SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995
Commission file number 1-3185
UNITED MERCHANTS AND MANUFACTURERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-1426280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Palisade Ave, Teaneck, N.J. 07666
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 837-1700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock-Par Value $1 Per Share.......... New York Stock Exchange
Preferred Stock...............................New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
3 1/2% Senior Subordinated Debentures due 2009
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate market value of Common Stock, Par Value $1 Per Share,
held by non-affiliates (based upon the closing sale price on the New York
Stock Exchange) on September 22, 1995 was approximately $3,125,000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [X] No [ ]
As of September 22, 1995, there were 17,845,000 shares of Common
Stock, Par Value $1 Per Share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 16, 1995 are incorporated by reference
into Part III.
<PAGE>
PART I
Item 1. Business.
General
As a result of the closing of its apparel textile manufacturing operation
in February 1995 and the sale of its retail outlet stores in January 1995,
United Merchants and Manufacturers, Inc. ("UM&M" or the "Company") is
currently engaged only in the design, manufacture and distribution of
costume jewelry. The Company's operations are located in the United
States.
Recent Events
Financing
Effective July 31, 1995, the Company and its 79%-owned subsidiary,
Victoria Creations, Inc. ("Victoria"), each renegotiated its borrowing
arrangements with its current lender. Under the terms of the amended
agreements, the Company's borrowings under the revolving and term loans
with the lender as of June 30, 1995 (see Note D of Notes to Consolidated
Financial Statements) were converted to a term loan. This term loan will
be repayable from collections of certain accounts receivable and sales of
inventory other than those of Victoria and a portion of the proceeds of
sales of the Company's other assets, primarily real property. The term
loan matures July 31, 2000 and bears interest at the rate of 12% a year.
The new arrangements for Victoria consist of a $5.0 million term loan due
June 15, 2000 and a revolving loan, based on Victoria's eligible accounts
receivable and inventories, having a term ending June 15, 1998. The
revolving loan will be renewed automatically for successive one year
periods thereafter unless terminated by either party upon thirty days
notice. These loans bear interest at prime rate plus 3 1/2%, or currently
12 1/4% a year.
On June 30, 1994, the Company reduced its indebtedness to its then senior
secured lender to the target amount established in an agreement with that
lender. At that time, in accordance with the agreement, the lender
accepted, in full satisfaction of the balance (approximately $63.4
million) of the Company's indebtedness to the lender, a 5% subordinated
contingent income note due June 30, 2019 in the principal amount of $30
million. The Company reduced its indebtedness to the targeted amount
through the sale of two of the Company's operating divisions, sales of
certain other assets, and a borrowing of approximately $29 million from
the Company's current lender.
The satisfaction of this indebtedness by the Company was accounted for as
a "troubled debt restructuring" and resulted in an extraordinary, non-cash
gain from retirement of debt of $33.4 million
1
<PAGE>
Dispositions and Terminations of Certain Operations
In January 1995, the Company sold its retail outlet store operations for
cash and the assumption by the buyer of certain of the operation's
liabilities. The financial statements presented herein include the
results of the retail outlet store operations through December 31, 1994.
During the quarter ended December 31, 1994, the Company recognized a loss
of $1.3 million for the sale and the loss from operations from December
31, 1994 to date of sale.
In December 1994, the Company announced that it would close its Buffalo
Mill division, which was its Apparel Textiles segment. The Company made a
provision for losses of $9.1 million for the closing and ongoing costs of
the division.
During the fiscal year ended June 30, 1994, the Company sold substantially
all of the assets (other than accounts receivable) and business, as a
going concern, of the Uniblend operation of its apparel textiles segment
and of its Clarkesville Mill division. The sales resulted in gains of
approximately $8.3 million. Also, during the year, the Company determined
that non-cash proceeds from the sale of two operations in fiscal 1993 were
uncollectible and, therefore, recognized a loss on sale of those
operations of $5.1 million.
During the fiscal year ended June 30, 1993, the Company sold certain
assets of and discontinued a converting operation of its Home Furnishings
segment. The discontinuance resulted in a loss, after adjustment during
the six months ended June 30, 1993, of $3.8 million. This loss was
partially offset by sale of assets of a business previously discontinued
for $1.1 million more than the Company's carrying value of these assets.
Also during the 1993 fiscal year, the Company consummated the sale of the
swimwear and the children's slip and sleepwear operations of its Apparel
segment. The Company recognized no gain or loss on the sale of these two
operations.
The proceeds from the above transactions, along with the collection of the
accounts receivable of the operations, were used to reduce the Company's
indebtedness.
Discontinuance of Medical Plan
Effective August 31, 1995, the Company discontinued the Company-sponsored
medical plan for its employees and retirees other than Victoria's current
employees. The discontinuance will result in a non-cash gain of $10.2
million and a reduction of $10.2 million in the Company's liability for
postretirement benefits other than pension and will reduce the Company's
ongoing cash expenses by more than $1 million a year.
2
<PAGE>
Description of Principal Activities
The following is a description of UM&M's business segment.
The Company's operations consist of it's 79% owned subsidiary, Victoria
Creations, Inc. ("Victoria"). Victoria's Common Stock is publicly traded
and is quoted on the OTC Bulletin Board operated by National Association
of Securities Dealers, Inc. Victoria files quarterly and annual reports
with the Securities and Exchange Commission.
Victoria is one of the leading designers, manufacturers and distributors
of costume jewelry throughout the United States and also exports such
products, principally to Japan and Western Europe. Victoria produces a
broad range and assortment of costume jewelry, including relatively
expensive, high quality items sold under the Bijoux Givenchy(R),
Richelieu(R) and Karl Lagerfeld(R) trade names and private label jewelry
for major department and chain stores.
Victoria markets its products using its own sales force throughout the
United States, primarily to department and chain stores and, to a lesser
extent, to mass merchandisers and mail-order distributors. In addition,
Victoria has established a factory direct business to design and
manufacture unique and proprietary costume jewelry-type items for certain
customers.
The costume jewelry industry is highly fragmented and includes many small
firms. The Company believes that Victoria is one of the largest
manufacturers of costume jewelry in the United States. Within the
industry, there are manufacturers that focus on low-margin, basic items
and those that emphasize higher-margin (and higher risk) items geared to
be highly fashionable. The Company believes that only a few companies, of
which Victoria is one, combine manufacturing and marketing capabilities
for both basic and high fashion items.
Victoria competes on the basis of design, quality, reliability as a
supplier, service to the customer and price. Its major competitors are
Monet, Anne Klein division of Swank, Inc., Liz Claiborne, Inc. and Napier,
Inc.
The Company does not believe that the dollar amount of unfilled orders is
significant to an understanding of its accessories business due to the
generally short time between receipt of a customer order and shipment of
the product.
3
<PAGE>
Selected Financial Data
The table below summarizes recent financial information for the Company.
This information was derived from consolidated financial statements which
have been reported on by the Company's independent auditors.
(000 omitted)
------------------------------------------------
Year Ended or at June 30
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Net sales.............. $ 59,493 $ 64,934 $ 68,788 $ 61,448 $ 61,757
Operating loss......... (6,633) (11,314) (11,160) (17,369) (25,170)
Loss from continuing
operations........... (18,330) (22,737) (22,466) (27,390) (36,105)
Loss per common share from
continuing operations (1.28) (1.52) (1.51) (1.89) (3.97)
Total assets........... 58,428 83,254 126,420 140,721 152,411
Liabilities subject to
compromise........... 204,279
Long-term debt and notes
payable.............. 81,071 80,559 133,564 117,500 69,374
- ---------
During the five year period presented, the Company has sold, terminated
and/or restructured a number of domestic and foreign apparel and textile
operations. See Note C of Notes to Consolidated Financial Statements for
further information regarding such sales or terminations. The information
shown above has been restated to exclude the results of such operations;
the Company's net investment in such businesses is included in total
assets prior to such sale or termination.
No cash dividends on the Company's Common or Preferred Stock have been
paid during the five years ended June 30, 1995.
The selected financial data should be read in conjunction with the related
Consolidated Financial Statements and notes thereto.
4
<PAGE>
Environmental Considerations
The Company's manufacturing operations are subject to various Federal,
state and local laws restricting the discharge of materials into the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of its operations because of
such regulations. The Company continually expends funds to assure that
its facilities are in compliance with applicable environmental
regulations. In fiscal 1995, the Company's capital expenditures for
environmental control facilities were not significant, and no significant
capital expenditures are expected in fiscal 1996.
Raw Materials
Raw materials used by the Company are currently available from several
sources in sufficient quantities for the Company's requirements.
Employee Relations
The Company currently employs approximately 650 persons. The Company
considers its labor relations with its employees to be good.
Executive Officers of the Registrant
The following table sets forth the names, ages, present positions and
business experience during the last five years of all Executive Officers
of the Company. Officers are appointed to serve until the meeting of the
Board of Directors following the next Annual Meeting of Stockholders and
until their successors have been elected and have qualified.
Name Age(1) Present Position Business Experience
---- ------ ---------------- -------------------
Uzi Ruskin......... 50 Chairman, President, Chairman, President,
Chief Executive and Chief Executive and
Chief Operating Chief Operating
Officer Officer of UM&M
Sidney O. Margolis. 69 Executive Vice Executive Vice President
President and of UM&M
Assistant Secretary
Judith A. Nadzick.. 47 Executive Vice Executive Vice President,
President, Chief Chief Financial Officer,
Financial Officer, Treasurer and Assistant
Treasurer and Secretary of UM&M.
Assistant Secretary
Norman R. Forson... 65 Senior Vice Senior Vice President and
President and Corporate Comptroller
Corporate of UM&M
Comptroller
5
<PAGE>
Edward D. Taffet... 38 Senior Vice Senior Vice President,
President, General General Counsel and
Counsel and Secretary of UM&M
Secretary
(1) As of June 30, 1995.
Item 2. Properties.
At June 30, 1995, the Company operated 2 significant domestic
manufacturing and distribution facilities, aggregating approximately
75,000 square feet, which are owned by the Company and are located in the
United States. In management's opinion, current facilities provide
adequate production capacity to meet the Company's planned business
activities.
Item 3. Legal Proceedings.
The Company is a defendant in various lawsuits. It is not expected that
these suits will result in judgements which in the aggregate would have a
material adverse effect on the Company's financial position; accordingly,
no such lawsuit is described herein.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is currently listed on the New York Stock
Exchange under the trading symbol (UMM). The approximate number of record
holders of the Company's Common Stock at August 31, 1995 was 8,000. The
following table sets forth the high and low sale price of the Company's
Common Stock as reported for the last two years on the New York Stock
Exchange Composite Tape.
Sale Price
------------------
Fiscal Year Quarter Ended High Low
- ----------- ------------- -------- --------
1995...... June 30, 1995 $ 0.25 $ 0.03125
March 31, 1995 0.34375 0.125
December 31, 1994 0.40625 0.1875
September 30, 1994 0.50 0.25
1994...... June 30, 1994 $ 0.375 $ 0.15625
March 31, 1994 0.375 0.1875
December 31, 1993 0.46875 0.125
September 30, 1993 0.3125 0.09375
No cash dividends on the Company's Common Stock have been paid during the
five years ended June 30, 1995 and the Company does not anticipate that
any such dividends will be paid in the near future.
6
<PAGE>
Item 6. Selected Financial Data.
The information required by this Item is found in Item 1.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item begins on F-3.
Item 8. Financial Statements and Supplementary Data.
See Index on F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information required under this Item with respect to the Directors is
contained in the Registrant's 1995 Proxy Statement, pursuant to Regulation
14A, which is incorporated herein by reference.
Information required under this Item with respect to the Executive
Officers of the Registrant is included in Part I, Item I hereof.
Item 11. Executive Compensation.
Information required under this Item is contained in the Registrant's 1995
Proxy Statement, pursuant to regulation 14A, which is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information required under this Item is contained in the Registrant's 1995
Proxy Statement, pursuant to regulation 14A, which is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
Information required under this Item is contained in the Registrant's 1995
Proxy Statement, pursuant to regulation 14A, which is incorporated herein
by reference.
7
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Item 14(a) 1. and 2. Financial Statements and Schedules - see "Index to
Financial Statements, Schedules and management's Discussion and Analysis"
on F-1.
Item 14(a) 3. Exhibits.
(3) Articles of Incorporation and By-Laws.
(3) 1. Restated Certificate of Incorporation. Incorporated by
reference to Form 8-K filed by Registrant as of August 26, 1991.
(3) 2. By-Laws as amended to date. Incorporated by reference to
Exhibit 3 of Form 10-K filed by registrant for the year ended June 30,
1985.
(4) Instruments defining the rights of security holders, including
indentures.
(4) 1. Stock Purchase Agreement dated as of August 18, 1982 between the
Registrant and Monzoral Inc. (formerly Monzoral N.V.). Incorporated by
reference to Exhibit 10 to the Registrant's Form 8-K dated as of August
18, 1982, Commission File No. 1-3185. As amended by the Agreement filed
with Form S-3, File No. 33-4154.
(4) 2. Indenture dated July 1, 1990 between Registrant and First Trust
National Association, trustee, including the form of 3 1/2% Senior
Subordinated Secured Debentures due July 1, 2009. Incorporated by
reference to Exhibit 4(1) of Registrant's Form 8-K filed July 17, 1990.
Amendment of indenture incorporated by reference to Form T-3 filed July
10, 1991.
(10) Material Contracts. (See Index to Exhibits, E-1)
(22) Subsidiaries of the Registrant. (See Index to Exhibits, E-1)
(27) Financial Data Schedule. (See index to Exhibits, E-1)
(99) 1. Secured Promissory Note and (99) 2. Loan and Security Agreement
from Registrant to Foothill Capital Corporation dated as of June 28, 1994
is incorporated herein by reference to Registrant's Report on Form 8-K
filed July 14, 1994.
(99) 3. Amendment Number Three to the Loan and Security Agreement is
filed herewith as an exhibit.
(99) 4. Secured Promissory Note from Registrant to Foothill Capital
Corporation dated as of July 31, 1995 is filed herewith as an exhibit.
Item 14(b) Reports on Form 8-K during last fiscal quarter. None.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 28, 1995 UNITED MERCHANTS AND MANUFACTURERS, INC.
(Registrant)
By /s/ Judith A. Nadzick
Judith A. Nadzick
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include the
Chief Executive Officer, the Chief Financial Officer, and a majority of
the Board of Directors, on behalf of the Registrant and in the capacities
and on the dates indicated:
/s/ Uzi Ruskin Chairman, President, Chief September 28, 1995
Uzi Ruskin Executive Officer, Chief
Operating Officer and Director
/s/ Judith A. Nadzick Chief Financial Officer September 28, 1995
Judith A. Nadzick and Director
/s/ Norman R. Forson Chief Accounting Officer September 28, 1995
Norman R. Forson
Director September 28, 1995
Victor Danko
/s/ S. Arnold Hickox Director September 28, 1995
S. Arnold Hickox
/s/ Sidney O. Margolis Director September 28, 1995
Sidney O. Margolis
/s/ Robert D. Mathews Director September 28, 1995
Robert D. Mathews
/s/ Robert J. Swartz Director September 28, 1995
Robert J. Swartz
Director September 28, 1995
Hardof Wolf
9
<PAGE>
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
FORM 10-K
INDEX TO FINANCIAL STATEMENTS, SCHEDULES
AND MANAGEMENT'S DISCUSSION AND ANALYSIS
Page
Consolidated Statement of Operations for the
Three Years Ended June 30, 1995................................... F-2
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. F-3
Consolidated Balance Sheet as of June 30, 1995 and 1994............. F-7
Consolidated Statement of Cash Flows for the
Three Years Ended June 30, 1995................................... F-8
Notes to Consolidated Financial Statements.......................... F-9
Independent Auditors' Report........................................ F-25
Schedules have been omitted because they are inapplicable or the
required information is included elsewhere in the consolidated financial
statements and notes thereto.
F-1
<PAGE>
PART I - FINANCIAL INFORMATION
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(000 omitted)
------------------------------
Year Ended June 30
------------------------------
1995 1994 * 1993 *
--------- --------- ---------
Net sales................................. $59,493 $64,934 $68,788
Cost of goods sold........................ (34,814) (36,988) (38,278)
Selling, general and administrative
expenses................................. (30,079) (38,540) (40,950)
Amortization of goodwill.................. (720) (720) (720)
Loss on termination of certain operations. (513)
--------- --------- ---------
Operating Loss ($6,633) ($11,314) ($11,160)
Interest expense - net.................... (11,007) (12,107) (12,166)
Other income (expense).................... (25) 369 167
Loss on sale of operation................. (835)
Minority interest in net losses
of subsidiary............................ 270 415 795
Provision for income taxes................ (100) (100) (102)
--------- --------- ---------
Loss From Continuing Operations ($18,330) ($22,737) ($22,466)
Discontinued operations (Notes A and C):
Net earnings (loss) prior
to sale or closing...................... (532) 1,712 (97)
Gain (loss) on sale or closing........... (9,080) 2,176 (2,672)
Extraordinary item:
Gain on retirement of debt (Note D)...... 33,400
Cumulative effect of change in accounting
principle for post-retirement benefits
other than pensions (Note K)............. (15,303)
--------- --------- ---------
Net Loss ($27,942) ($752) ($25,235)
Dividends applicable to preferred
stock (Note G)........................... 4,500 4,500 4,500
--------- --------- ---------
Net Loss Applicable to Common Shares ($32,442) ($5,252) ($29,735)
========= ========= =========
Average common shares outstanding (Note I) 17,845 17,845 17,845
Loss per common share:
Continuing operations.................... ($1.28) ($1.52) ($1.51)
Discontinued operations.................. (0.54) 0.22 (0.16)
Extraordinary item....................... 0.00 1.87 0.00
Change in accounting principle........... 0.00 (0.86) 0.00
--------- --------- ---------
Net Loss per Common Share ($1.82) ($0.29) ($1.67)
========= ========= =========
* - The amounts for 1994 and 1993 have been restated to report
separately the results of continuing and discontinued operations.
See Notes to Consolidated Financial Statements.
F-2
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Not Covered by Report of Independent Certified Public Accountants)
Results of Operations
During the three years ended June 30, 1995, the Company sold or closed
several operations as discussed in Note C of Notes to Consolidated
Financial Statements. Accordingly the statements of operations for the
1994 and 1993 fiscal years have been restated to report separately the
results of continuing and discontinued operations.
For the fiscal year ended June 30, 1995, consolidated net sales decreased
by $5,441,000 to $59,493,000 from $64,934,000 in fiscal 1994 resulting
from the Company's sale of its retail outlet store operation in January
1995. This operation had net sales prior to the Company's plan to dispose
of it of $9,820,000 in fiscal 1995 as compared to net sales of $23,344,000
in fiscal 1994. The Company's remaining operation, its costume jewelry
operation, reported a 17% increase in net sales to $49,863,000 in fiscal
1995 as compared to $42,569,000 in fiscal 1994, reflecting increased sales
of both the operation's branded label merchandise and private label
business, as well as sales increases in both the domestic and
international markets. These increases were primarily the result of strong
product performance at retail, improvement in service levels,
technological advances and development of new customers. Increased unit
sales in the current year were offset to some extent by slightly lower
average unit selling prices reflecting a higher percentage of sales of
private label merchandise which is sold at lower prices than branded
merchandise.
Net sales decreased in fiscal 1994 by $3,854,000 to $64,934,000 from
$68,788,000 in fiscal 1993. Decreased sales of the segment's retail
outlet store operation as the result of continued depressed consumer
spending and a net decrease of seven stores in fiscal 1994 more than
offset the somewhat increased sales of the costume jewelry operation.
That operation achieved fourth quarter sales in fiscal 1994 which were
approximately the same as in the fourth quarter of fiscal 1993, even
though the 1993 year's quarter included shipments for an initial launch of
a new (for the operation) label for the operation's largest customer. The
increase in net sales of the costume jewelry operation for fiscal 1994
reflects strong consumer interest in the operation's domestic branded
label merchandise and increased sales of the operation's private label and
factory direct design and manufacturing businesses.
Operating losses decreased by $4,681,000 in fiscal 1995 to $6,633,000 from
$11,314,000 in fiscal 1994 as the result of increased operating profits of
the costume jewelry operation, significantly reduced corporate overhead
expenses and, to some extent, the sale of the retail outlet store
operation, which reported an operating loss of $1,216,000 in fiscal 1995
F-3
<PAGE>
prior to the Company's having a plan to dispose of it, as compared to an
operating loss of $2,698,000 in fiscal 1994. Operating results for fiscal
1995 include a loss of $513,000 representing losses of the retail outlet
stores from the time there was a plan to dispose of them until the actual
sale. The costume jewelry operation reported an operating profit of
$2,009,000 in the current fiscal year as compared to an operating loss of
$537,000 in fiscal 1994. The improved operating results in the current
fiscal year were attributable to the increased sales volume referred to
above, as gross profit margins were approximately the same as in fiscal
1994. The Company's significantly reduced corporate expenses in fiscal
1995 reflect reductions in staff and facility expenses as the result of
sales or terminations of operations being serviced.
The Company reported operating losses of $11,314,000 in fiscal 1994 which
were approximately the same as fiscal 1993, as losses of the Company's
retail outlet store operation more than offset improved results of the
costume jewelry operation and decreased corporate expenses. The operating
loss reported by the retail outlet store operation reflected the decreased
sales referred to above, as well as reduced gross profit margins resulting
from markdown sales. Selling general and administrative expenses as a
percentage of net sales for that operation increased in fiscal 1994 as
compared to fiscal 1993 as the result of certain fixed expenses associated
with that operation, higher costs of operating certain new stores opened
during the year as compared to those stores which were closed, and
termination costs associated with store closures. The improved results
reported by the costume jewelry operation in fiscal 1994 as compared to
fiscal 1993 resulted from improved gross profit margins reflecting the
operation's continued emphasis on manufacturing and purchasing
efficiencies and lower sales of out-of-season merchandise, which is sold
at lower than normal margins, reflecting improved forecasting.
Selling, general and administrative expenses decreased in the current
fiscal year by $8,461,000 to $30,079,000 from $38,540,000 in fiscal 1994,
reflecting the sale of the retail store operation and reductions in
corporate staff and facilities expenses resulting from the sale or
termination of operations being serviced. Selling, general and
administrative expenses, as a percentage of net sales, decreased by nine
percentage points reflecting cutbacks in corporate staff and strict
budgetary and spending restraints in the costume jewelry operation.
Selling, general and administrative expenses in fiscal 1994 had decreased
by $2,410,000 from $40,950,000 in fiscal 1993, primarily reflecting
decreased sales.
Interest expense decreased in fiscal 1995 by $1,100,000 to $11,007,000
from $12,107,000 in fiscal 1994. The positive impact of significantly
reduced average borrowings during the current year were offset, to a large
extent, by a higher borrowing rate. Interest expense in fiscal 1994 was
approximately the same as in fiscal 1993, as average revolving loans
payable to a factor and interest rates did not change significantly from
year to year.
Operating results for fiscal 1995 include a loss on the sale of the retail
outlet sore operations of $835,000. See Note C of Notes to Consolidated
Financial Statements for a discussion of this sale.
F-4
<PAGE>
Refer to Note E of Notes to Consolidated Financial Statements for
information regarding the provision for income taxes for fiscal 1995, 1994
and 1993.
Refer to Note C of Notes to Consolidated Financial Statements for a
discussion of significant operations sold or closed during the three years
ended June 30, 1995 which are shown as discontinued operations in all
years presented. Net earnings (losses) of these operations prior to sale
or closing amounted to ($532,000), $1,712,000 and ($97,000) in fiscal
1995, 1994 and 1993, respectively. The Company realized gains (losses) of
($9,080,000), $2,176,000 and ($2,672,000) in fiscal 1995, 1994 and 1993,
respectively, on the sale or closing of these operations
Net results for fiscal 1994 include a non-recurring, non-cash charge of
$15,303,000 representing the cumulative effect of a change in accounting
principle for postretirement benefits other than pensions. See Note K of
Notes to Consolidated Financial Statements for further discussion of this
change. Net results for fiscal 1994 also include an extraordinary gain of
$33,400,000 on the retirement of debt as discussed more fully in Note D of
Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
During fiscal 1995, the Company depended on proceeds from the sale or
shutdown of divisions to finance its operations and to reduce its
indebtedness. The amounts which the Company borrows under its revolving
loan agreements fluctuate based on the Company's cash availability and
requirements.
As discussed in Note D of Notes to Consolidated Financial Statements, the
Company significantly reduced its senior debt as of June 30, 1994 and
refinanced the remainder with another lender under secured promissory
notes and revolving loan and security agreements classified as long-term
debt. Effective July 31, 1995, the Company and its 79%-owned subsidiary,
Victoria Creations, Inc., each renegotiated its borrowing arrangements
with that lender. See Note R of Notes to Consolidated Financial
Statements for details of the refinancings, including increased borrowings
and reduced interest rates. Currently, short-term needs for working
capital are borrowed under the renegotiated revolving loan facility or the
proceeds from the sale of assets.
The Company does not anticipate substantial increased needs for long-term
borrowings.
While the refinancing of its senior debt in June 1994 was a substantial,
positive development for the Company, as discussed in Note A of Notes to
Consolidated Financial Statements and in the Report of KPMG Peat Marwick
LLP, Independent Auditors, dated October 11, 1995, the recurring losses
from operations, the stockholders' equity (deficit) and the significant
debt raise substantial doubt as to the Company's ability to continue as a
going concern. The Company's ability to continue as a going concern
depends on its ability to improve the profitability of its existing
operation and the possible development of other business activities.
F-5
<PAGE>
With regard to the development of other business activities, the Company
has taken certain steps toward establishing, through a subsidiary, a
reinsurance business. Subject to completion of certain financing and
administrative agreements, this subsidiary will seek to to acquire certain
types of existing life insurance policies and other long-term annuity
contracts from mainly life insurance companies. Over a period of time,
the Company is hopeful that it will generate profits and positive cash
flow as it services these policies. There can be no assurances that the
Company will succeed in improving the profitability of its existing
operation or establishing a profitable business in the insurance field.
The Company has not declared or paid any cash dividends on its 10%
Cumulative Preferred Stock in order to retain its available cash for use
in its operations.
F-6
<PAGE>
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 omitted)
-------------------
June 30
-------------------
1995 1994 *
ASSETS --------- ---------
Current Assets:
Cash............................................... $965 $662
Receivables (Note L)............................... 7,419 9,757
Inventories (Note L)............................... 16,430 21,380
Prepaid expenses and other current assets.......... 1,113 1,456
Net assets of discontinued operations (Note A)..... 689 14,193
--------- ---------
Total Current Assets $26,616 $47,448
Property, Plant and Equipment (Note L).............. $12,565 $14,799
Less accumulated depreciation and amortization..... 7,924 8,888
--------- ---------
Net Property, Plant and Equipment $4,641 $5,911
Goodwill (Note A)................................... 20,662 21,383
Other Assets and Deferred Charges (Note L).......... 6,509 8,512
--------- ---------
$58,428 $83,254
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade payables..................................... $6,418 $4,870
Accrued expenses and sundry liabilities (Note L)... 12,468 9,270
--------- ---------
Total Current Liabilities $18,886 $14,140
Long-Term Debt, net of current maturities (Note D).. 81,071 80,559
Other Long-Term Liabilities (Note L)................ 17,881 20,800
Minority Interest................................... 1,624 1,894
Stockholders' Equity (Deficit) (Note G):
Preferred stock, par value $1 per share; 10,000,000
shares authorized; 450,000 shares outstanding..... $450 $450
Common stock, par value $1 per share: 40,000,000
shares authorized; 17,845,000 shares outstanding
(excluding 22,800 shares held in treasury)........ 17,845 17,845
Capital in excess of par value..................... 64,674 64,674
Retained earnings (deficit)........................ (136,416) (108,474)
Unrealized pension liability adjustment............ (3,587) (4,634)
Notes receivable arising from stock purchase
agreement......................................... (4,000) (4,000)
--------- ---------
Total Stockholders' Equity (Deficit) ($61,034) ($34,139)
--------- ---------
$58,428 $83,254
========= =========
* - The amounts for 1994 have been restated to report separately
the assets and liabilities and net assets of continuing and
discontinued operations.
See Notes to Consolidated Financial Statements.
F-7
20-Oct-95
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(000 omitted)
-----------------------------
Year ended June 30
-----------------------------
1995 1994 * 1993 *
--------- --------- ---------
Cash Flows from Operating Activities:
Net loss.................................. ($27,942) ($752)($25,235)
Adjustments to reconcile net loss to net
cash used for operating activities:
Extraordinary item - gain on
retirement of debt............. (33,400)
Change in accounting principle for post-
retirement benefits other than pension. 15,303
Depreciation and amortization........... 1,468 1,723 1,791
Minority interest....................... (270) (415) (336)
Amortization of bond discount........... 1,044 790 682
(Gain) loss on sale of divisions........ 835 (2,176)
Loss from shutdown of operation......... 9,080
Cash portion of loss from shutdown
of operation........................... (2,704)
Decrease (increase) in assets:
Receivables.............................. 2,338 (644) (4,999)
Inventories.............................. 3,924 1,033 292
Prepaid expenses and other current items. 343 (284) 164
Other assets............................. 1,884 3,588 (1,248)
Increase (decrease) in liabilities:
Trade payables .......................... 1,991 (1,597) (2,939)
Accrued expenses and sundry liabilities.. 3,265 273 (381)
Other long-term liabilities.............. (7,244) 714 (2,496)
Other - net............................... 1,047 (3,687) 984
--------- --------- ---------
Net Cash Used for Operating Activities ($10,941) ($19,531)($33,721)
Cash Flows from Investing Activities:
Additions to property, plant and equipment ($354) ($328) ($547)
Dispositions of equipment................. 165 80 118
Net change in assets of discontinued
operations prior to sale or closing...... 1,415 11,138 8,666
Sales of divisions:
Proceeds from sale or shutdown
of divisions............................ 10,550 29,981 13,702
Non-cash proceeds - receivables.......... 0 (363) (5,050)
--------- --------- ---------
Net Cash Provided by Investing Activities $11,776 $40,508 $16,889
Cash Flows from Financing Activities:
Increase (decrease) in notes payable...... $0 ($47,504) $16,934
Increase in long-term debt................ 0 28,316
Decrease in long-term debt................ (532) (2,135) (1,552)
Proceeds from sale of stock by subsidiary. 0 0 38
--------- --------- ---------
Net Cash Provided by (Used for)
Financing Activities ($532) ($21,323) $15,420
--------- --------- ---------
Increase (Decrease) in Cash $303 ($346) ($1,412)
Cash at beginning of period................ 662 1,008 2,420
--------- --------- ---------
Cash at end of period $965 $662 $1,008
========= ========= =========
Supplemental disclosures of cash flow information:
Interest.................................. $9,963 $11,317 $11,484
Income Taxes.............................. 100 100 102
* - The amounts for 1994 and 1993 have been restated to report
separately the results of continuing and discontinued operations.
See Notes to Consolidated Financial Statements.
F-8
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies and Liquidity
Effective August 26, 1991, the Company reorganized under Chapter 11 of the
United States Bankruptcy Code. See Note B below.
Basis of Presentation - The consolidated financial statements include the
accounts of United Merchants and Manufacturers, Inc. ("UM&M" or the
"Company") and its subsidiaries. During the periods presented in these
financial statements, the Company sold or closed several significant
operations (see Note C below). Accordingly, the financial statements have
been restated to report separately the assets and results of continuing
and discontinued operations.
Liquidity - During each of the three years ended June 30, 1995, the
Company has incurred significant losses from operations and, as of June
30, 1995, has a stockholders' equity deficit. As discussed in Note D
below, the Company refinanced its senior debt as of June 30, 1994 and
thereby reduced the total indebtedness of the Company. While this was a
substantial, positive development for the Company, there still exists
doubt as to the Company's ability to continue as a going concern. The
consolidated financial statements have been prepared assuming that the
Company will continue as a going concern and do not include any
adjustments that might result from the outcome of this uncertainty.
Goodwill - Goodwill arose as the result of the purchase price paid to
acquire the Company's 79%-owned subsidiary, Victoria Creations, Inc., in
excess of the fair value of its net assets at the date of acquisition.
Goodwill is being amortized by the straight-line method over 40 years. In
evaluating the recoverability of goodwill, management gives consideration
to a number of factors, including brand recognition, market share,
operating systems and the creative and technical skills of the Company as
a whole. Accumulated amortization of goodwill amounted to $7,305,000 and
$6,585,000 at June 30, 1995 and 1994, respectively.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market values.
Property, Plant and Equipment - Property, plant and equipment are carried
at cost. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets,
generally 15 years for buildings and 3 to 20 years for machinery,
equipment and other.
NOTE B - Reorganization Under Chapter 11
On November 2, 1990, the Company and two of its subsidiaries ("Debtors")
filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. On May 9, 1991, the Debtors filed a Reorganization Plan (the
"Plan") and related Disclosure Statement with the U. S. Bankruptcy Court
in Delaware (the "Bankruptcy Court"). The Plan became effective
August 26, 1991 (the "Effective Date"). The Plan provided for the
issuance of 450,000 shares of new Preferred Stock and 8,744,000 additional
shares of Common Stock (increasing the total number of shares of Common
Stock to 17,845,000) of the Company. The reorganization resulted in an
extraordinary gain of $159.3 million from retirement of liabilities in
excess of value issued, which gain was recognized in fiscal 1992.
F-9
<PAGE>
NOTE C - Dispositions of Certain Operations
Sale of Retail Outlet Store Operations:
In January 1995, the Company sold its retail outlet store operations for
cash and the assumption by the buyer of certain of the operation's
liabilities. The financial statements presented herein include the
results of the retail outlet store operations through December 31, 1994.
During the quarter ended December 31, 1994, the Company recognized a loss
of $1.3 million for the sale and the loss from operations from December
31, 1994 to date of sale. Net sales for the years ended June 30, 1995,
1994 and 1993 include net sales of $9.8 million, $23.3 million and $26.5
million, respectively, and operating loss includes losses of $1.7 million,
$2.7 million and $0.8 million, respectively, from these operations.
Discontinued Operations:
In December 1994, the Company announced that it would close its Buffalo
Mill division, which was its Apparel Textiles segment. The Company made a
provision for losses of $9.1 million for the closing and ongoing costs of
the division.
During the quarter ended June 30, 1994, the Company sold substantially all
of the assets (other than accounts receivable) and business, as a going
concern, of its Clarkesville Mill operations. The sale resulted in a gain
of approximately $3.2 million. Also, during the quarter, the Company
determined that non-cash proceeds from the sale of two operations in
fiscal 1993 were uncollectible and, therefore, recognized a loss on sale
of those operations of $5.1 million.
During the quarter ended March 31, 1994, the Company sold substantially
all of the assets (other than accounts receivable) and business, as a
going concern, of the Uniblend operation. The sale resulted in a gain of
approximately $5.1 million.
During the quarter ended December 31, 1992, the Company sold certain
assets of and discontinued a converting operation of its Home Furnishings
segment. The discontinuance resulted in a loss, after adjustment during
the six months ended June 30, 1993, of $3.8 million. This loss was
partially offset by sale of assets of a business previously discontinued
for $1.1 million more than the Company's carrying value of these assets.
Also during the quarter ended December 31, 1992, the Company consummated
the sale of the swimwear and the children's slip and sleepwear operations
of its Apparel segment. The Company recognized no gain or loss on the
sale of these two operations.
The proceeds from the above transactions, along with the collection of the
accounts receivable of the operations, were used to reduce the Company's
indebtedness.
F-10
<PAGE>
The financial statements and notes thereto presented herein have been
restated to reflect the above mentioned discontinued operations as such.
Net sales and operating losses for the years ended June 30, 1995, 1994,
and 1993 of the discontinued operations prior to disposition were sales of
$17.0 million, $87.4 million and $124.9 million and operating income
(losses) of ($3.8) million, $0.7 million and ($0.1) million, respectively.
All gain (loss) amounts set forth above are before any related income tax
provision. The Company used available operating losses and net operating
loss carryforwards to eliminate the liability for such income taxes.
NOTE D - Notes Payable/Long-Term Debt
On June 30, 1994, the Company reduced its indebtedness to its senior
secured lender to the target amount established in an agreement with that
lender. At that time, in accordance with the agreement, the lender
accepted, in full satisfaction of the balance (approximately $63.4
million) of the Company's indebtedness to the lender, a 5% subordinated
contingent income note due June 30, 2019 in the principal amount of $30
million.
The satisfaction of this indebtedness by the Company was accounted for as
a "troubled debt restructuring" and resulted in an extraordinary, non-cash
gain from retirement of debt of $33.4 million.
The Company reduced its indebtedness to the targeted amount through the
sale of two of the Company's operating divisions, sales of certain other
assets and a borrowing of approximately $29 million from another lender.
The borrowings from the other lender consist of $12 million under secured
promissory notes and the balance under revolving loan and security
agreements which are classified as long-term debt (see below).
Prior to June 30, 1994, notes payable amounts were borrowed from the
Company's factor. These amounts were secured by substantially all of the
Company's assets and interest was charged at 2% a year over a bank's
reference rate.
Selected information with regard to the long-term debt to the Company's
lender for the year ended June 30, 1995 and with regard to the notes
payable to factor during the years ended June 30, 1994 and 1993 is as
follows:
(000 omitted)
----------------------------
Year Ended June 30
----------------------------
1995 1994 1993
-------- -------- --------
Maximum amount outstanding (at any
month end)............................... $ 36,314 $115,669 $110,904
Average amount outstanding during period.. 31,865 107,223 103,243
Interest paid............................. 7,675 8,783 8,806
Weighted average interest rate during
period (Interest paid divided by
average amount outstanding).............. 24.0% 8.19% 8.53%
F-11
<PAGE>
Long-term debt consists of the following:
(000 omitted)
------------------
June 30
------------------
1995 1994
-------- --------
Secured promissory notes.......................... $ 12,000 $ 12,000
Revolving loans................................... 15,784 16,316
3 1/2% Senior Subordinated Debentures due 2009
(net of unamortized discount of $46,908,000
and $47,827,000 at June 30, 1995 and 1994,
respectively).................................... 22,234 21,315
5% Subordinated Notes due 2019:
Issued to former senior lender (see above) 30,000 30,000
Issued in settlement of lawsuit (net of unamortized
discount of $20,947,000 and $21,072,000 at
June 30, 1995 and 1994, respectively)........... 1,053 928
-------- --------
Total $ 81,071 $ 80,559
======== ========
The secured promissory notes and the revolving loans are secured by
substantially all of the Company's assets, are due June 30, 1996, may be
prepaid without premium or penalty and bear interest at the rate of 2% a
month. See Note R - Subsequent Events regarding refinancing of this
long-term debt.
The 3 1/2% Debentures are subordinate to "Senior Indebtedness", as defined
in the trust agreement, which at June 30, 1995 includes primarily the
secured promissory notes and the revolving loans. The 3 1/2% Debentures
are secured, secondarily to Senior Indebtedness, by substantially all of
the Company's assets, other than accounts receivable.
Interest on the 5% Subordinated Notes due 2019 is contingent and
non-cumulative. Interest will accrue and be payable only to the extent
net earnings of the Company (as defined in the notes) exceed $7.5 million
in a fiscal year. No payments on principal are required before maturity
date, June 30, 2019, unless net earnings (as defined in the notes) exceed
$7.5 million plus the interest payment on these notes in a fiscal year.
In such case, one-half of such excess will be paid to reduce the
outstanding principal of the notes.
F-12
<PAGE>
NOTE E - Income Taxes
The provision for income taxes for each of the three years ended June 30,
1995 consists of state and local taxes. As a result of losses for the
three years ended June 30, 1995, no provision for Federal income taxes was
made.
A reconciliation of the United States statutory Federal corporate income
tax rate to the effective rate of the provision for income taxes is as
follows:
(000 omitted)
----------------------------
Year Ended June 30
----------------------------
1995 1994 1993
-------- -------- --------
Statutory rate (benefit).................. (34.0)% (34.0)% (34.0)%
Decrease in benefit from effect of:
State and local income taxes............ 0.2 6.2 0.3
Amortization of Goodwill................ 0.9 22.9 0.9
Domestic losses not resulting in
tax benefit............................ 33.3 14.3 33.2
-------- -------- --------
Effective rate............................ 0.4 % 9.4 % 0.4 %
======== ======== ========
At June 30, 1995, the Company and its subsidiaries had unused Federal net
operating loss carryforwards of approximately $303 million, of which $22
million expires in 1997; $13 million in 1998; $35 million in 2000; $14
million in 2002; $11 million in 2003; $64 million in 2005; $42 million in
2006; $37 million in 2007; $31 million in 2008; $1 million in 2009 and $33
million in 2010. In addition, the Company has available investment tax
credit carryforwards of approximately $2 million, expiring in various
amounts each year from 1996 through 2000.
The Company's ability to use its net operating loss carryforwards depends
upon many complex, technical aspects of Federal and state tax law.
F-13
<PAGE>
NOTE F - Commitments and Contingencies
Rental expense for real property, machinery and equipment was as follows:
(000 omitted)
----------------------------
Year Ended June 30
----------------------------
1995 1994 1993
-------- -------- --------
Total rentals paid..................... $ 3,190 $ 5,593 $ 5,014
Less sublease rentals received......... 1,203 2,291 1,579
-------- -------- --------
Net rental expense..................... $ 1,987 $ 3,302 $ 3,435
======== ======== ========
At June 30, 1995, approximate minimum rental commitments under
non-cancellable operating leases, primarily for real property, machinery
and equipment are as follows:
(000 omitted)
----------------------------
Net
Year ending Minimum Sublease Commit-
June 30 Payments Rentals Ments
-------- -------- -------- --------
1996.............................. $ 838 $ 167 $ 671
1997.............................. 793 169 624
1998.............................. 742 182 560
1999.............................. 766 182 584
2000.............................. 680 76 604
Thereafter........................ 9,375 0 9,375
-------- -------- --------
$ 13,194 $ 776 $ 12,418
======== ======== ========
The leases provide for minimum annual rentals, plus, in certain instances,
payment for real estate taxes, insurance, maintenance, etc.
At June 30, 1995 the Company had approximately $1.1 million of letters of
credit outstanding.
F-14
<PAGE>
NOTE G - Stockholders' Equity
A summary of the changes in the components of stockholders' equity is as
follows:
(000 omitted)
----------------------------
Year Ended June 30
-------------------------------
1995 1994 1993
--------- --------- ---------
Preferred Stock:
Beginning and ending balance.......... $ 450 $ 450 $ 450
========= ========= =========
Common Stock:
Beginning and ending balance *........ $ 17,845 $ 17,845 $ 17,845
========= ========= =========
Capital in Excess of Par Value:
Beginning and ending balance.......... $ 64,674 $ 64,674 $ 64,674
========= ========= =========
Retained Earnings (Deficit):
Beginning balance..................... $(108,474) $(107,722) $( 82,487)
Net (loss)............................. (27,942) (752) (25,235)
--------- --------- ---------
Ending balance $(136,416) $(108,474) $(107,722)
========= ========= =========
Unrealized Pension Plan Adjustments:
Beginning balance..................... $ (4,634) $ (947) $ (1,968)
Unrealized pension liability adjustment 1,047 (3,687) 1,021
--------- --------- ---------
Ending balance $ (3,587) $ (4,634) $ (947)
========= ========= =========
Notes Receivable - Stock Purchase Agreement:
Beginning and ending balance.......... $ (4,000) $ (4,000) $ (4,000)
========= ========= =========
Total Stockholders' Equity (Deficit):
Beginning balance..................... $ (34,139) $ (29,700) $ (5,486)
Unrealized pension liability adjustment 1,047 (3,687) 1,021
Net (loss)............................. (27,942) (752) (25,235)
--------- --------- ---------
Ending balance $ (61,034) $ (34,139) $ (29,700)
========= ========= =========
* - Excludes treasury stock
F-15
<PAGE>
As part of the Reorganization Plan (see Note B above), on August 26, 1991,
the effective date of the Plan, the authorized number of shares of
Preferred Stock increased to 10 million and of Common Stock to 40 million.
The preferred stock issued under the Reorganization Plan is designated
10% Cumulative Preferred Stock, Series 1. There are 450,000 shares of
this series authorized. Holders of the stock are entitled to receive
dividends at the annual rate of $10 a share. The first dividend payment
date under the Company's Restated Certificate of Incorporation was
scheduled to be July 15, 1992, the second July 15, 1993 and thereafter,
semi-annually; the Company has not declared or paid these dividends. There
are no mandatory redemption provisions for this stock. The preferred stock
has no general voting rights; however, since scheduled dividends continue
unpaid after six months past the scheduled date, the number of directors
constituting the board of directors of the Company could be increased by
two and the holders of the preferred stock could elect the two additional
directors. No such change has been made as of June 30, 1995. For
financial statement purposes, preferred dividends which accrued during the
period are deducted from the results of operations in determining loss
applicable to common shares whether or not such dividends are paid or
declared. Liquidation value of this series of preferred stock during the
first year after issuance was $35.26 a share and will increase over a 10
year period to $100 a share.
Pursuant to the terms of the stock purchase agreement dated August 18,
1982, as amended, between the Company and a corporation wholly-owned by
the President of the Company, the Company agreed to sell 1,000,000 shares
of its Common Stock in four annual installments of 250,000 shares each at
a purchase price of $5.00 per share, the closing price of Common Stock of
the Company on the New York Stock Exchange on August 17, 1982. The final
installment was purchased on March 10, 1986. The aggregate purchase price
of $5,000,000 was paid $1,000,000 in cash and $4,000,000 in notes due, as
amended, fifteen years after issuance. The notes bear interest, on
principal only, at a rate equal to 70% of the average investment yield for
the most recent auction of United States Treasury obligations with
maturities of 52 weeks computed as of the first day of each month. The
interest is payable at the time principal is paid. The notes are secured
by the shares purchased, with shares to be released to the extent each
note is paid. At June 30, 1995, the Company had receivables of $4,000,000
principal and $1,873,000 interest related to these notes.
NOTE H - Sale of Stock by Subsidiary
During the quarter ended December 31, 1992, as an incentive to certain of
its key employees, the Company's majority-owned subsidiary, Victoria
Creations, Inc., sold 300,000 shares of its authorized, but previously
unissued, Common Stock to those employees. This sale increased the total
number of shares of Victoria Creations, Inc. Common Stock outstanding from
7.5 million to 7.8 million, thus reducing the Company's percentage of
ownership from 83% to 79%.
F-16
<PAGE>
NOTE I - Per Share Data
Loss per share amounts are based on the weighted average number of common
shares outstanding during the respective periods.
NOTE J - Retirement Plans and Benefits
Substantially all of the Company's employees, other than the employees of
one subsidiary, who meet certain requirements of age, length of service
and hours worked per year, are covered by a Company sponsored retirement
plan. The plan is a noncontributory, defined benefit, trusteed plan.
Benefits paid to retirees are based upon years of credited service, age at
retirement and, in certain instances, average earnings. The Company's
policy is to fund the minimum amount required under the Employee
Retirement Income Security Act. Prior to the 1994 fiscal year, the
Company maintained four separate plans. During fiscal 1994, the four
plans were merged into and became one plan. Certain of the following
information for prior years for these plans has been restated, for
comparability purposes, to show the plans as if they had been merged as of
the beginning of the periods shown.
For the employees of the Company's one subsidiary mentioned above, who are
not covered by the above mentioned plans, the Company makes available a
retirement savings plan which includes the salary deferral feature
afforded by Section 401(k) of the Internal Revenue Code. During the years
ended June 30, 1995, 1994 and 1993, the Company's contributions to, and
expenses of, this plan were $47,000, $40,000 and $70,000, respectively.
The net periodic pension cost for the Company sponsored defined benefit
plan included the following components:
(000 omitted)
----------------------------
Year Ended June 30
----------------------------
1995 1994 1993
-------- -------- --------
Cost of benefits earned during the period. $ 287 $ 604 $ 663
Prior service costs....................... 85 85 91
Interest cost on projected benefit
obligation............................... 5,545 5,410 5,537
Actual net return on assets............... (9,502) (526) (6,592)
Adjust actual return to expected return... 4,373 (5,236) 904
Amortization of deferred (gain) loss...... 119 (27) 56
Cost recognized on sale or closing of
certain operations (Note C).............. 679 246 463
-------- -------- --------
Net Periodic Pension Cost $ 1,586 $ 556 $ 1,122
======== ======== ========
F-17
<PAGE>
The following sets forth the funded status of the Company sponsored plan
and the amounts recognized in the accompanying balance sheet:
(000 omitted)
------------------
June 30
------------------
1995 1994
-------- --------
Actuarial present value of:
Vested benefit obligation.......................... $(68,658) $(66,289)
Nonvested benefit obligation....................... (129) (178)
-------- --------
Accumulated Benefit Obligation $(68,787) $(66,467)
Effect of projected future salary increases......... 0 (1,815)
-------- --------
Projected benefit obligation........................ $(68,787) $(68,282)
Plan assets at fair value, consists primarily of
equity securities and fixed income securities...... 62,876 60,330
-------- --------
Projected Benefit Obligation
in Excess of Plan Assets $ (5,911) $ (7,952)
Unrecognized prior service cost..................... 0 765
Unrecognized net loss............................... 3,928 6,815
Unrecognized net transitional asset................. (341) (368)
Additional accrued liability........................ (3,587) (5,397)
-------- --------
Pension Liability Recognized within
the Consolidated Balance Sheet $ (5,911) $ (6,137)
======== ========
In determining the actuarial present value of projected benefit obligation
of the Company sponsored plan as of June 30, 1995 and 1994, the discount
rate used was 8.2%; the expected rate of return on plan assets was 9% and,
in those instances where average earnings are a factor in determining
retirement benefits, the weighted average rate of increase in compensation
levels was 6%. The participants become fully vested as to their benefits
after five years of credited service.
The Company's pension plan was in an underfunded position at June 30, 1995
and 1994. Therefore, the Company recognized additional minimum liability
as of each date. Since the additional minimum liability exceeded the
pension intangible asset related to the plan at each date, the excess is
reported as a reduction of stockholders' equity.
F-18
<PAGE>
NOTE K - Change in Accounting Principle for Postretirement Benefits Other
Than Pensions
In addition to pension plans, the Company provides certain health care and
life insurance benefits for certain retired employees. Of the current
employees, only certain of those of the Company's Corporate Office who
joined the Company prior to January 1, 1988 are eligible for these
postretirement benefits. The health care benefits are provided under an
unfunded Company-sponsored plan which contains cost sharing features such
as deductibles and coinsurance. Employees who retire prior to age 65 but
are otherwise eligible for health care benefits may elect coverage under
the plan by paying "premiums" which approximate the Company's average cost
for these health care benefits. The retiree life insurance plan is
noncontributory; the Company pays premiums on an annual basis for the
coverage. The Company may amend or change these plans periodically. See
Note R - Subsequent Events regarding the Company's discontinuance of the
health care portion of these benefits.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". The statement requires accrual of the cost
of providing postretirement benefits, including medical and life insurance
coverage, during the active service period of the employee rather than the
pay-as-you-go (cash) basis which the company used prior to adoption. The
company elected to immediately recognize the accumulated postretirement
benefit obligation (the "APBO") equal to the discounted present value of
expected future benefit payments attributed to employees' service rendered
prior to July 1, 1993. This resulted in a one-time, non-cash charge
against earnings of $15.3 million. The discount rate used in determining
the APBO was 7.5%. The adoption of the new accounting principle will not
affect the Company's cash outlay for retiree benefits. The Company will
continue to evaluate ways in which it can better manage these benefits and
control the costs.
The details of the APBO are as follows:
(000 omitted)
------------------
June 30
------------------
1995 1994
-------- --------
Retirees............................................ $ 13,588 $ 13,618
Fully eligible active plan participants............. 495 499
Other active plan participants...................... 640 1,012
-------- --------
Total APBO $ 14,723 $ 15,129
======== ========
F-19
<PAGE>
The net periodic postretirement benefit cost is as follows:
(000 omitted)
------------------
Year Ended June 30
------------------
1995 1994
-------- --------
Service cost......................................... $ 30 $ 56
Interest cost on APBO................................ 949 1,052
Amortization of deferred (gain) loss................. (19)
-------- --------
Net periodic postretirement benefit cost $ 960 $ 1,108
======== ========
Postretirement benefit cost on a pay-as-you-go basis totaled $1.2 million
for the year ended June 30, 1993 and has not been restated.
The health care cost trend rates used in developing the above amounts
assume such costs increase by an average of 8.6% a year to the year 2000
and then by 7.3% a year to the year 2010. A one percent increase in the
health care cost trend rates assumed would have increased the APBO at July
1, 1995 and the net periodic postretirement benefit cost by 12% each.
NOTE L - Supplemental Balance Sheet Information
Supplemental information regarding certain balance sheet captions is as
follows:
(000 omitted)
------------------
June 30
------------------
1995 1994
-------- --------
Receivables:
Due from factor.................................... $ 0 $ 4,055
Accounts receivable - trade........................ 9,435 5,253
Other.............................................. 465 2,153
-------- --------
$ 9,900 $ 11,461
Less allowances for doubtful accounts.............. 2,481 1,704
-------- --------
$ 7,419 $ 9,757
======== ========
Inventories:
Raw materials...................................... $ 5,120 $ 5,551
Work-in-process.................................... 484 705
Finished goods..................................... 10,826 15,124
-------- --------
$ 16,430 $ 21,380
======== ========
F-20
<PAGE>
(000 omitted)
------------------
June 30
------------------
1995 1994
-------- --------
Property, plant and equipment:
Land and buildings................................. $ 3,596 $ 3,503
Machinery, equipment and other..................... 8,969 11,296
-------- --------
$ 12,565 $ 14,799
less accumulated depreciation and amortization..... 7,924 8,888
-------- --------
Net Property, Plant and Equipment $ 4,641 $ 5,911
======== ========
Other assets and deferred charges:
Long-term assets held for sale..................... $ 3,260 $ 4,952
Interest receivable - sale of stock (Note G)....... 1,873 1,710
Deferred royalty expenses.......................... 350 0
Deposits........................................... 291 352
Deferred pension costs............................. 0 765
Other.............................................. 735 733
-------- --------
$ 6,509 $ 8,512
======== ========
Accrued expenses and sundry liabilities:
Accrued pension liability.......................... $ 5,116 $ 0
Accrued compensation expenses...................... 1,428 1,903
Postretirement benefits other than pension......... 1,370 1,108
Accrued interest................................... 1,210 1,208
Accrued workers compensation....................... 1,095 1,493
Accrued taxes other than payroll................... 735 1,643
Accrued shutdown costs............................. 711 703
Other.............................................. 803 1,212
-------- --------
$ 12,468 $ 9,270
======== ========
Other long-term liabilities:
Postretirement benefits other than pension......... $ 13,355 $ 14,021
Deferred shutdown costs............................ 3,732 419
Accrued pension liability.......................... 794 6,137
Other.............................................. 0 223
-------- --------
$ 17,881 $ 20,800
======== ========
F-21
<PAGE>
NOTE M - Supplemental Income Statement Information:
(000 Omitted)
----------------------------
Year Ended June 30
----------------------------
1995 1994 1993
-------- -------- --------
Royalty expense........................... $ 1,540 $ 1,304 $ 1,401
Advertising cost.......................... 2,914 2,733 2,802
NOTE N - Legal Proceedings
The Company is a defendant in various lawsuits. It is not expected that
these suits will result in judgements which in the aggregate would have a
material adverse effect on the Company's financial position.
NOTE O - Segment Information
The Company consists of one business segment, the design, manufacture and
distribution of costume jewelry.
Note P - Major Customer
During the years ended June 30, 1995, 1994 and 1993, one of the Company's
customer's purchases amounted to 26.4%, 20.5% and 15.9%, respectively, of
the Company's consolidated net sales.
F-22
<PAGE>
NOTE Q - Selected Quarterly Financial Information (Unaudited)
(000 omitted)
--------------------------------------------
Quarter Ended
----------------------------------
Sep 30 Dec 31 Mar 31 June 30 Total
------- ------- ------- ------- --------
Year ended June 30, 1995:
Net sales................ $20,119 $16,975 $11,197 $11,202 $59,493
Gross profit............. 9,007 6,369 4,698 4,605 24,679
Loss from continuing
operations.............. (3,514) (6,453) (4,368) (3,995) (18,330)
Net loss................. (4,089) (14,310) (4,368) (5,175) (27,942)
Loss per common share:
Continuing operations... (0.26) (0.42) (0.31) (0.29) (1.28)
Net loss per common share (0.29) (0.86) (0.31) (0.36) (1.82)
Year ended June 30, 1994:
Net sales................ $17,564 $16,017 $14,119 $17,234 $64,934
Gross profit............. 9,367 5,984 6,133 6,462 27,946
Loss from continuing
operations.............. (3,785) (6,667) (6,108) (6,177) (22,737)
Net earnings (loss)...... (17,489) (4,582) (1,100) 22,419 (752)
Earnings (loss) per
common share:
Continuing operations.. (0.27) (0.44) (0.41) (0.40) (1.52)
Net earnings (loss)
per common share...... (1.04) (0.32) (0.12) 1.19 (0.29)
- ----------
The amounts shown above, other than for the quarters ended March 31, 1995
and June 30, 1995, have been restated to report separately the results of
continuing and discontinued operations.
See Note C above for gains (losses) from disposition of divisions which
affected the results of operations for certain of the quarters shown above.
F-23
<PAGE>
NOTE R - Subsequent Events
Refinancing - Effective July 31, 1995, the Company and its 79%-owned
subsidiary, Victoria Creations, Inc. ("Victoria"), each renegotiated its
borrowing arrangements with its current lender. Under the terms of the
amended agreements, the Company's borrowings under the revolving and term
loans with the lender (see Note D above) were converted to a term loan.
This term loan will be repayable from collections of certain accounts
receivable and sales of inventory other than those of Victoria and a
portion of the proceeds of sales of the Company's other assets, primarily
real property. The term loan matures July 31, 2000 and bears interest at
the rate of 12% a year.
The new arrangements for Victoria consist of a $5.0 million term loan due
June 15, 2000 and a revolving loan, based on Victoria's eligible accounts
receivable and inventories, having a term ending June 15, 1998. The
revolving loan will be renewed automatically for successive one year
periods thereafter unless terminated by either party upon thirty days
notice. These loans bear interest at prime rate plus 3 1/2%, or currently
12 1/4% a year.
The debt is classified as long-term in the accompanying balance sheet.
Discontinuance of Medical Plan- Effective August 31, 1995, the Company
discontinued the Company-sponsored medical plan for its employees and
retirees other than Victoria's current employees. The discontinuance will
result in a non-cash gain of $10.2 million and a reduction of $10.2
million in the Company's liability for postretirement benefits other than
pension and will reduce the Company's ongoing cash expenses by more than
$1 million a year.
Request for Deferral of Payment to Pension Plan - On September 15, 1995,
the Company filed with the Internal Revenue Service ("IRS") an application
for a waiver of the minimum funding standard as to its pension plan. If
approved by the IRS, the Company's payment, estimated to be approximately
$2.9 million, to its pension fund due March 15, 1996 for the year ended
June 30, 1995 would be deferred until the Company's cash flow improves.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
United Merchants and Manufacturers, Inc.:
We have audited the consolidated balance sheets of United Merchants and
Manufacturers, Inc. and subsidiaries as of June 30, 1995 and 1994 and the
related consolidated statements of operations and cash flows for each of
the years in the three-year period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Merchants and Manufacturers, Inc. and subsidiaries at June 30, 1995 and
1994, and the results of their operations and their cash flows for each of
the years in the three-year period ended June 30, 1995, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that United Merchants and Manufacturers, Inc. will continue as a
going concern. As discussed in Note A to the consolidated financial
statements, the Company's recurring losses from operations, net deficiency
in stockholders' equity and significant debt raise substantial doubt about
its ability to continue as a going concern. Management's discussion with
regard to these matters is also included in Note A. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
New York, New York
October 11, 1995
F-25
<PAGE>
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
FORM 10K
INDEX TO EXHIBITS
Certain exhibits to this report on Form 10-K have been incorporated by
reference. For a list of these exhibits see Item 14 hereof.
The following exhibits are being filed herewith:
Exhibit No.
(10) Material Contracts:
a) Sidney O. Margolis - employment agreement is incorporated by
reference to Exhibit 10 of Form 10-K filed by the Registrant for
the year ended June 30, 1986. Amendment to employment agreement
dated June 9, 1989 is incorporated by reference to Exhibit 10 of
Form 10-K filed by the Registrant for the year ended June 30,
1989. Amendment to employment agreement dated July 22, 1992 is
incorporated herein by reference to Exhibit 10 of Form 10-K filed
by the registrant for the year ended June 30, 1992.
b) Judith A. Nadzick - employment agreement is incorporated by
reference to Exhibit 10 of Form 10-K filed by the Registrant for
the year ended June 30, 1987. Amendments to employment agreement
dated December 6, 1991 and July 22, 1992 are incorporated herein
by reference to Exhibit 10 of Form 10-K filed by the registrant
for the year ended June 30, 1992.
c) Uzi Ruskin - employment agreement is incorporated by reference to
Exhibit 10 of Form 10-K filed by the Registrant for the year ended
June 30, 1986. Amendment to employment agreement dated August 21,
1991 is incorporated by reference to Exhibit 10 of Form 10-K filed
by the Registrant for the year ended June 30, 1991.
(22) Subsidiaries of the Registrant................................. E-2
(27) Financial Data Schedule as of and for the year ended June 30, 1995
is filed herewith.
E-1
<PAGE>
EXHIBIT 22
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Percentage
State or of Voting
Jurisdiction Securities
of Incorporation Owned
---------------- ----------
Victoria Creations, Inc. ................... Rhode Island 79%
The foregoing subsidiary is included in the consolidated financial
statements of the Company. A number of inactive and other subsidiaries
(all of which, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary) have been omitted from the above
list.
E-2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000101357
<NAME> UNITED MERCHANTS AND MANUFACTURERS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 965
<SECURITIES> 0
<RECEIVABLES> 9900
<ALLOWANCES> 2481
<INVENTORY> 16430
<CURRENT-ASSETS> 26616
<PP&E> 12565
<DEPRECIATION> 7924
<TOTAL-ASSETS> 58428
<CURRENT-LIABILITIES> 18886
<BONDS> 81071
<COMMON> 17845
0
450
<OTHER-SE> (79329)
<TOTAL-LIABILITY-AND-EQUITY> 58428
<SALES> 59493
<TOTAL-REVENUES> 59493
<CGS> 34814
<TOTAL-COSTS> 34814
<OTHER-EXPENSES> 31902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11007
<INCOME-PRETAX> (18230)
<INCOME-TAX> 100
<INCOME-CONTINUING> (18330)
<DISCONTINUED> (9612)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27942)
<EPS-PRIMARY> (1.82)
<EPS-DILUTED> (1.82)
</TABLE>
AMENDMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT
This Amendment Number Three to Loan and Security Agreement
("Amendment") is entered into as of July 31, 1995, between FOOTHILL
CAPITAL CORPORATION ("Foothill") and UNITED MERCHANTS AND
MANUFACTURERS, INC. ("Borrower").
FACT ONE: Foothill and Borrower entered into that certain
Amended and Restated Loan And Security Agreement as of June 28,1994,
as amended on August 26, 1994 and September 28, 1994 (the
"Agreement").
FACT TWO: Concurrently herewith Foothill and Victoria Creations,
Inc. ("Victoria") have entered into an Amended and Restated Loan and
Security Agreement. The purpose of this Amendment is to deal with the
balance of the Obligations owed by Borrower to Foothill after giving
effect to such agreement.
FACT THREE: Borrower and Foothill desire to amend the
Agreement as provided herein.
NOW, THEREFORE, Foothill and Borrower hereby amend the
Agreement as follows:
1. All references in the Agreement to Combined Term Note and
the terms and conditions related thereto are hereby deleted.
2. Section 1.1 of the Agreement is hereby amended to add the
following additional definition:
"Net Earnings" shall mean, for any period for which such
amount is being determined, the net earnings of Borrower and its
consolidated subsidiaries (other than Victoria) during such period
determined on a consolidated basis for such period in accordance
with generally accepted accounting principles, as set forth in the
consolidated financial statements of Borrower audited by one of
the "Big Six" accounting firms or other reputable accounting firm
reasonably acceptable to Foothill and which are included in
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports and Form 8-K Current Reports which are filed with the
Securities and Exchange Commission (or, in the event that
Borrower is no longer legally required to file such reports,
financial statements reflecting the same information and deliverable
on the same dates as the above-referenced filings), provided that
there shall be excluded (i) income of any Person (other than a
consolidated subsidiary of Borrower) in which Borrower or any of
its consolidated subsidiaries has an equity investment or
comparable interest, except to the extent of the amount of
dividends or other distributions actually paid to the Borrower or
any of its consolidated subsidiaries by such Person during such
period, (ii) the income of any subsidiary of Borrower to the extent
that the declaration or payment of dividends or similar
distributions by that subsidiary of the income is not at the time
permitted by any judgment, decree, order, statute, rule or
governmental regulation applicable to that subsidiary, and (iii) any
non-recurring (which shall include proceeds from the sale of Real
Property), non-cash gains and losses, net of any applicable income
taxes.
3. Section 2.1 of the Agreement is hereby deleted in its
entirety. All Obligations outstanding as of this date shall be evidenced
by the Term Note and shall be repayable in accordance with Section 2.3
and the Term Note.
4. Foothill shall no longer have an obligation to issue L/Cs or
L/C Guarantees on behalf of Borrower. In addition, Borrower shall
cause the two (2) letters of credit in the aggregate amount of One
Million Ninety Four Thousand Dollars ($1,094,000) in which the
Beneficiary of each is National Union Fire Insurance Company, to be
released within nine (9) months of the date of this Amendment. Once
such letters of credit are released, Section 2.2 shall automatically be
deleted.
5. Section 2.3 of the Agreement is amended in its entirety to
read as follows:
"2.3 Term Loans. Borrower's outstanding Obligations to
Foothill as of this date are in the aggregate principal amount of
Eleven Million Six Hundred Eighty Eight Thousand Dollars
($11,688,000). Such Obligations shall be evidenced by and
repayable in accordance with the terms of that certain Secured
Promissory Note (the "Term Note") dated July 31, 1995, and
executed by Borrower in favor of Foothill. All amounts evidenced
by the Term Note shall constitute Obligations. The Term Note
amends and supersedes in its entirety that certain Secured
Promissory Note in the original principal amount of Ten Million
Dollars ($10,000,000) payable by Borrower to Foothill together with
that certain Secured Promissory Note in the original principal
amount of Two Million Dollars ($2,000,000) payable jointly by
Borrower and Victoria to Foothill.
The Term Note shall be repayable from collections of
Borrower's Current Accounts and Inventory (as hereinafter
defined) from monies due to Borrower from Victoria, from
Borrower's pledge of Victoria's outstanding capital stock to
Foothill, and from Net Proceeds of sales of Borrower's Real
Property in an amount up to Three Million Dollars ($3,000,000).
Once Foothill has received such amount, Borrower shall be entitled
to retain the next Two Million Dollars ($2,000,000) in Net Proceeds
from sales of Real Property. Foothill and Borrower shall share
equally in any Net Proceeds from sale of Real Property in excess
of Five Million Dollars ($5,000,000). Foothill's portion of the Net
Proceeds described in the preceding sentence shall be applied to
the Term Note. For purposes of this section: (a) Real Property
shall not include Borrower's Buffalo Mill property or property
which is utilized by Victoria in the operation of its business, and
(b) "Net Proceeds" shall mean all proceeds of sale of each Real
Property, less the direct out-of-pocket expenses incurred by
Borrower regarding such sale (such as, but not limited to, real
estate commissions, escrow charges, and title insurance charges).
For purposes of this paragraph, Current Accounts and Inventory
means all of Borrower's presently existing accounts receivable and
Inventory, wherever located.
The Term Note shall also be repayable from fifty percent
(50%) of Borrower's Net Earnings.
6. Section 2.5(a) is hereby amended to read as follows:
"(a) Interest Rate. Commencing July 1, 1995, all
Obligations shall bear interest, on the average Daily Balance, at
the rate of twelve percent (12%) per annum. Borrower shall have
the right to have interest on the Obligations payable in the
months of August through December of 1995 and January through
April of 1996 added to principal each month as it becomes due.
Any of such interest shall be compounded by becoming a part of
the Obligations, and such interest shall thereafter accrue interest
at the rate provided in this section and in the Term Note.
7. Section 3.3 of the Agreement is amended to change the
Maturity Date to July 31, 2000.
8. Notwithstanding anything to the contrary in Section 7.4,
Borrower shall have the right to sell Real Property, other than the
property used by Victoria in the operation of its business, so long as
the proceeds of such sales are distributed as provided in Section 2.3.
9. The Victoria Guaranty is hereby released.
10. Section 7.5 of the Agreement is amended in its entirety to
read as follows:
"7.5 Change Name. Without at least thirty (30) days' prior
written notice to Foothill, change Borrower's name, FEIN, business
structure, identity or any new fictitious name."
11. Sections 2.4, 3.2, 5.2, 6.6, 6.12, 6.19 through 6.23, 7.7, 7.10,
7.11 and 7.16 of the Agreement are hereby deleted in their entirety.
12. In the event of a conflict between the terms and provisions
of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other
respects, the Agreement shall remain in full force and effect.
13. All initially capitalized terms used in this Amendment shall
have the meanings given to them in the Agreement unless specifically
defined herein.
IN WITNESS WHEREOF, Borrower and Foothill have executed this
Amendment as of the date first set forth above.
FOOTHILL CAPITAL CORPORATION
By /s/ Steven Cole
Title Vice President
UNITED MERCHANTS AND MANUFACTURERS, INC.
By /s/ Judith A. Nadzick
Title Executive Vice President
SECURED PROMISSORY NOTE
$11,688,000 Los Angeles, California
July 31, 1995
FOR VALUE RECEIVED, the undersigned ("Maker") hereby
promises to pay to FOOTHILL CAPITAL CORPORATION ("Foothill"), or
order, at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025-3333, or at such other address as the holder of
this Note ("Holder") may specify in writing, the principal sum of
Eleven Million Six Hundred Eighty Eight Thousand Dollars
($11,688,000) plus interest in the manner and upon the terms and
conditions set forth below.
I. Rate of Interest
This Secured Promissory Note ("Note") shall bear
interest at a rate equal to twelve percent (12%) per annum. Upon
the occurrence of an Event of Default under that certain Loan And
Security Agreement between the Maker and Foothill dated as of
June 28, 1994 (as amended, the "Agreement"), the rate of interest
on this Note shall, at the option of the Holder, be increased by
four (4) percentage points above the pre-default rate specified
above. Interest charged on this Note shall be computed on the
basis of a three hundred sixty (360) day year for actual days
elapsed.
II. Schedule of Payments
Principal and interest under this Note shall be
due and payable in accordance with Sections 2.3 and 2.5(a) of the
Agreement.
III. Prepayment
This Note may be prepaid at any time, in whole or
in part, without any premium or penalty whatsoever.
IV. Holder's Right of Acceleration
Upon the occurrence of an Event of Default under
the Agreement including, but not limited to, the failure to pay
any installment of principal or interest hereunder when due, the
Holder may, at its election and without notice to the Maker,
declare the entire balance hereof immediately due and payable.
V. Additional Rights of Holder
If any installment of principal or interest
hereunder is not paid when due, the Holder shall have the
following right in addition to the rights set forth herein, in
the Agreement, and under law: the right to compound interest by
adding the unpaid interest to principal, with such combined
amount thereafter bearing interest at the rate provided in this
Note; and
VI. General Provisions
A. If this Note is not paid when due, the Maker
further promises to pay all costs of collection, foreclosure
fees, and reasonable attorneys' fees incurred by the Holder,
whether or not suit is filed hereon.
B. The Maker hereby consents to any and all
renewals, replacements, and/or extensions of time for payment of
this Note before, at, or after maturity.
C. The Maker hereby consents to the acceptance,
release, or substitution of security for this Note.
D. Presentment for payment, notice of dishonor,
protest, and notice of protest are hereby expressly waived.
E. Any waiver of any rights under this Note, the
Agreement, or under any other agreement, instrument, or paper
signed by the Maker is neither valid nor effective unless made in
writing and signed by the Holder.
F. No delay or omission on the part of the
Holder in exercising any right shall operate as a waiver thereof
or of any other right.
G. A waiver by the Holder upon any one occasion
shall not be construed as a bar or waiver of any right or remedy
on any future occasion.
H. Should any one or more of the provisions of
this Note be determined illegal or unenforceable, all other
provisions shall nevertheless remain effective.
I. This Note cannot be changed, modified,
amended, or terminated orally.
VII. Security for the Note
This Note is secured by the Agreement, and is
subject to all of the terms and conditions thereof including, but
not limited to, the remedies specified therein.
VIII. Choice of Law and Venue. THE VALIDITY OF
THIS NOTE, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND
THE RIGHTS OF THE MAKER AND THE HOLDER, SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. THE MAKER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE SHALL BE TRIED
AND DETERMINED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN
THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR, AT THE SOLE
OPTION OF THE HOLDER, IN ANY OTHER COURT IN WHICH THE HOLDER
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. THE
MAKER HEREBY EXPRESSLY WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF
FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION.
IX. Waiver of Jury Trial. MAKER HEREBY WAIVES ITS
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS NOTE OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN INCLUDING CONTRACT CLAIMS TORT CLAIMS, BREACH
OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIM.
MAKER REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION A
COY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
IN WITNESS WHEREOF, this Note has been executed and
delivered on the date first set forth above.
UNITED MERCHANTS AND MANUFACTURERS, INC.
a Delaware corporation
By: /s/ Judith A. Nadzick
Title: Executive Vice President
