to **
Executive Employment Agreement
dated February 1, 1988, as
previously amended on March 21,
1991, between the Registrant and
Mr. Robert K. Lifton.
- -------------------------------------------------------------------------------
10.62 Amendment dated August 15, 1991 to **
Executive Employment Agreement
dated February 1, 1988, as
previously amended on March 21,
1991, between the Registrant and
Mr. Howard L. Weingrow.
- -------------------------------------------------------------------------------
10.63 Amendment dated August 15, 1991 to **
Consulting Agreement between the
Registrant and Alexander M. Goren
and James G. Goren, dated
March 26, 1988, as assigned by the
Gorens to JAG Consulting Co., Ltd.
by letter dated April 28, 1989, as
previously amended March 21, 1991.
- -------------------------------------------------------------------------------
10.64 Amendment dated August 15, 1991 to **
Shareholder Agreement dated as of
May 26, 1988 by and among the
Registrant, James G. Goren,
Alexander M. Goren, Robert K.
Lifton, Howard L. Weingrow,
Charles S. Ramat, David Schreiber
and Ora Ramat as Trustees u/a
dated December 18, 1986 by Charles
S. Ramat, as Grantor, f/b/o Hannah
Leah Ramat and David Schreiber and
Ora Ramat as Trustees u/a dated
December 18, 1986 by Charles S.
Ramat, as Grantor f/b/o Abraham
Gabriel Ramat.
- -------------------------------------------------------------------------------
10.65 Senior Secured Note Agreement ***
dated as of June 30, 1993 between
Registrant and Heller Financial,
Inc.
- -------------------------------------------------------------------------------
10.66 Senior Secured Note dated as of ***
June 30, 1993 issued by Registrant
to Heller Financial, Inc.
- -------------------------------------------------------------------------------
10.67 Series A Junior Secured Note ***
Agreement dated as of June 30,
1993 between Registrant and BNY
Financial Corporation.
- -------------------------------------------------------------------------------
10.68 Series A Junior Secured Note dated ***
as of June 30, 1993 issued by
Registrant to BNY Financial
Corporation.
- -------------------------------------------------------------------------------
- 54 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.69 Series B Junior Secured Note ***
Agreement dated as of June 30,
1993 between Registrant and
AIF II, L.P.
- -------------------------------------------------------------------------------
10.70 Series B Junior Secured Note dated ***
June 30, 1993 issued by Registrant
to AIF II, L.P.
- -------------------------------------------------------------------------------
10.71 Primary Pledge Agreement dated as ***
of June 30, 1993 between
Registrant and Heller Financial,
Inc.
- -------------------------------------------------------------------------------
10.72 Secondary Pledge Agreement dated ***
as of June 30, 1993 between Registrant,
BNY Financial Corporation and AIF II, L.P.
- -------------------------------------------------------------------------------
10.73 Securities Purchase Agreement ***
dated as of June 30, 1993 between
Registrant, Apollo Aris Partners,
L.P. and AIF II, L.P.
- -------------------------------------------------------------------------------
10.74 Debt Registration Rights Agreement ***
dated as of June 30, 1993 among
Registrant and the Holders of
Registrable Securities Referred to
Therein.
- -------------------------------------------------------------------------------
10.75 Shareholders Agreement dated as of ***
June 30, 1993 among Registrant and
the Subject Shareholders Referred
to Therein.
- -------------------------------------------------------------------------------
10.76 Equity Registration Rights ***
Agreement dated as of June 30, 1993
among Registrant and the Holders of
Registrable Shares Referred to Therein.
- -------------------------------------------------------------------------------
10.77 Intercreditor Agreement dated as ***
of June 30, 1993 among Heller
Financial, Inc., BNY Financial
Corporation and AIF II, L.P.
- -------------------------------------------------------------------------------
10.78 Second Amendment dated May 6, ***
1992, Third Amendment dated March 25, 1993,
and Fourth Amendment dated June 14, 1993 to
Executive Employment Agreement dated
February 1, 1988 between Registrant and
Charles S. Ramat.
- -------------------------------------------------------------------------------
10.79 Severance Agreement dated April 3, ***
1991 between Registrant and Paul
Spector.
- -------------------------------------------------------------------------------
10.80 1993 Stock Incentive Plan of ***
Registrant, as amended by
Amendment No. 1 thereto dated June
24, 1993.
- -------------------------------------------------------------------------------
- 55 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.81 Form of Indemnification Agreement ***
dated as of June 30, 1993 between
Registrant and each member of
Registrant's Board of Directors.
- -------------------------------------------------------------------------------
10.82 Letter Agreement dated February 8, ***
1993 among James G. Goren,
Alexander M. Goren, Charles S.
Ramat, and David Schreiber and Ora
Ramat as Trustees for the Benefit
of Hana Leah Ramat and Abraham
Ramat.
- -------------------------------------------------------------------------------
10.83 Addendum dated June 30, 1993 to ***
Shareholders Agreement dated May
26, 1988 among The Marcade Group
Inc. and the Shareholders referred
to therein.
- -------------------------------------------------------------------------------
10.84 Stipulated Entry Liquidating ***
Claims dated March 10, 1993 among
The Marcade Group Inc., Robert K.
Lifton, Howard L. Weingrow, and
JAG Consulting Co. Ltd.
- -------------------------------------------------------------------------------
10.85 Letter Agreement dated June 28, ***
1993 among AIF II, L.P., Apollo
Aris Partners, L.P. and
Registrant.
- -------------------------------------------------------------------------------
10.86 Letter Agreement dated October 29, ***
1992 among The Marcade Group Inc.,
Above The Belt, Inc., Europe Craft
Imports, Inc., Perry Manufacturing
Company, Apollo Investment Fund,
L.P., AIF II, L.P., and Altus
Finance.
- -------------------------------------------------------------------------------
10.87 Amendment dated December 12, 1994 ****
to Senior Secured Note Agreement
dated as of June 30, 1993 between
Registrant and Heller Financial,
Inc.
- -------------------------------------------------------------------------------
10.88 Amendment dated June 12, 1995 to *****
Senior Secured Note Agreement
dated as of June 30, 1993 between
Registrant and Heller Financial,
Inc.
- -------------------------------------------------------------------------------
10.89 Amendment dated October 27, 1995 ******
to Senior Secured Note Agreement
dated as of June 30, 1993 between
Registrant and Heller Financial,
Inc.
- -------------------------------------------------------------------------------
10.90 Amendment dated February 2, 1996 #
to Series B Junior Secured Note
Agreement dated as of June 30, 1993
between Registrant and AIF-II, L.P.
- -------------------------------------------------------------------------------
- 56 -
<PAGE>
===============================================================================
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
10.91 Fifth Amendment dated October 3, 85
1995 and Sixth Amendment dated
March 20, 1996 to Executive
Employment Agreement dated
February 1, 1988 between
Registrant and Charles S. Ramat
- -------------------------------------------------------------------------------
21. List of Subsidiaries 92
- -------------------------------------------------------------------------------
23. Consent of Deloitte & Touche LLP 94
- -------------------------------------------------------------------------------
28.1 The Company's Proxy Statement
dated July 15, 1991, filed with the
SEC in July, 1991.
- -------------------------------------------------------------------------------
28.2 The Company's Registration
Statement filed on Form S-1 and
amendments thereto filed with
the SEC on November 7, 1988.
===============================================================================
* Filed as the indicated Exhibit to the Annual Report of the
Company on Form 10-K dated February 2, 1991 and incorporated
herein by reference.
** Filed as the indicated Exhibit to the Report on Form 8-K dated
August 29, 1991 and incorporated herein by reference.
*** Filed as the indicated Exhibit to the Report on Form 8-K dated
June 30, 1993 and incorporated herein by reference.
**** Filed as the indicated Exhibit to the Report on Form 8-K dated
December 12, 1994 and incorporated herein by reference.
***** Filed as the indicated Exhibit to the Report on Form 8-K dated
June 12, 1995 and incorporated herein by reference.
****** Filed as the indicated Exhibit to the Report on Form 8-K dated
October 27, 1995 and incorporated herein by reference.
# Filed as the indicated Exhibit to the Report on Form 8-K dated
February 2, 1996 and incorporated herein by reference.
- 57 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARIS INDUSTRIES, INC.
By: /s/ PAUL SPECTOR
--------------------------------------
Paul Spector,
Senior Vice President
Chief Financial Officer
By: /s/ VINCENT F. CAPUTO
--------------------------------------
Vincent F. Caputo,
Vice President
Assistant Secretary and
Assistant Treasurer
Date: May 10, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ JOHN HANNAN May 10, 1996
- ---------------------------------------
John Hannan, Director
/s/ EDWARD M. YORKE May 10, 1996
- ---------------------------------------
Edward M. Yorke, Director
/s/ ROBERT KATZ May 10, 1996
- ---------------------------------------
Robert Katz, Director
/s/ CHARLES S. RAMAT May 10, 1996
- ---------------------------------------
Charles S. Ramat, Chairman of
the Board, President, Chief
Executive Officer and Assistant
Secretary; Director
/s/ HERBERT I. WEXLER May 10, 1996
- ---------------------------------------
Herbert I. Wexler, Director
/s/ DAVID N. SCHREIBER May 10, 1996
- ---------------------------------------
David N. Schreiber, Director
- 58 -
<PAGE>
DELOITTE &
TOUCHE LLP
- ---------- -------------------------------------------------------------
[LOGO] Two Hilton Court Telephone: (201) 631-7000
P.O. Box 319 Facsimile: (201) 631-7459
Parsippany, New Jersey 07054-0319
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Aris Industries, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Aris Industries,
Inc. (formerly "The Marcade Group Inc.") and Subsidiaries as of February 3, 1996
and January 28, 1995, and the related consolidated statements of operations,
stockholders' equity (deficiency), and cash flows for each of the three fiscal
years in the period ended February 3, 1996. Our audits also included the
financial statement schedules listed in the Index at Item 14(a)2. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Aris Industries, Inc. and
Subsidiaries as of February 3, 1996 and January 28, 1995, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 3, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for income taxes, effective January 31, 1993, to conform
with Statement of Financial Accounting Standards No. 109.
DELOITTE & TOUCHE LLP
May 3, 1996
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
F-1
- 59 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 3, January 28,
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 2,318,000 $ 3,264,000
Cash - restricted .................................................. -- l0,000
Receivables, net .................................................. 16,970,000 19,129,000
Inventories, net .................................................. 35,272,000 35,280,000
Prepaid expenses and other current assets ......................... 1,312,000 1,672,000
----------- -----------
Total current assets ......................................... 55,872,000 59,355,000
PROPERTY, PLANT AND EQUIPMENT - NET ................................... 13,462,000 14,144,000
OTHER ASSETS .......................................................... 834,000 813,000
GOODWILL .............................................................. 23,760,000 24,620,000
----------- -----------
TOTAL ASSETS .......................................................... $93,928,000 $98,932,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade acceptances payable ............................................ $ 2,007,000 $ 2,417,000
Accounts payable - trade ............................................. 8,592,000 10,286,000
Accrued expenses and other current liabilities ....................... 7,431,000 6,694,000
Current portion of long-term debt .................................... 1,302,000 4,979,000
Line of credit payable ............................................... 6,000,000 --
----------- -----------
Total current liabilities...................................... 25,332,000 24,376,000
OTHER LIABILITIES ..................................................... 1,527,000 1,706,000
LONG-TERM DEBT ........................................................ 66,505,000 64,239,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01: 50,000,000 shares authorized;
issued and outstanding 11,925,400 shares .......................... 119,000 1l9,000
Preferred stock, par value $.01: 10,000,000 shares authorized;
none issued or outstanding ........................................ -- --
Additional paid-in capital .......................................... 44,061,000 44,061,000
Accumulated deficit ................................................. (42,387,000) (34,330,000)
Cumulative foreign currency translation adjustment .................. (1,229,000) (1,239,000)
----------- -----------
Total stockholders' equity .................................... 564,000 8,611,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $93,928,000 $98,932,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
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<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 WEEKS ENDED 52 WEEKS ENDED
-------------- ------------------------------
February 3, January 28, January 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUES $173,990,000 $188,143,000 $192,583,000
------------ ------------ ------------
OPERATING COSTS:
Cost of sales 140,008,000 146,295,000 149,404,000
Selling and administrative 32,030,000 31,677,000 33,853,000
Costs of restructuring 430,000 -- --
------------ ------------ ------------
172,468,000 177,972,000 183,257,000
------------ ------------ ------------
INCOME BEFORE INTEREST AND
DEBT EXPENSE, REORGANIZATION
ITEMS, INCOME TAXES, AND
EXTRAORDINARY ITEM 1,522,000 10,171,000 9,326,000
INTEREST AND DEBT EXPENSE -- NET 9,644,000 7,812,000 6,681,000
------------ ------------ ------------
INCOME (LOSS) BEFORE REORGANIZATION
ITEMS, INCOME TAXES AND
EXTRAORDINARY ITEM (8,122,000) 2,359,000 2,645,000
REORGANIZATION ITEMS:
Professional fees and expenses -- -- 372,000
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM (8,122,000) 2,359,000 2,273,000
INCOME TAX (BENEFIT) EXPENSE (65,000) 143,000 275,000
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (8,057,000) 2,216,000 1,998,000
EXTRAORDINARY ITEM--
Gain on debt forgiveness -- -- 29,208,000
------------ ------------ ------------
NET INCOME (LOSS) $ (8,057,000) $ 2,216,000 $ 31,206,000
============ ============ ============
PER SHARE DATA:
Income (loss) before extraordinary item $ (0.68) $ 0.19 $ 0.21
Extraordinary item -- -- 3.08
------------ ------------ ------------
NET INCOME (LOSS) $ (0.68) $ 0.19 $ 3.29
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES 11,925,400 $ 11,925,400 9,485,700
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
- 61 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
NEW OLD NEW PARTICIPATING CONVERTIBLE
COMMON COMMON PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK
------- ----------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 30,1993 $ - $ 2,818,000 $ - $1,300,000 $1,553,000
10 to 1 Reverse Split 28,000 (2,798,000) - - -
Payment of O.1% of liquidation
preference - - - (1,300,000) -
Conversion of Class B Convertible
Preferred Stock 10,000 - - - (1,553,000)
Conversion of Senior Convertible Notes 23,000 - - - -
Retirement of treasury stock - (20,000) - - -
Issuance of stock to Apollo 58,000 - - - -
Issuance of stock -- other - - - - -
Foreign currency translation adjustment - - - - -
Net income - - - - -
------- ----------- ------ ---------- ----------
BALANCE, JANUARY 29, 1994 119,000 - - - -
Foreign currency translation adjustment - - - - -
Net income - - - - -
-------- ----------- ------ ---------- ----------
BALANCE, JANUARY 28, 1995 119,000 - - - -
Foreign currency translation adjustment - - - - -
Net loss - - - - -
-------- ----------- ------ ---------- ----------
BALANCE, FEBRUARY 3, 1996 $119,000 $ - $ - $ - $ -
======== =========== ====== ========== ==========
</TABLE>
See notes to consolidated financial statements.
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL FOREIGN
PAID-IN ACCUMULATED TREASURY TRANSLATION
CAPITAL DEFICIT STOCK ADJUSTMENT TOTAL
----------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 30, 1993 $35,763,000 $(67,329,000) $(706,000) $(1,011,000) $(27,612,100)
10 to 1 Reverse Split 2,770,000 - - - -
Payment of O.1% of liquidation
preference 1,298,000 - - - (2,000)
Conversion of Class B Convertible
Preferred Stock 1,543,000 - - - -
Conversion of Senior Convertible Notes 1,977,000 - - - 2,000,000
Retirement of treasury stock (263,000) (423,000) 706,000 - -
Issuance of stock to Apollo 942,000 - - - 1,000,000
Issuance of stock - other 31,000 - - - 31,000
Foreign currency translation adjustment - - - (79,000) (79,000)
Net income - 31,206,000 - - 31,206,000
----------- ------------ --------- ------------ -----------
BALANCE, JANUARY 29, 1994 44,061,000 (36,546,000) - (1,090,000) 6,544,000
Foreign currency translation adjustment - - - (149,000) (149,000)
Net income - 2,216,000 - - 2,216,000
----------- ------------ --------- ------------ -----------
BALANCE, JANUARY 28, 1995 44,061,000 (34,330,000) - (1,239,000) 8,611,000
Foreign currency translation adjustment - - - 10,000 10,000
Net loss - (8,057,000) - - (8,057,000)
----------- ------------ --------- ------------ -----------
BALANCE, FEBRUARY 3, 1996 $44,061,000 $(42,387,000) $ - $(1,229,000) $ 564,000
=========== ============ ========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
- 62 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
52 WEEKS ENDED
53 WEEKS ENDED -----------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(8,057,000) $ 2,216,000 $ 31,206,000
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Gain on sale of property (350,000) (82,000) -
Depreciation and amortization 3,320,000 3,278,000 3,241,100
Gain on debt forgiveness - - (29,208,000)
Loss on abandonment of leasehold improvements - - 287,000
Deferred income tax benefit (102,000) (335,000) (202,000)
Changes in assets and liabilities:
Decrease in cash -- restricted 10,000 25,000 995,000
Decrease (increase) in receivables 2,159,000 (2,848,000) 3,614,000
Decrease (increase) in inventories 11,000 (5,466,000) 1,049,000
Decrease in prepaid expenses and other current assets 204,000 120,000 427,000
(Increase) decrease in other assets (21,000) (321,000) 839,000
(Decrease) increase in trade acceptances payable (410,000) 923,000 (388,000)
Decrease in accounts payable -- trade (1,696,000) (1,354,000) (2,077,000)
Increase (decrease) in accrued expenses and other current liabilities 863,000 899,000 (485,000)
(Decrease) increase in other liabilities (389,000) 75,000 822,000
----------- ----------- ------------
Net cash (used in) provided by operating activities (4,458,000) (2,870,000) 10,120,000
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 539,000 141,000 922,000
Capital expenditures (1,501,000) (4,582,000) (2,450,000)
----------- ----------- ------------
Net cash used in investing activities (962,000) (4,441,000) (1,528,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank line of credit 6,000,000 -
Proceeds from issuance of long-term debt 400,000 2,509,000 1,063,000
Principal payments of long-term debt, including capital leases (2,266,000) (2,931,000) (4,858,000)
Issuance of common stock - - 1,000,000
Proceeds from equipment financing agreement 343,000 - -
----------- ----------- ------------
Net cash provided by (used in) financing activities 4,477,000 (422,000) (2,795,000)
----------- ----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,000) (2,000) (5,000)
----------- ----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (946,000) (7,735,000) 5,792,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,264,000 10,999,000 5,207,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,318,000 $ 3,264,000 $ 10,999,000
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,474,000 $ 7,649,000 $ 3,835,000
=========== =========== ============
Income taxes $ 226,000 $ 466,000 $ 330,000
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES
ARE MADE IN NOTE 17 TO THE CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
See notes to consolidated financial statements.
F-5
- 63 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Aris Industries, Inc., formerly the Marcade Group,
Inc. (the "Company"), is a publicly held company that was incorporated in
1947 in the State of New York. The Company is engaged in the design,
manufacture, importing and distribution of men's and young men's sportswear
and outerwear and ladies' sportswear and other apparel. The Company's
operations are conducted primarily through two wholly-owned subsidiaries,
Europe Craft Imports, Inc. ("ECI") and Perry Manufacturing Company
("Perry"), which were acquired by Aris in 1987. In addition, there are four
inactive wholly-owned subsidiaries: Above the Belt, Marlene Industries
Corporation, RJMJ Inc., and Clarkins.
ECI designs, imports and distributes men's sportswear, including cloth and
leather jackets, primarily under the "Members Only" trade name. ECI has
also been granted a license to distribute men's outerwear and raincoats
under the "Perry Ellis" trade name. In addition, ECI acts as a sourcing
agent for various national retail store chains and arranges for and
oversees the production of merchandise for such companies. ECI also has
licensing agreements with various licensees, granting them the right to
operate under the "Members Only" trade name.
ECI purchases a majority of its products from foreign manufacturers located
in Hong Kong, China, Korea and Indonesia. The majority of the ECI's net
revenues for the 53 weeks ended February 3, 1996 were accounted for in four
business lines: Outerwear (60%), Sportswear (10%), Perry Ellis (15%) and
Private Label (15%). ECI's products are marketed nationally in department
stores, specialty stores and retail chains. In addition, ECI operates three
outlet stores.
Perry, primarily a supplier of private label goods to national chain
stores, designs, manufactures and distributes ladies' and men's sportswear.
Perry's manufacturing operations consist of designing, cutting, sewing and
packaging with locations in North Carolina, Virginia, El Salvador, Costa
Rica and Honduras. The Company also employs independent factories and
contractors in the United States, Latin America and South America. The five
largest customers of Perry account for approximately 96% of their total net
revenues. See the discussion of certain risks and uncertainties in Item 7
of Form 10-K on pages 14 through 17.
USE OF ESTIMATES - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures relating to contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses for the reporting period. Actual
results could differ from those estimates. The most significant use of
estimates in the Company's consolidated financial statements involves the
ultimate realizability of goodwill.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of Aris
Industries, Inc. and Subsidiaries (the "Company") include the accounts of
its subsidiaries, all of which are wholly owned. All material intercompany
transactions and balances have been eliminated.
F-6
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<PAGE>
CASH EQUIVALENTS - The Company considers all investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
INVENTORIES - All inventories, except for those of one subsidiary which
accounts for its inventory at the lower of cost (weighted average basis) or
market, are stated at the lower of cost (first-in, first-out basis) or
market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation and amortization are computed using the straight-line
method over the following estimated useful lives of the assets, the terms
of the leases or the lives of the improvements, whichever are less:
Building and improvements 16 to 30 years
Machinery and equipment 3 to 7 years
Furniture and fixtures 3 to 5 years
Leasehold improvements 5 to 10 years
INCOME TAXES - The provision for income taxes includes Federal and state
taxes currently payable and deferred taxes arising from temporary
differences in determining income for financial statement and tax purposes.
The Company and its subsidiaries file a consolidated Federal income tax
return on a calendar year basis.
As of January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109).
Under SFAS No. 109, deferred tax liabilities or assets are recognized for
the expected future tax consequences of events that have been recognized in
the financial statements. The cumulative effect of adopting SFAS No. 109
was immaterial.
GOODWILL- Goodwill represents the unamortized excess of the cost of
acquiring a business over the fair values of the net assets received at the
date of acquisition. Amortization expense is computed by use of the
straight-line method over an estimated life of 40 years. The Company
continuously evaluates goodwill for any potential impairment. The Company
assesses the recoverability of goodwill by determining whether the
amortization of the goodwill balance over its remaining fife can be
recovered through expected undiscounted future results. Accumulated
amortization at February 3, 1996 and January 28, 1995 was $8,362,000 and
$7,502,000, respectively.
FISCAL YEAR - The Company's fiscal year ends on that Saturday which is
the closest to January 31. Accordingly, there are 53 weeks in the period
ended February 3, 1996 and 52 weeks in the periods ended January 28, 1995
and January 29, 1994.
PER SHARE DATA - Income (loss) per share was computed based upon the
weighted average number of common shares outstanding during the applicable
period. The 10 to 1 reverse stock split was accounted for retroactively to
the beginning of the earliest period presented.
NAME CHANGE - As discussed in Note 5, the corporate name of the Company
was changed during the fiscal year ended January 29, 1994 from "The Marcade
Group, Inc." to "Aris Industries, Inc."
NEW ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
(FASB) has issued Statement No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The effect
on the Company of implementing this new standard is not expected to be
material.
F-7
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<PAGE>
The FASB also issued Statement No. 123, Accounting for Stock-Based
Compensation, which encourages, but does not require, employers to adopt a
fair value method of accounting for employee stock-based compensation, and
which requires increased stock-based compensation disclosures if expense
recognition is not adopted. The Company has not yet determined the effect
of adopting the new Statement on their consolidated financial statements.
Reclassifications - Certain reclassifications have been made to the prior
year's consolidated financial statements to conform them to the current
year presentation.
2. RECEIVABLES
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
Due from factor $16,264,000 $17,420,000
Other receivables 1,378,000 2,205,000
Less allowance for uncollectible
accounts and sales discounts 672,000 496,000
----------- -----------
$16,970,000 $19,129,000
=========== ===========
As of February 3, 1996, two subsidiaries had agreements with commercial
financial companies which provide for the factoring of certain trade
receivables. The receivables were factored without recourse as to credit
risk but with recourse for any claims by the customer for adjustments in
the normal course of business relating to pricing errors, shortages,
damaged goods, etc. One operating subsidiary had taken loans and advances
of $7,940,000 and $16,809,000 against total factored receivables of
$11,706,000 and $21,644,000 at February 3, 1996 and January 28, 1995,
respectively. During the fiscal years ended February 3, 1996 and January
28, 1995, the weighted average interest rate on loans and advances was 10%
and 8.4%, respectively. The subsidiary's factoring and short-term financing
agreement provides up to 90% advances prior to collection of such accounts
receivable, with interest at the greater of the prime rate or the Federal
funds rate, plus 1%. Additional advances up to 100% may be available at the
factor's discretion. Such additional advances involve interest at the
greater of the prime rate or the Federal funds rate, plus 1-1/2%. All
factored receivables and related proceeds of sales are the property of the
respective commercial financial companies. The subsidiaries are charged a
factoring commission ranging from .60% to 1% of factored sales. The prime
interest rate in effect at February 3, 1996 and January 28, 1995, was
8-1/4% and 8-1/2%, respectively.
3. INVENTORIES
FEBRUARY 3, JANUARY 28,
1996 1995
------------ ------------
Finished goods $18,681,000 $18,818,000
Work-in-process 7,493,000 8,304,000
Raw materials 9,098,000 8,158,000
------------ ------------
$ 35,272,000 $ 35,280,000
============ ============
F-8
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<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
February 3, January 28,
1996 1995
----------- ------------
Land $ 1,155,000 $ 1,183,000
Building and improvements 9,456,000 9,728,000
Machinery and equipment 12,554,000 11,450,000
Furniture and fixtures 2,667,000 2,174,000
Leasehold improvements 1,432,000 1,473,000
----------- -----------
27,264,000 26,008,000
Less accumulated depreciation 13,802,000 11,864,000
----------- -----------
$13,462,000 $14,144,000
=========== ===========
5. BANKRUPTCY PROCEEDINGS
On June 30, 1993 ("Effective Date"), the Plan of Reorganization of Aris
Industries Inc. (the "Company" or "Aris") and its wholly-owned subsidiary,
Marlene Industries Corporation ("Marlene"), under Chapter 11 of the U.S.
Bankruptcy Code (the "Plan") became effective following confirmation by the
U.S. Bankruptcy Court for the Southern District of New York. On the
Effective Date, the corporate name of the Company was changed from "The
Marcade Group, Inc." to "Aris Industries, Inc."
Pursuant to the Plan, (i) Apollo Aris Partners, L.P., a Delaware limited
partnership ("Apollo Aris"), invested $1 million in the Company in exchange
for 5,804,820 shares of the Company's New Common Stock issued to Apollo
Aris, which shares constitute approximately 48.8% of the Company's capital
stock issued and outstanding as of the Effective Date, (ii) its affiliate,
AIF-II, L.P., a Delaware limited partnership ("AIF-II") and, together with
Apollo Aris, "Apollo"), invested $6.5 million in the Company in exchange
for a promissory note ("Apollo Note") in the principal amount of $7.5
million issued by the Company to AIF-II and (iii) the Company entered into
the Senior Secured Note Agreement with Heller Financial, Inc. ("Heller"),
the Series A Junior Secured Note Agreement with BNY Financial Corporation
("BNY") and the Series B Junior Secured Note Agreement with Apollo, as
described in Note 6.
F-9
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<PAGE>
6. LONG-TERM DEBT
Long-term debt is comprised of:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------ ------------
ARIS-CORPORATE:
<S> <C> <C>
Heller Note, interest at prime plus 2%. $ 49,857,000 $ 49,857,000
BNY Note, interest at 7%. 7,000,000 7,000,000
Apollo Note, interest at 13%. Net of unamortized original
issue discount of $819,000 and $898,000 at
February 3, 1996 and January 28, 1995, respectively 6,681,000 6,602,000
Promissory Note, semi-annual installments of $250,000, due
from February 1994 through August 1995 - 500,000
OPERATING SUBSIDIARIES:
Secured notes:
Note payable, interest at 11%, due in monthly installments of
$42,000 through June 1999, plus interest at LIBOR plus
4.125% (9.313% at February 3, 1996) 1,907,000 2,231,000
Note payable due in quarterly installments of $25,000
through January 1999, plus interest at prime plus 1/2% 275,000 375,000
Note payable to bank, interest at 10%, due in monthly
installments of $21,000 through June 1995 - 135,000
Note payable to financing company, due in monthly
installments varying from $1,200 to $18,400 (including
principal and interest at 13% through 2000 47,000 81,000
Note payable, interest at a variable rate, quarterly
principal payments of $40,500 through 1997 203,000 365,000
Note payable, interest at a variable rate, quarterly
principal payments of $31,250 through 1997 220,000 345,000
Note payable, interest at prime plus 1%, quarterly
principal payments of $18,750 through 1997 55,000 130,000
Industrial Revenue Bonds:
Interest at 78% of prime (not to exceed 14-5/8%) due
quarterly. Quarterly principal installments of $65,885
due through April 1998 593,000 857,000
Other 969,000 740,000
------------ ------------
67,807,000 69,218,000
Less current portion 1,302,000 4,979,000
------------ ------------
$ 66,505,000 $ 64,239,000
============ ============
</TABLE>
F-10
- 68 -
<PAGE>
On the Effective Date, the Company entered into a Senior Secured Note
Agreement with Heller pursuant to which Heller received a note in the
original principal amount of $50,857,000 to be repaid over seven years,
with interest at 2% over prime. Heller retained a pledge of the Company's
stock (but not the assets) in ECI and Perry. Heller's note, of which
$49,857,000 is outstanding at February 3, 1996, is required to be paid in
accordance with the schedule set forth below, which was amended on May 1,
1996 to be less restrictive to the Company. Heller has agreed to loan to
the Company the amounts necessary to pay the quarterly interest payments
under such note due for the period May 6, 1996 through November 4, 1996,
inclusive, in which the additional loan principal will be due on February
3, 1997. Additionally, Aris must make annual prepayments equal to 50% of
certain "excess cash flow" (as defined) for the preceding four fiscal
quarters.
CALENDAR
YEAR AMOUNT
-------- -----------
1997 $11,000,000
1998 10,000,000
1999 10,000,000
2000 18,857,000
Heller's note contains certain affirmative and negative covenants on the
operation of the Company. The Senior Secured Note Agreement provides that
the entire obligation under Heller's new note must be prepaid upon the
occurrence of certain reductions of Apollo's interest in the Company
defined as the existence at any one time of (1) Apollo Entities (as
defined) ceasing to own at least 24.4% of the Constant Common Shares (as
defined) of the Company and (2) certain levels of representation (as
defined) on the Company's Board of Directors ceasing to be designated or
approved by Apollo Entities.
On the Effective Date, the Company entered into a Series B Junior Secured
Note Agreement with Apollo pursuant to which Apollo received a $7.5 million
note bearing interest at 13% per annum. Apollo shares with BNY a second
lien on Heller's collateral. Apollo's note is required to be paid in two
equal installments payable on November 3, 2001 and 2002. The Apollo Note
contains certain affirmative and negative covenants on the operation of the
Company. Pursuant to the Debt Registration Rights Agreement entered into on
the Effective Date between the Company and Apollo, Apollo and one
transferee are entitled to require the Company twice to register the offer
and sale of the Apollo Note under Federal and applicable state securities
laws, and at the request of Apollo or such transferee, to negotiate with
such party in good faith to convert the Apollo Notes into registered notes
issued pursuant to a trust indenture.
On the Effective Date, the Company entered into a Series A Junior Secured
Note Agreement with BNY pursuant to which BNY received a nine-year, $7
million note, bearing interest at a rate of 7% per annum. BNY shares with
Apollo a second lien on Heller's collateral. BNY's note is required to be
paid in six annual installments, payable on November 3 of each year
commencing in 1997 as follows:
CALENDAR
YEAR AMOUNT
-------- ---------
1997 $ 300,000
1998 300,000
1999 500,000
2000 600,000
2001 1,100,000
2002 4,200,000
The BNY note contains certain affirmative and negative covenants on the
operation of the Company.
F-11
- 69 -
<PAGE>
Once the Heller obligations are paid in full, Apollo and BNY will share in
mandatory prepayments based upon 50% of certain "excess cash flows" (as
defined). With the consent of BNY and Apollo, as agreed to in May 1996, the
quarterly interest payments under the Company's notes due to BNY and
Apollo, respectively, for the period May 6, 1996 through February 3, 1997,
inclusive, will not be made in cash and instead will be added to the
principal of such notes.
In fiscal year 1994, the Company realized an extraordinary gain of
$26,025,000 relating to the debt restructuring as a result of the
implementation of the Company's Plan of Reorganization; an extraordinary
gain of $475,000 relating to a Composition Agreement of the Company's
Marlene subsidiary and an extraordinary gain of $2,708,000 resulting from
the implementation of the Plan of Reorganization of the Company's RJMJ
subsidiary ("RJMJ").
MATURITIES - Future maturities of long-term debt are as follows:
FISCAL YEARS ENDING IN
----------------------
1997 $ 1,302,000
1998 12,554,000
1999 11,165,000
2000 11,030,000
2001 19,569,000
Thereafter 13,006,000
-----------
$68,626,000
===========
In addition to the minimum ownership and Board of Directors representation
by Apollo, as discussed earlier, the Heller Note also contains other
affirmative and negative covenants, the most restrictive of which require
the Company to maintain, on a consolidated and a separate operating
subsidiary basis, certain levels of financial performance, including, among
others, the maintenance of (a) certain levels of earnings before interest
and taxes and certain levels of net worth (b) consolidated current assets
to consolidated current liabilities of not less than 1.5 to 1 on the last
day of each fiscal year and (c) certain limits on capital expenditures. If
at any time the Heller Note is not outstanding then the above financial
covenants would apply to the BNY Note and the Apollo Note.
During the fiscal year ended February 3, 1996, the Company complied with
its financial covenants related to the Heller Note. On May 1, 1996, the
agreement was amended, as discussed above, to contain less restrictive
affirmative and negative covenants.
RESTRICTED NET ASSETS - ECI has an aggregate $40,000,000 line of credit
which is secured by liens on certain assets of ECI, and was available at
the prime rate of 8-1/4 % and 8-1/2% at February 3, 1996 and January 28,
1995, respectively. Under this agreement, net assets restricted to ECI's
use at February 3, 1996 and January 28, 1995 were $14,802,000 and
$21,154,000, respectively.
In addition, Perry has net assets restricted to its use at February 3, 1996
and January 28, 1995 of $22,889,000 and $20,404,000, respectively, which
arise from its Industrial Revenue Bond Agreements. At this time, the
Company believes that management fee revenue from its principal operating
subsidiaries will be sufficient to cover debt service requirements and
corporate operating cash requirements for the fiscal year ending February
1, 1997.
7. LINE OF CREDIT PAYABLE
As discussed above, ECI has available a line of credit for the purposes of
financing working capital requirements. The terms of the agreement allow
Perry to draw up to $5,000,000 of the proceeds from borrowings. During the
fiscal years ended February 3, 1996 and January 28, 1995, the weighted
average
F-12
- 70 -
<PAGE>
interest rate on borrowings under this line of credit was 7.5% and 7.3%,
respectively. Certain financial covenants under this agreement were not met
as of February 3, 1996. On May 3, 1996, ECI received waivers of
noncompliance. Additionally, on May 3, 1996, ECI negotiated a new line of
credit with the bank. Under the new agreement, ECI has available a
$30,000,000 line of credit which is secured by liens on certain assets of
ECI with interest accruing at the bank's prime rate plus 1/4%. The new
agreement no longer contains a clause that allows for additional borrowings
by Perry, and contains various clauses which, among other things, limit
payment of management fees to the Company and require the maintenance of
certain levels of net worth (as defined) during the year.
8. PREFERRED STOCK
On the Effective Date, holders of Old Marcade Class A participating
preferred stock received cash equal to 0.1% of liquidation preference
(equivalent to $.13 per old Class A participating preferred share). Holders
of Old Marcade Class B convertible preferred stock received 138.99596
shares of New Common Stock for each old Class B convertible preferred
share.
In addition, on the Effective Date, the Company filed a Restated
Certificate of Incorporation which provided for the authorization for
future issuance of 10 million shares of "blank check" preferred stock, par
value $.01 per share. During the fiscal years ended February 3, 1996,
January 28, 1995 and January 29, 1994, no such shares were issued or
outstanding.
9. 1993 STOCK INCENTIVE PLAN
Pursuant to the Company's Plan of Reorganization, on the Effective Date, a
new 1993 Stock Incentive Plan was adopted by the Company (the "1993 Stock
Incentive Plan"). The 1993 Stock Incentive Plan authorizes the Company's
Board of Directors (or a committee thereof), to award to employees and
directors of, and consultants to, the Company and its subsidiaries (i)
options to acquire New Common Stock at prices determined when the options
are granted, (ii) stock appreciation rights (entitling the holder to a
payment equal to the appreciation in market value of a specified number of
shares of New Common Stock over a specified period), (iii) restricted
shares of New Common Stock whose vesting is subject to terms and conditions
specified at the time of grant, and (iv) performance shares of New Common
Stock that are granted upon achievement of specified performance goals.
Options granted pursuant to the 1993 Stock Incentive Plan may be either
"incentive stock options" within the meaning of Section 422A of the United
States Internal Revenue Code of 1986, as amended, or non-qualified options.
A maximum of 1.2 million shares of New Common Stock (subject to
anti-dilution adjustments) can be covered by awards under the 1993 Stock
Incentive Plan.
F-13
- 71 -
<PAGE>
The 1993 Stock Incentive Plan provides that any shares subject to an option
under such plan which terminate, are cancelled or expire without being
exercised may again be subjected to an option under the plan, subject to
the earlier termination of that plan. All options provide for vesting in
three equal annual installments from the date of grant. As of February 3,
1996, there were 30 eligible participants with options outstanding under
the 1993 Stock Incentive Plan. During the fiscal year ended January 29,
1994, a total of 420,000 stock options were granted to Directors of the
Company under the 1993 Stock Incentive Plan. On June 26, 1995, all
outstanding stock options under the 1993 Stock Incentive Plan were repriced
to have an exercise price of fifty cents (the market price on such date),
rather than two dollars per share.
53 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 3, JANUARY 28,
1996 1995
--------- ---------
Options outstanding, beginning of year 1,042,000 1,040,500
Granted - 12,000
Exercised - -
Cancelled 77,000 10,500
--------- ---------
Options outstanding, end of year 965,000 1,042,000
========= =========
Exercise price per option (as determined
by the Board of Directors) $ .50 $ 2.00
========= =========
Option available for grant 235,000 158,000
========= =========
Options exercisable, end of year 643,366 137,300
========= =========
10. TRANSACTIONS WITH RELATED PARTIES
During the fiscal year ended January 29, 1994, four persons who resigned as
directors of the Company prior to the Effective Date received an aggregate
of $210,000 fifty-three weeks after the Effective Date, in settlement of
various pre-petition claims in connection with employment and consulting
arrangements which were terminated pursuant to the Company's Plan of
Reorganization.
In each of the two fiscal years ended January 28, 1995, rent payments of
$411,000 were paid by ECI to a general partnership controlled by then
current and former officers of ECI. These officers of ECI were never
officers or directors of the Company.
11. RETIREMENT PLANS
During the fiscal year ended January 28, 1995, the Company and its two
subsidiaries established defined contribution plans pursuant to Section
401(k) of the Internal Revenue Code. All employees are eligible to
participate. Employer contributions are discretionary. Participants
immediately vest in their own contributions and in employer contributions
after six or seven years of service. During the fiscal year ended February
3, 1996, total matching contributions of $74,000 were made.
In May 1991, a discontinued operating subsidiary of the Company terminated
all of its remaining employees who participated in its pension plan, this
resulted in the immediate vesting and a curtailment of the Plan. There was
no gain or loss recognized from the curtailment. There was no net periodic
pension benefit/cost for the years ended February 3, 1996, January 28, 1995
and January 29, 1994. Assets of the plan are invested in a U.S. government
securities fund.
F-14
- 72 -
<PAGE>
The following table sets forth the funded status of the pension plan:
FEBRUARY 3, JANUARY 28,
1996 1995
--------- ---------
Actuarial present value of accumulated
benefit obligation (all vested) $ 95,000 $ 46,000
========= =========
Plan assets at fair value $ 222,000 $ 260,000
Actuarial present value of projected benefit
obligation 95,000 46,000
--------- ---------
Plan assets in excess of projected benefit
obligation 127,000 214,000
Contingent liability 127,000 214,000
--------- ---------
Prepaid pension cost $ - $ -
========= =========
The benefits paid are non-earnings related; thus the projected and
accumulated benefit obligations are equal. The expected long-term rate of
return on assets was 6% and 5% as of February 3, 1996 and January 28, 1995,
respectively.
12. INTEREST AND DEBT EXPENSE, NET
52 WEEKS ENDED
53 WEEKS ENDED ---------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
---------- ---------- ----------
Interest income $ (42,000) $ (87,000) $ (82,000)
Interest on debt 9,686,000 7,899,000 6,645,000
Amortization and write-off
of debt issuance costs - - 118,000
---------- ---------- ----------
$9,644,000 $7,812,000 $6,681,000
========== ========== ==========
13. INCOME TAXES
The following tables present the components of the provision (benefit) for
income taxes, a reconciliation of the expected statutory Federal income tax
expense (benefit) to the actual expense (benefit) and the principal items
of deferred taxes.
The (benefit) provision for income taxes is as follows:
52 WEEKS ENDED
53 WEEKS ENDED -------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
---------- ---------- -----------
Current
Federal $ - $ 70,000 $124,000
State 37,000 408,000 353,000
Deferred:
Federal (223,000) (300,000) -
State 121,000 (35,000) (202,000)
-------- --------- --------
$(65,000) $143,000 $275,000
======== ========= ========
F-15
- 73 -
<PAGE>
A reconciliation of the expected statutory Federal income tax expense
(benefit) and the actual expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS ENDED
ENDED -------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Expected income tax
(benefit) expense (34)% 34% 34%
Increase (decrease) in taxes resulting from:
Non-deductible goodwill 6 20 21
State and local income tax, net 1 10 5
Losses from foreign subsidiaries 8 -
Non-recognition of NOL benefit
and deferred tax assets 19 (61) (49)
Other (1) 3 1
---- ---- ----
Actual income tax (benefit) expense (1)% 6% 12%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's deferred tax assets and
liabilities are as follows:
1996 1995
----------- -----------
Deferred tax assets:
Current:
Book/tax inventory basis differences $ 812,000 $ 760,000
Customer allowances 514,000 -
Other 791,000 706,000
----------- -----------
2,117,000 1,466,000
Noncurrent:
Operating loss carryforwards 38,991,000 36,343,000
Tax credit carryforwards 242,000 268,000
Alternative minimum tax credit carryforward 627,000 565,000
Non-deductible accruals - 65,000
----------- -----------
39,860,000 37,241,000
----------- -----------
41,977,000 38,707,000
Valuation allowance (40,817,000) (38,150,000)
----------- -----------
Net deferred tax assets $ 1,160,000 $ 557,000
=========== ===========
Deferred tax liabilities:
Intangible assets $ 837,000 $ 863,000
Book/tax fixed asset basis differences 827,000 300,000
----------- -----------
Total noncurrent deferred tax liabilities $ 1,664,000 $ 1,163,000
=========== ===========
F-16
- 74 -
<PAGE>
A valuation allowance is recognized for those deferred tax assets that may
not be realized. At this time, the Company has determined that such
valuation allowance be equal to the net Federal deferred tax assets except
for a portion of the alternative minimum tax credit carryforwards. During
the year ended January 28, 1995, the valuation allowance was reversed by
$280,000 related to alternative minimum tax credit carryforwards. The
alternative minimum tax credit carryforwards do not expire, and in the
Company's opinion, it is more likely than not that a portion of this
credit carryforward will be realized. The valuation allowance was decreased
by $1,104,000 in conjunction with the decrease in net operating loss
carryforwards that were used to offset taxable income for the 52 weeks
ended January 29, 1994.
Net current deferred tax assets and noncurrent deferred tax liabilities are
included in prepaid expenses and other current assets, and other
liabilities. Net noncurrent deferred Federal tax assets are included in
other assets.
F-17
- 75 -
<PAGE>
14. NET OPERATING LOSS CARRYFORWARDS
The Company has taken the position that consummation of a prior
restructuring in 1986 did not materially eliminate or reduce any portion of
the net operating loss carryforwards. It is possible, however, that on
audit the Internal Revenue Service could disagree with the positions taken
by the Company, and should such a dispute arise, it would be difficult to
predict the ultimate outcome since these issues involve many complex and
technical questions under Section 382 of the Internal Revenue Code, as in
effect prior to the Tax Reform Act of 1986, and other provisions of Federal
tax law. Accordingly, no assurance can be given as to whether all or any
part of such carryforwards from the 1986 restructuring will be available to
the Company to offset future income.
Section 382, as amended by the Tax Reform Act of 1986 ("New Section 382"),
limits a corporation's use of carryforwards in the event of a "Change of
Ownership", which is defined generally as a 50 percentage point change in
stock ownership at any time during the relevant testing period.
Any significant loss of, or restriction on the use of the Company's net
operating loss carryforwards could have a material adverse effect upon the
Company's future earnings and future cash flow and could limit the
Company's future ability to service its debt obligations. The conclusions
drawn by the Company in monitoring and calculating the requirements of New
Section 382 for activity subsequent to the 1986 restructuring involve many
complex and technical questions. The Company's Chapter 11 Plan of
Reorganization qualifies under New Section 382 (1)(5) and therefore its
ability to utilize a substantial portion of the net operating loss
carryforwards of the Company should be preserved. The Internal Revenue
Service could disagree with the Company's position, and should such a
dispute arise, it would be difficult to predict the outcome.
The amounts and expiration dates, if accepted, of the remaining tax net
operating loss carryforwards are as follows:
1998 $ 7,000,000
1999 20,000,000
2000 9,000,000
2001 6,000,000
2005 38,000,000
2006 11,000,000
2007 3,000,000
2008 1,000,000
2010 4,000,000
-----------
$99,000,000
===========
Approximately $242,000 of investment tax and job credits, expiring from
1996 to 2000, are available as a carryforward to reduce future Federal
income tax payments.
F-18
- 76 -
<PAGE>
15. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS -- Future minimum rental payments under capital leases
and noncancellable operating leases that have initial or remaining lease
terms in excess of one year as of February 3, 1996 are as follows:
OPERATING CAPITAL
FISCAL YEAR ENDING IN LEASES LEASES
--------------------- ---------- ---------
1997 $2,263,000 $ 222,000
1998 2,086,000 240,000
1999 1,486,000 233,000
2000 1,043,000 157,000
2001 733,000 128,000
Thereafter 1,968,000 226,000
---------- ---------
Total minimum lease payments $9,579,000 1,206,000
==========
Less amount representing interest (237,000)
---------
Present value of minimum lease payments $ 969,000
=========
The Company has various operating leases in effect primarily for warehouse,
selling and administrative facilities, and equipment. The leases expire at
various dates through 2004. Certain leases contain escalation clauses based
on increases in the Consumer Price Index, taxes or utilities. Minimum rent
expense under all operating leases was $2,326,000, $1,853,000 and
$2,022,000, for each of the three years in the period ended February 3,
1996.
EQUIPMENT FINANCING AGREEMENT -- During the 53 weeks ended February 3,
1996, ECI entered into a financing agreement with a third party for the
purposes of acquiring various computer hardware and software. In addition,
ECI will receive future services from the third party for which additional
financing will be provided. The terms of the agreement require ECI to make
specified monthly payments over a three-year period with payments
commencing on April 2, 1996. The third-party is secured by an interest in
the computer hardware and software. As of February 3, 1996, the current
obligation payable is $85,492 and is included in accrued expenses and other
current liabilities. The noncurrent obligation payable is $257,160 and is
included in other liabilities.
The following is a schedule of future payments required under the entire
financing agreement as of February 3, 1996.
FISCAL YEAR ENDING IN
---------------------
1997 $116,000
1998 150,000
1999 164,000
2000 29,000
--------
Total future payments $459,000
========
F-19
- 77 -
<PAGE>
EMPLOYMENT CONTRACTS -The Company and its subsidiaries have entered into
various employment contracts with two of their senior executives for
periods of one to three years, expiring no later than June 30, 1998. Under
the agreements, the covered individuals are entitled to specified salaries
over the contract periods. In addition, bonuses are payable contingent upon
profitability and cash flow of the Company or applicable subsidiary for
each period. The estimated future minimum obligation under these contracts
as of February 3, 1996 is $1,837,000.
CONTINGENCIES - The Company, in the ordinary course of its business, is the
subject of, or a party to, various pending or threatened legal actions
involving private interests. While the Company cannot quantify the outcome
of any litigation, the Company is vigorously defending these claims and
believes that any ultimate liability arising from these actions will not
have a material adverse effect on its consolidated financial statements at
February 3, 1996. Included in selling and administrative expenses for the
53 weeks ended February 3, 1996 are charges related to the settlement of a
civil action. This settlement did not have a material impact on the
consolidated financial statements.
16. SEGMENTS OF BUSINESS - SIGNIFICANT CUSTOMERS
The Company operates in the apparel design, manufacture, import and
distribution industry.
The percentage of net revenues from significant customers was as follows:
53 WEEKS 52 WEEKS ENDED
ENDED -------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
---------- ---------- -----------
Customer 1 34% 33% 29%
Customer 2 17 9 14
Customer 3 11 16 15
17. SUPPLEMENTAL CASH FLOW INFORMATION
Information regarding investing and financing activities involving noncash
transactions for the fiscal year ended January 29, 1994 is summarized as
follows:
Liabilities discharged pursuant to the Plan of Reorganization $28,223,000
Senior Subordinated Notes and Senior Convertible
Debentures surrendered in partial exchange for
amounts payable pursuant to the Apollo Note 6,250,000
Conversion of Senior Convertible promissory notes 2,000,000
Accrued interest and expenses payable to Heller
included in principal in the new Heller note 4,250,000
Liabilities discharged pursuant to the RJMJ
Plan of Reorganization 2,708,000
F-20
- 78 -
<PAGE>
18. FOURTH QUARTER RESULTS
During the fourth quarter of the year ended January 29, 1994, the Company
recorded an extraordinary gain of $2,708,000 upon confirmation of the RJMJ
Plan of Reorganization. Also during the fourth quarter of the year ended
January 29, 1994, the Company recorded an aggregate of $1,329,000 of
year-end adjustments relating to increased inventory reserves and bonuses
charged to operations.
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the fair value of its financial instruments,
which are used for other than trading purposes, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company would realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies could have a material effect on the estimated fair
values.
In the opinion of management, the carrying value of floating rate notes
payable and other floating rate borrowings approximates estimated fair
value. Further, in the opinion of management, it is not practicable to
reasonably estimate the fair value of the Company's fixed rate subordinated
long-term debt since there are no quoted market prices for such financial
instruments with similar risk, including those associated with the
Company's emergence from bankruptcy proceedings in June 1993. Additionally,
the cost of obtaining independent valuations or otherwise determining the
fair value of the Company's fixed rate subordinated long-term debt in the
circumstances, is considered excessive.
******
F-21
- 79 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,690,000 $ 2,481,000
Prepaid expenses and other current assets 58,000 158,000
------------ ------------
Total current assets 1,748,000 2,639,000
INVESTMENTS IN/ADVANCES TO SUBSIDIARIES 65,620,000 72,754,000
PROPERTY AND EQUIPMENT - NET 12,000 13,000
OTHER ASSETS 288,000 295,000
------------ ------------
TOTAL ASSETS $ 67,668,000 $ 75,701,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses and other current liabilities $ 2,719,000 $ 2,076,000
Current portion of long-term debt - 3,500,000
------------ ------------
Total current liabilities 2,719,000 5,576,000
OTHER LIABILITIES 847,000 1,055,000
LONG-TERM DEBT (net of unamortized discount of $819,000
and $898,000 at February 3, 1996 and January 28, 1995,
respectively) 63,538,000 60,459,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 119,000 119,000
Preferred stock, par value $.01 - -
Additional paid-in capital 44,061,000 44,061,000
Accumulated deficit (42,387,000) (34,330,000)
Cumulative translation adjustment ( 1,229,000) (1,239,000)
------------ ------------
Total stockholders' equity 564,000 8,611,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 67,668,000 $ 75,701,000
============ ============
(Continued)
</TABLE>
See notes to condensed financial statements.
F-22
- 80 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS ENDED
ENDED -------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES:
Management fees from subsidiaries $ 7,741,000 $10,400,000 $ 6,113,000
Equity in (losses) earnings of subsidiaries (5,756,000) 2,043,000 7,786,000
------------ ----------- ------------
1,985,000 12,443,000 13,899,000
------------ ----------- ------------
OPERATING COSTS:
Selling and administrative expenses 1,466,000 1,693,000 1,569,000
Amortization and depeciation expenses 1,412,000 1,538,000 1,625,000
Reorganization items - - 372,000
------------ ----------- ------------
2,878,000 3,231,000 3,566,000
----------- ------------
INCOME (LOSS) BEFORE INTEREST, INCOME
TAXES AND EXTRAORDINARY ITEM (893,000) 9,212,000 10,333,000
INTEREST EXPENSE- NET 7,060,000 6,263,000 4,947,000
------------ ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (7,953,000) 2,949,000 5,386,000
INCOME TAXES 104,000 733,000 205,000
------------ ----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (8,057,000) 2,216,000 5,181,000
EXTRAORDINARY ITEM:
Gain on debt extinguishment - - 26,025,000
------------ ----------- ------------
NET INCOME (LOSS) $ (8,057,000) $ 2,216,000 $ 31,206,000
============ =========== ============
(Continued)
</TABLE>
F-23
- 81 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS ENDED
ENDED ------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (8,057,000) $ 2,216,000 $ 31,206,000
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,412,000 1,538,000 1,625,000
Loss on abandonment of leasehold improvements - - 17,000
Interest in undistributed equity losses (earnings)
of subsidiaries 5,756,000 (2,043,000) (6,750,000)
Gain on debt forgiveness - - (26,025,000)
Deferred income tax (benefit) expense (26,000) - -
Change in assets and liabilities 628,000 186,000 988,000
------------ ------------ ------------
Net cash (used in) provided by operating activities (287,000) 1,897,000 1,061,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,000) - (17,000)
Proceeds from sale of property and equipment - - 40,000
------------ ------------ ------------
Net cash provided by investing activities (4,000) - 23,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repayment of subsidiary note - 510,000
Principal payments of long-term debt (500,000) (1,500,000) (1,860,000)
Proceeds from issuance of long-term debt - - 250,000
Issuance of common stock - - 1,000,000
------------ ------------ ------------
Net cash used in financing activities (500,000) (1,500,000) (100,000)
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (791,000) 397,000 984,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,481,000 2,084,000 1,100,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,690,000 $ 2,481,000 $ 2,084,000
============ ============ ============
CASH PAID DURING THE YEAR FOR:
Interest $ 6,907,000 $ 5,958,000 $ 1,878,000
============ ============ ============
Income taxes $ 110,000 $ 166,000 $ 124,000
============ ============ ============
(Continued)
</TABLE>
See notes to condensed financial statements.
F-24
- 82 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN SUBSIDIARIES - Investments in subsidiaries are accounted for
using the equity method under which Aris' 100% share of earnings or losses
of these subsidiaries are reflected in operations as earned. Dividends, if
any, are credited against the investment in subsidiaries when received. For
the year ended January 29, 1994, dividends received from subsidiary were
$1,041,000.
2. DEBT MATURITIES
Future maturities of long-term debt are as follows:
FISCAL YEARS ENDING IN
1997 $ -
1998 11,300,000
1999 10,300,000
2000 10,500,000
2001 19,457,000
Thereafter 12,800,000
------------
$ 64,357,000
============
F-25
- 83 -
<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------
ADDITIONS -
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
53 weeks ended February 3, 1996:
Allowance for sales
returns and discounts $ 496,000 $ 8,894,000 $ 7,117,000(2) $ 2,273,000
Inventory reserve for obsolescence 1,041,000 515,000 617,000(3) 939,000
Reserve for markdown allowances - 886,000 - 886,000
----------- ----------- ----------- -----------
$ 1,537,000 $10,295,000 $ 7,734,000 $ 4,098,000
=========== =========== =========== ===========
52 weeks ended January 28, 1995:
Allowance for sales
returns and discounts $ 378,000 $ 2,920,000 $ 2,802,000(2) $ 496,000
Inventory reserve
for obsolescence 1,237,000 2,214,000 2,410,000(3) 1,041,000
----------- ----------- ----------- -----------
$ 1,615,000 $ 5,134,000 $ 5,212,000 $ 1,537,000
=========== =========== =========== ===========
52 weeks ended January 29, 1994:
Allowance for
doubtful accounts $ 349,000 $ - $ 349,000(1) $ -
Allowance for sales
returns and discounts 533,000 5,017,000 5,172,000(2)(4) 378,000
Inventory reserve
for obsolescence 848,000 574,000 185,000(3) 1,237,000
----------- ----------- ----------- -----------
$ 1,730,000 $ 5,591,000 $ 5,706,000 $ 1,615,000
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) Doubtful accounts written off.
(2) Returns and discounts taken.
(3) Inventory written off.
(4) $428,000 reclassified to other current liabilities.
F-26
- 84 -
<PAGE>
EXHIBIT 10.91
- 85 -
<PAGE>
ARIS INDUSTRIES, INC.
675 THIRD AVENUE
NEW YORK, NEW YORK 10017
October 3, 1995
Mr. Charles S. Ramat
1185 Park Avenue
Apartment No. 16A
New York, New York 10028
Re: Fifth Amendment to Executive Employment Agreement
-------------------------------------------------
Dear Mr. Ramat:
Reference is made to your Senior Executive Employment Agreement with Aris
Industries, Inc. ("Aris") made as of February 1, 1988 and amended August 2,
1991, May 6, 1992, March 25, 1993 and June 14, 1993 (such Agreement, as amended,
referred to as the "Employment Agreement"). Recognizing the need to provide
continuity of senior executive management, Aris has agreed to continue and
extend the term of your Employment Agreement for the period through June 30,
1998, on the same terms and conditions currently set forth in your Employment
Agreement, with the following amendments provided herein:
4. Aris hereby elects to extend the term of your Employment Agreement as
Chairman, President and Chief Executive Officer of Aris for the period through
June 30, 1998, and accordingly, Section 3 of the Employment Agreement is hereby
amended to provide that the term of your employment shall extend through June
30, 1998 and all references in Section 3 of the Employment Agreement to "three
(3) years after the Effective Date" shall hereinafter read "June 30, 1998".
During the extension of the term of your Employment Agreement, you will continue
to be compensated pursuant to, and will continue to receive all benefits and
perquisites provided in, your Employment Agreement. Without limiting the
generality of the foregoing, the reference in Section 4(a) of the Employment
Agreement to initial Base Salary shall be updated and amended to reflect your
current Base Salary and shall read "$530,450 per annum."
5. The last sentence of Section 2 of your Employment Agreement shall be
amended to read as follows: "Executive shall devote to the affairs of Aris only
such time as shall be reasonably necessary for the performance of his duties
hereunder(which shall
- 86 -
<PAGE>
be not less than a majority of his business time), and such services shall not
be required on a full time basis."
3. Section 3(g)(F) of your Employment Agreement (as added by the First
Amendment dated August 2, 1991 and describing certain events of change of
control) is hereby amended to read as follows: "(F) if Aris does not pay
Executive, when due, any component of compensation provided to Executive under
this Agreement".
4. The definition of "Excess Cash Flow" set forth in Section 4(b)(i) of
your Employment Agreement is hereby amended by adding to the end thereof the
following language: "provided however, that there shall be excluded from such
computation for any fiscal year extraordinary items occurring or accruing from
and after September 18, 1995, other then the sale of the stock, assets or
business of Perry Manufacturing Company, a wholly-owned subsidiary of Aris (the
"Perry Sale"), and the Perry Sale shall be included in such computation; and
further provided, that the foregoing exclusion for extraordinary items shall not
apply to the benefit of any net operating loss carryforwards or tax credits,
which shall be included in such computation." The latter proviso clarifies that
the existing Section 4(b)(i) which expressly includes "the benefit of any net
operating loss carryforwards or tax credits" will not be changed by the
exclusion for extraordinary items.
5. Section 4(b)(ii)(B)(1) of your Employment Agreement referring to the
time of payment of the Annual Bonus shall be amended by adding the following
language to the end thereof: "Notwithstanding the foregoing, that portion of the
Annual Bonus relating to the Perry Sale which would have been paid thirty-six
months after the end of the fiscal year in which the Perry Sale occurs, shall
instead be paid in thirty-six(36) equal consecutive monthly installments, each
without interest, the first monthly installment to be paid to Executive not
later than ten (10) days after Aris files with the U.S. Securities and Exchange
Commission its Annual Report on Form 10-K or the then equivalent, for the fiscal
year in which the Perry Sale occurs, provided however, that such installment
payments with respect to the Perry Sale shall be accelerated and paid in full in
a lump sum to Executive under any and all circumstances and events under which
the portion of the Annual Bonus to be paid to Executive under this Section
4(b)(ii)(B) shall be so accelerated". Section 4(b)(ii)(B)(2), referring to
adjustments in the deferred portion of the Annual Bonus for future values of
Aris Stock, shall be amended by adding to the end thereof the following
language: "provided however, that no such adjustment shall be applied to that
portion of the Annual Bonus relating to the Perry Sale."
6. The first sentence of Section 3(f) of your Employment Agreement
referring to the calculation of the Severance Amount shall be amended by adding
to the end thereof the following language: "provided however, that no portion of
the Annual Bonus relating to the Perry Sale shall be included in the computation
of
- 87 -
<PAGE>
Executive's Average Annual Compensation under this Section 3(f)." The third
sentence of Section 3(f) of your Employment Agreement shall be amended to read
as follows: "An election by Executive to receive the lump sum payment under this
Section 3(f) shall be a waiver of any unpaid portions of Annual Bonuses under
Section 4(b)(ii)(B) and 4(b)(ii)(D) of this Agreement, including any future
installments of the portion of the Annual Bonus relating to the Perry Sale."
7. Section 4(b)(ii)(D) of your Employment Agreement referring to the
acceleration of the deferred portion of the Annual Bonus on certain events shall
be amended by adding a new clause (v) thereto which shall read as follows: "(v)
the sale or liquidation of all or substantially all of the operating assets of
Aris; provided however, that Aris' directly and indirectly owned Ohio real
estate interests shall not be considered operating assets for this purpose". In
addition, the reference in Section 4(b)(ii)D to acceleration of "any and all
Annual Bonuses or portions thereof under Section 4(b)(ii)B" shall be modified by
adding to the end of the reference the following language: "(including without
limitation, any and all unpaid installments of the Annual Bonus resulting from
the Perry Sale)." Furthermore, Section 4(b)(ii)(D) shall be amended by adding to
the end thereof the following language, "provided however, that an election by
Executive to receive the lump sum payment under Section 3(f) of this Agreement
shall be a waiver of any unpaid portion of Annual Bonuses otherwise accelerated
under this Section 4(b)(ii)(D), including any future installments of the portion
of the Annual Bonus relating to the Perry Sale."
8. Section 3(g)(G) of your Employment Agreement(as added by the Fourth
Amendment dated June 14, 1993 and describing certain events of change in control
relating to the Overhead Assumption Agreement) is hereby amended by adding to
the end thereof the following language: "provided however, that a change in
control will not be deemed to have occured due to the termination, amendment or
modification of the Overhead Assumption Agreement (i) solely due to the sale or
liquidation of the stock, assets or business of Marlene or Unishops, (ii) solely
due to the sale or liquidation of the stock, assets or business of one of Perry
or ECI, when the other of Perry or ECI remains a subsidiary of Aris, or (iii)
solely due to the sale or liquidation of the stock, assets or business of both
Perry and ECI, provided that on or prior thereto, Aris enters into a new
agreement with a newly acquired operating subsidiary (with a net worth and net
income not less than that of ECI) on terms substantially similar to the Overhead
Assumption Agreement for the benefit of Charles S. Ramat and the other
beneficiaries of the Overhead Assumption Agreement; and further provided, that
Aris covenants to cause all newly acquired operating subsidiaries to enter into
such a new agreement; and further provided that a sale or liquidation of the
stock, assets or business of both Perry and ECI without such a new agreement
with such a newly acquired subsidiary, shall be deemed to be a change in control
for purposes of Section 3 of this Agreement, whether or
- 88 -
<PAGE>
not the Overhead Assumption Agreement is terminated, amended or modified."
9. In all other respects your Employment Agreement (as previously amended)
shall continue unchanged and remain in full force and effect. The amendments to
your Employment Agreement set forth in this letter shall become effective
immediately. Please indicate your concurrence with the foregoing by signing in
the space provided below, whereby this letter shall become a legal and binding
agreement between you and Aris.
AGREED AND ACCEPTED: Very truly yours,
ARIS INDUSTRIES, INC.
/s/ PAUL SPECTOR
--------------------------------------
/s/ CHARLES S. RAMAT Paul Spector
- -------------------- Senior Vice President
Charles S. Ramat and Chief Financial Officer
- 89 -
<PAGE>
ARIS INDUSTRIES, INC.
475 FIFTH AVENUE
NEW YORK, NEW YORK 10017
March 20, 1996
Mr. Charles S. Ramat
1185 Park Avenue
Apartment No. 16A
New York, New York 10028
Re: Sixth Amendment to Executive Employment Agreement
-------------------------------------------------
Dear Mr. Ramat:
Reference is made to your Senior Executive Employment Agreement with Aris
Industries, Inc. ("Aris") made as of February 1, 1988 and amended August 2,
1991, May 6, 1992, March 25, 1993, June 14, 1993 and October 3, 1995 (such
Agreement, as amended, referred to as the "Employment Agreement"). Aris has
agreed to the following additional amendments provided herein:
6. Aris and its wholly owned subsidiary, Europe Craft Imports, Inc. ("ECI")
each hereby agree that ECI shall establish an ECI Bonus Pool for key management
of ECI (including Executive, who is Chairman, President and Chief Executive
Officer of ECI as well as of Aris) for the fiscal year commencing February 4,
1996.
The amount of the ECI Bonus Pool for such fiscal year shall be computed as
the sum of (i) 10% of the Pre-Tax and Pre-Management Fee Net Income of ECI for
such fiscal year up to the first $1,000,000; (ii) 15% of the Pre-Tax and
Pre-Management Fee Net Income of ECI for such fiscal year in excess of
$1,000,000 and up to $2,000,000; (iii) 35% of the Pre-Tax and Pre-Management Fee
Net Income of ECI for such fiscal year in excess of $2,000,000 and up to
$3,000,000; and (iv) 10% of the Pre-Tax and Pre-Management Fee Net Income of ECI
for such fiscal year in excess of $3,000,000 and up to $4,000,000. The aggregate
amount of the ECI Bonus Pool for such fiscal year shall be allocated among
Executive and the most senior management of ECI as determined by Executive after
review with the Compensation and Stock Option Committee of the Aris Board of
Directors, provided however, that Executive shall receive 35% of the ECI Bonus
Pool. The ECI Bonus Pool if earned, shall be paid at such times as Aris and ECI
historically pay bonuses. "Pre-Tax and Pre-Management Fee Income" shall be
calculated without deduction for payment or accrual of the ECI Bonus Pool. The
ECI Bonus Pool is separate and apart from the annual bonuses budgeted to be paid
to clerical and mid-level employees at ECI. All
- 90 -
<PAGE>
payments to Executive from the ECI Bonus Pool for such fiscal year shall be
credited against the Annual Bonus provided by Aris to Executive in the
Employment Agreement for the fiscal year commencing February 4, 1996 so that
there is no duplication; provided however, there shall be no credit against or
reduction of that portion of the Annual Bonus relating to a Perry Sale.
7. In all other respects your Employment Agreement (as previously amended)
shall continue unchanged and remain in full force and effect. The amendments to
your Employment Agreement set forth in this letter shall become effective
immediately. Please indicate your concurrence with the foregoing by signing in
the space provided below, whereby this letter shall become a legal and binding
agreement between you, Aris and ECI.
AGREED AND ACCEPTED: Very truly yours,
ARIS INDUSTRIES, INC.
By: /s/ PAUL SPECTOR
---------------------------------
/s/ CHARLES S. RAMAT Paul Spector
- -------------------------------- Senior Vice President
Charles S. Ramat and Chief Financial Officer
EUROPE CRAFT IMPORTS, INC.
By: /s/ PAUL SPECTOR
---------------------------------
Paul Spector
Vice President
- 91 -
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ ------------------------------
Europe Craft Imports, Inc. New Jersey
Perry Manufacturing Company North Carolina
All other subsidiaries of the Registrant, considered in the aggregate as a
single subsidiary, do not constitute a significant subsidiary as of the end of
the year covered by this Annual Report, and, therefore, their names have been
omitted.
- 92 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARIS INDUSTRIES, INC.
By: /s/ PAUL SPECTOR
----------------------------------------
Paul Spector,
Senior Vice President
Chief Financial Officer
By: /s/ VINCENT F. CAPUTO
----------------------------------------
Vincent F. Caputo,
Vice President
Assistant Secretary and
Assistant Treasurer
Date: May 10, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ JOHN HANNAN May 10, 1996
- ------------------------------------
John Hannan, Director
/s/ EDWARD M. YORKE May 10, 1996
- ------------------------------------
Edward M. Yorke, Director
/s/ ROBERT KATZ May 10, 1996
- ------------------------------------
Robert Katz, Director
/s/ CHARLES S. RAMAT May 10, 1996
- ------------------------------------
Charles S. Ramat, Chairman of
the Board, President, Chief
Executive Officer and Assistant
Secretary; Director
/s/ HERBERT I. WEXLER May 10, 1996
- ------------------------------------
Herbert I. Wexler, Director
/s/ DAVID N. SCHREIBER May 10, 1996
- ------------------------------------
David N. Schreiber, Director
- 93 -
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-80862 of Aris Industries, Inc. and Subsidiaries on Form S-8 of our
report dated May 3, 1996, appearing in this Annual Report on Form 10-K of
Aris Industries, Inc. and Subsidiaries for the fiscal year ended February 3,
1996.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
May 13, 1996
- 94 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 2,318,000
<SECURITIES> 0
<RECEIVABLES> 17,642,000
<ALLOWANCES> 672,000
<INVENTORY> 35,272,000
<CURRENT-ASSETS> 1,312,000
<PP&E> 27,264,000
<DEPRECIATION> 13,802,000
<TOTAL-ASSETS> 93,928,000
<CURRENT-LIABILITIES> 25,332,000
<BONDS> 66,505,000
0
0
<COMMON> 119,000
<OTHER-SE> 445,000
<TOTAL-LIABILITY-AND-EQUITY> 93,928,000
<SALES> 173,990,000
<TOTAL-REVENUES> 173,990,000
<CGS> 140,008,000
<TOTAL-COSTS> 140,008,000
<OTHER-EXPENSES> 32,460,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,644,000
<INCOME-PRETAX> (8,122,000)
<INCOME-TAX> (65,000)
<INCOME-CONTINUING> (8,057,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,057,000)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> (0.68)
</TABLE>
