<PAGE>
FORM 10-K
---------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JULY 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-4954
APPAREL AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2648900
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1175 STATE STREET, NEW HAVEN, CONNECTICUT 06511
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-777-5531
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.05 PAR VALUE PER SHARE
(TITLE OF CLASS)
<PAGE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
RULE 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. [ ]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-
AFFILIATES OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY
REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED
PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF
FILING.
COMMON STOCK, $.05 PAR VALUE PER SHARE , AS OF SEPTEMBER 19,
1995 - $2,472,976
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE 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 NO
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
7,689,559 SHARES OF COMMON STOCK, PAR VALUE
$.05 PER SHARE, AS OF OCTOBER 19, 1995
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
Apparel America, Inc. (the "Company"), was incorporated under the laws
of the State of Delaware on June 14, 1968. The Company designs, manufactures
and distributes women's swimwear. The Company's products are substantially all
manufactured domestically and are distributed principally within the United
States through its Robby Len Division.
SALES AND MARKETING; COMPETITION
The Robby Len Division competes in the misses' swimwear market segment,
which caters to women over 18 years of age. This market segment accounts for
approximately $530 million of retail sales, or approximately 41% of the total
$1.3 billion retail women's swimwear industry. Robby Len is the second largest
misses' swimwear brand and has a market share of approximately 12%. The top ten
competitors in the women's swimwear market, all of which, except for Robby
Len, are privately owned or are subsidiaries of larger companies, account
for an estimated 73% of such sales. The Company believes that the Robby Len
Division, which has competed well in the misses' swimwear market for almost 50
years, offers a high quality product at a reasonable price.
The Robby Len Division has sales to one major customer (sales in excess of
10% of total sales). Shipments to Sears Roebuck & Co. were approximately
$5,301,000 (13%) for the year ended July 31, 1995, $4,620,000 (13%) for the year
ended July 31, 1994, $3,290,000 (16%) for the six months ended July 31, 1993,
$5,448,000 (24%) for the six months ended July 31, 1992 and $8,218,000 (23%) for
the year ended January 31, 1993.
MANUFACTURING AND DISTRIBUTION
The Robby Len Division's business is highly seasonal, with peak
manufacturing levels occurring from October through May. Accordingly, the
largest volume of shipments, representing approximately 81% of its sales, occur
from January through June. All swimwear is cut and sewn in Robby Len's in-house
manufacturing facilities in New Haven, Connecticut and Hartford, Connecticut or
on a contract basis to the Company's specifications at other outside facilities.
Approximately 94% of the fabric cutting and 53% of the sewing is done at the
Company's in-house facilities with the balance produced at outside contractors.
All finished garments are shipped to customers from the Company's New Haven,
Connecticut manufacturing and distribution facility. The Company believes that
the use of this combination of manufacturing facilities enhances the Robby Len
Division's manufacturing flexibility, minimizes
<PAGE>
quality control problems and insures a relatively low break-even point.
The return policy of the Robby Len Division is that a return authorization
must be issued to a customer before merchandise will be accepted at its
facility. Returns have historically averaged between 3.5% and 4.0% of net
sales.
EMPLOYEES
During its peak periods during the year ended July 31, 1995, the Robby Len
Division employed approximately 381 employees, including 49 managerial, sales
and clerical employees and 322 employees engaged in the Robby Len Division's
manufacturing operations. Approximately 272 of the Robby Len Division's
employees are covered by a collective bargaining agreement with the
International Ladies Garment Workers Union (the "ILGWU") and the Company
believes that its employee relations are satisfactory. The current agreement
with the ILGWU remains in force through May 1997.
During the slower manufacturing periods of June through August, the
Robby Len Division employed approximately 151 employees, including 46
managerial, sales and clerical employees and 105 employees engaged in the Robby
Len Division's manufacturing operations, approximately 68 of whom are covered by
the collective bargaining agreement with the ILGWU.
PATENTS, TRADEMARKS AND TRADENAMES
The Company uses a number of trademarks in connection with the business of
the Robby Len Division, including "Robby Len," "Louisa Brooks," "Tall Talk,"
"Shape-Lee," "Cabana," "Waverly," "Longsuit," "Longlines,", "Waterlines,"
"Aquacize" and "Benefit System," each of which is a registered trademark in the
United States for use on women's, misses' and girl's swimwear. In August 1995
the Company acquired the trademarks "Roxanne," "Harbour Casual" and the
tradename "Coco Reef." See "Recent Transactions" below.
RAW MATERIALS
The principal raw materials used by the Company in connection with the
operations of the Robby Len Division are synthetic fabrics, substantially all of
which are a blend of 85% nylon and 15% spandex, commonly referred to as "elastic
fabric". The Robby Len Division purchases its fabric from major domestic
producers, including Milliken and Company, Darlington Fabrics, Guilford Mills,
and H. Warshow and Sons. The Company expects sufficient supplies of fabric and
other raw material to be available to meet the
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<PAGE>
demands of the Robby Len Division in the foreseeable future. The Company is
generally able to purchase its fabric under normal trade credit terms of sixty
(60) days.
BACKLOG
At July 31, 1995 and 1994, the Robby Len Division's backlog of unshipped
customer orders was approximately $463,000 and $168,000, respectively.
Substantially all of the backlog of unshipped orders at July 31, 1995 was filled
by October 20, 1995.
RECENT TRANSACTIONS
On November 16, 1992, the Company announced plans for the discontinuance of
its Mayfair Division. The Mayfair Division designed, manufactured and
distributed juniors, misses' and children's specialty apparel, including
sportswear imprinted with proprietary and licensed characters and logos. The
Company subsequently ceased operations at its Mayfair design and showroom
facilities, as well as its manufacturing and warehousing locations. Certain
assets (consisting primarily of inventory, property and equipment) were sold,
including the licensing of the Mayfair name and certain proprietary labels to a
company affiliated with Steven Chernick, the former president of the Mayfair
Division. The discontinuance was the result of increased manufacturing costs
amid a highly competitive retail environment. The primary operations of the
Company now consists of the Robby Len swimwear business.
In December 1994, the Company settled a litigation which had been brought
against it by a former executive of the Company's discontinued Mayfair Division.
Under the terms of the settlement the Company agreed to pay the former executive
a total of $460,000 in installments over a three year period.
In fiscal 1995, the Company entered into agreements providing for the
exchange of 25,000 shares of its $9.00 Cumulative Preferred Series B Stock and
accrued dividends thereon for 11,650 shares of the Company's $8.50 Cumulative
Preferred Series H Stock ("Series H Preferred Stock") plus consideration of
$85,000. The Series H Preferred Stock has a redemption value of $100 per share
and is subject to mandatory redemption requirements commencing on May 1, 1996,
with a final redemption on May 1, 2002.
On August 7, 1995, the Company acquired from Milady Brassiere & Corset Co.,
Inc. ("Milady") the trademarks Roxanne and Harbour Casual as well as the
tradename Coco Reef. The Company also acquired certain inventory and associated
customer purchase orders. The purchase price for the trademarks and tradename
is to be determined based on a percentage of net sales of goods bearing the
tradenames Roxanne and Harbour Casual over the next seven years. In addition,
at the Closing (August 7, 1995) the Company paid an advance against the purchase
price of $500,000. Further, the
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<PAGE>
Company guaranteed a minimum payment of $1,200,000 (inclusive of the $500,000
advance) for the first three years and $500,000 for the last four years.
In related developments, the Company (i) purchased approximately $500,000
of inventory bearing the purchased tradenames as well as assumed matching
customer purchase orders against this inventory and (ii) entered into one year
and two year employment agreements, respectively, with two of the principals of
Milady. All funds used in the acquisition came from the Company's internally
generated capital.
ITEM 2. PROPERTIES
The Company's principal administrative offices are located at 1175
State Street, New Haven, Connecticut. In connection with the operation of its
Robby Len Division, the Company leases showroom facilities in New York, Florida
and California, and manufacturing and distribution facilities in Connecticut.
-4-
<PAGE>
The following table sets forth the Company's leased facilities:
Type of Approximate Expiration
Location Facility Square Feet of Lease
- -------- -------- ----------- ----------
1175 State Street Manufacturing/ 167,500 1999
New Haven, CT Distribution
1429 Park Street Manufacturing 38,625 2000
Hartford, CT
1411 Broadway Showroom 5,814 2000
30th Floor
New York, NY
110 East 9th Street Showroom 880 1997
Los Angeles, CA
777 Northwest Showroom 600 1998
72nd Avenue
Miami, FL
1411 Broadway Showroom 2,626 1998
25th Floor
New York, NY (1)
777 Northwest Showroom 450 1996
72nd Avenue
Miami, FL (1)
110 East 9th Street Showroom 1,302 1997
Los Angeles, CA (1)
(1) leased in connection with the acquisition of the Roxanne, Harbour Casual and
Coco Reef tradenames (See - Recent Transactions)
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain litigation arising in the ordinary
course of business. While the outcome of any litigation has an element of
uncertainty, the Company believes, based in part on the opinions of counsel,
that such litigation is either without merit, or that the Company has
meritorious defenses, or that the outcome of such litigation will not have a
material adverse effect on its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-5-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has had no trading activity prior to the
last fiscal year. During the fiscal year ended July 31, 1995, the Company's
Common Stock has been traded on the OTC Electronic Bulletin Board. The high and
low bid quotations for the fiscal year ended July 31, 1995 according to National
Quotations Bureau, Inc. is as follows:
High Low
------ ------
August 1 - October 31 $.0625 .0625
November 1 - January 31 $.0625 .0625
February 1 - April 30 $.0700 .0625
May 1 - July 31 $.1250 .0625
The Company had approximately 5,034 holders of record of its Common
Stock as of October 19, 1995.
No dividends were paid by the Company on its Common Stock during the
years ended July 31, 1995 and 1994, the six months ended July 31, 1993 and the
fiscal year ended January 31, 1993. It is not anticipated that any dividends
will be paid by the Company on its Common Stock in the foreseeable future.
-6-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended Six Months Ended
July 31 July 31, Year Ended January 31,
-------------- ---------------- ------------------------
1995 1994 1993 1992 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)
Net sales $38,964 $34,273 $19,339 $22,529 $33,608 $30,926 $28,147
Operating income
(loss) 2,849 1,575 504 2,459 1,888 1,661 (2,910)
Interest and
financing costs 779 1,804 1,088 1,418 2,394 2,769 4,320
Income (loss) from
continuing
operations
before income taxes 1,691 162 (584) 1,041 (506) (905) (8,234)
Income (loss) from
continuing operations 1,671 142 (594) 638 (532) (929) (8,334)
Income (loss) from
discontinued
operations -- -- 99 201 (7,537) (3,096) (2,836)
Extraordinary
Income -- 4,165 -- 395 -- -- --
Net income (loss) 1,671 4,307 (495) 1,234 (8,069) (4,025) (11,170)
Preferred stock
dividends 718 540 270 270 540 540 540
Net income (loss)
applicable to common
stockholders 953 3,767 (765) 964 (8,609) (4,565) (11,710)
Net income (loss) per
common share:
Income (loss) from
continuing operations $.13 $ (.05) $ (.11) $ .05 $ (.14) $(.20) $(1.20)
Income (loss) from
discontinued
operations -- -- $ .01 $ .03 $ (1.02) $(.42) $( .38)
Extraordinary income -- $ .56 -- .05 -- -- --
Net income (loss) $.13 $ .51 $ (.10) $ .13 $ (1.16) $(.62) $(1.58)
Weighted average
number of common shares
outstanding 7,390 7,390 7,390 7,390 7,390 7,390 7,390
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
July 31, January 31,
------------------------- -------------------------
1995 1994 1993(1) 1993(1) 1992 1991
---- ---- ---- ---- ---- ----
(Thousands of dollars)
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C> <C>
Total assets $15,095 $14,664 $14,977 $19,388 $41,142 $49,219
Working capital
(deficit) 3,288 3,947 (12,434) (11,905) (10,334) 7,255
Long-term debt(2)
(excluding current
portion) 8,523 10,940 - - - 17,578
Subordinated notes
payable(3) 1,000 1,000 1,000 1,000 1,000 10,286
Cumulative redeemable
preferred stock(4) 4,537 5,583 5,412 5,329 5,166 5,008
$12 Preferred series
E stock(5) 16,383 16,383 14,383 14,383 14,383 26,839
$12 Preferred series
F stock(5) 7,022 7,022 7,022 7,022 7,022 -
$10 Preferred series
G stock(5) 17,079 17,079 17,079 17,079 17,079 -
</TABLE>
______________________________
(1) Reflects reclassification of the discontinued Mayfair Division
accounts and results of operations.
(2) See Note 3 to the Financial Statements.
(3) See Note 4 to the Financial Statements.
(4) See Note 5 to the Financial Statements.
(5) See Note 6 to the Financial Statements.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
In June 1993, the Company changed its fiscal year from January 31 to
July 31. The following includes a discussion of the results of operations for
the year ended July 31, 1994 compared to the previous year ended January 31,
1993. A comparison of the year ended July 31, 1994 to the six month transition
period ended July 31, 1993 is not presented due to the highly seasonal nature of
the Company's operations. Accordingly, a discussion of the transition period
for the six months ended July 31, 1993 compared to the six months ended July 31,
1992 is included.
The following table sets forth, for the periods indicated, certain
items expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
July 31, July 31,
-------------------- ------------------- Year Ended
1995 1994 1993 1992 January 31, 1993
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
Cost of goods sold 72.4 74.0 78.1 72.0 72.5
Operating expenses 20.3 21.4 19.3 17.1 21.9
Interest and financing
costs 2.0 5.3 5.6 6.3 7.1
Other, net 1.0 (1.1) - - -
----- ----- ----- ----- -----
95.7 99.6 103.0 95.4 101.5
----- ----- ----- ----- -----
Income (loss) from
continuing operations
before provision for
income taxes 4.3 0.4 (3.0) 4.6 (1.5)
Provision for income
taxes - - 0.1 1.8 0.1
----- ----- ----- ----- -----
Income (loss) from
continuing operations 4.3 0.4 (3.1) 2.8 (1.6)
Income (loss) from
discontinued
operations - - - 0.9 2.5
Loss on disposal
of Mayfair division - - 0.5 - (24.9)
Extraordinary income - 12.2 - 1.8 -
----- ----- ----- ----- -----
Net income (loss) 4.3 12.6 (2.6) 5.5 (24.0)
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
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<PAGE>
YEAR ENDED JULY 31, 1995 COMPARED
TO YEAR ENDED JULY 31, 1994
Net sales increased by $4,691,000, or 13.7%, to $38,964,000 for the year
ended July 31, 1995 as compared to $34,273,000 for the year ended July 31, 1994.
This increase is principally related to an increase in unit volume of
approximately 11% coupled with an approximate 3% increase in unit selling
prices. The increase in unit volume is primarily attributable to the
introduction of two new swimwear lines: 1) the "Sand Dollar" cover-up and
beachwear line and 2) the "Lenee" swimwear line, which is sold primarily to
national and regional discount chain stores. Net sales of "Lenee" represented
approximately $3,000,000 of the increase in sales while "Sand Dollar" sales
approximated $1,600,000 of such increase.
Gross profit as a percentage of net sales increased to 27.6% for the year
ended July 31, 1995 as compared to 26.0% for the year ended July 31, 1994. This
increase is primarily attributable to the increased absorption of manufacturing
and operating overhead costs as a result of increased production requirements
due to higher levels of sales orders and commitments as compared to the prior
year. This increase was partially offset by a change in product mix due to the
sales increases attributable to the "Lenee" and "Sand Dollar" lines, both of
which are sold at lower gross profit margins than Robby Len "branded" swimwear.
Operating expenses increased by $568,000, or 7.8%, to $7,892,000 for the
year ended July 31, 1995 as compared to $7,324,000 for the year ended July 31,
1994. This increase is principally related to increased variable selling,
shipping and administrative expenses resulting from increased sales volume.
Certain inflationary increases in salaries, supplies and other operating costs
also contributed to the increase in operating expenses. A reduction in
consulting fees of approximately $140,000 partially offset the increase in
operating expenses.
The above activities resulted in an increase in operating income of
$1,274,000, or 80.9%, to $2,849,000 for the year ended July 31, 1995 as
compared to $1,575,000 in the prior year period.
Interest and financing costs decreased to $779,000 for the year ended July
31, 1995 from $1,804,000 for the year ended July 31, 1994, a 56.8% decline.
This decrease is principally related to reduced term debt borrowing levels as a
result of debt forgiveness associated with the Fifth Amended and Restated Credit
Agreement and the accounting for future estimated interest payments under such
agreement. This decline was partially offset by a $250,000 increase in working
capital loan interest due to higher borrowing levels (necessary to fund the
growth in sales) and increased interest rates.
Other expense of $412,000 is related to the settlement of certain
litigation to which the Company was a party.
The aggregate effect of the above activities resulted in income from
continuing operations before provision for income taxes of $1,691,000 for the
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<PAGE>
year ended July 31, 1995 as compared to $162,000 for the year ended July 31,
1994.
YEAR ENDED JULY 31, 1994 COMPARED
TO YEAR ENDED JANUARY 31, 1993
Net sales increased by $665,000, or 2.0%, to $34,273,000 for the year ended
July 31, 1994 as compared to $33,608,000 for the year ended January 31, 1993.
This increase is primarily attributable to an increase in unit selling prices of
approximately 4% coupled with an approximate 2% decline in unit volume. A
decline in sales to a major customer, Sears, Roebuck & Co., of approximately
$3,600,000 was offset by increased sales volume to two customers, Lands' End
catalog ($1,800,000 increase) and J.C. Penney ($1,800,000 increase).
Gross profit declined to 26.0% for the year ended July 31, 1994 as compared
to 27.5% for the year ended January 31, 1993. Primary factors contributing to
this decline are inflationary increases in certain raw material purchases and
manufacturing costs coupled with a change in product mix. In addition, a highly
competitive retail environment, which exerted downward pressure on product
selling prices, also contributed to the decrease in gross profit.
Operating expenses declined by $47,000, or 0.6%, to $7,324,000 for the year
ended July 31, 1994 as compared to $7,371,000 for the year ended January 31,
1993. This decline is primarily attributable to the reduction of certain
selling and operating expenses (principally composed of staff reductions,
professional and consulting fee reductions and curtailments in purchases of
operating supplies and services) relating to the Company's overhead reduction
program. This reduction in operating expenses was partially offset by increases
in certain variable selling expenses associated with the increase in sales
volume.
The above activities resulted in a decrease in operating income of
$313,000, or 16.5%, to $1,575,000 for the year ended July 31, 1994 as compared
to $1,888,000 for the year ended January 31, 1993.
Interest and financing costs decreased by $590,000, or 24.6%, to $1,804,000
for the year ended July 31, 1994 as compared to $2,394,000 for the year ended
January 31, 1993. This decrease is principally related to reduced term debt
borrowing levels coupled with the recording of $231,000 of interest discount
relating to the deferred interest on debt restructuring (see Note 3 to the
Financial Statements). In addition, reduced financing fees of approximately
$180,000 also contributed to the decrease in interest and financing costs.
Included in other income of $391,000 for the year ended July 31, 1994 is a
gain of approximately $340,000 on the curtailment of the Company's defined
benefit pension plan, which was suspended on July 31, 1994 (See Note 7 to the
Financial Statements).
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<PAGE>
The aggregate effect of the above activities resulted in income from
continuing operations before income taxes of $162,000 year ended July 31, 1994
as compared to a loss from continuing operations before income taxes of $506,000
for the year ended January 31, 1993.
Extraordinary income of $4,165,000 for the year ended July 31, 1994 is the
result of the accounting for the gain on debt restructuring as a result of the
Fourth and Fifth Amended and Restated Credit Agreements negotiated in fiscal
1994.
SIX MONTHS ENDED JULY 31, 1993 COMPARED
TO SIX MONTHS ENDED JULY 31, 1992
Net sales decreased by $3,190,000, or 14.2%, to $19,339,000 for the six
months ended July 31, 1993 as compared to $22,529,000 for the six months ended
July 31, 1992. This was due to a decline in unit volume as unit selling prices
remained relatively flat compared to the prior year period. A decline in sales
to a major customer of $2,425,000 for the six months ended July 31, 1993 was the
primary factor in the decrease in net sales.
Gross profit decreased to 21.9% for the six months ended July 31, 1993 as
compared to 28.0% for the six months ended July 31, 1992. This decline resulted
primarily from the decrease in sales for the period, which, in turn, led to
manufacturing inefficiencies caused by reduced production requirements.
Additionally, a change in product mix and certain increased manufacturing
overhead costs also contributed to the decrease in gross profit.
Operating expenses declined by $116,000, or 3.0%, to $3,728,000 for the six
months ended July 31, 1993 as compared to $3,844,000 for the prior year period.
This decrease was due principally to reductions in certain variable selling,
shipping and administrative expenses associated with reduced sales volume.
The above activities resulted in a decrease in operating income of
$1,955,000, or 79.5%, to $504,000 for the six months ended July 31, 1993 as
compared to $2,459,000 for the six months ended July 31, 1992.
Interest and financing costs decreased by $330,000, or 23.3%, to $1,088,000
for the six months ended July 31, 1993 as compared to $1,418,000 in the prior
year period. The decrease is related primarily to the inclusion in the prior
year of financing fees attributable to the Third Amended and Restated Credit
Agreement and the $15,000,000 Factor Agreement. In addition, reduced borrowing
levels related to lower production requirements coupled with slightly lower
interest rates also contributed to the decrease in interest and financing costs.
The aggregate effect of the above activities resulted in a loss from
continuing operations before income taxes of $584,000 for the six months ended
July 31, 1993 as compared to income from continuing operations before income
taxes of $1,041,000 for the six months ended July 31, 1992.
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<PAGE>
RESULTS OF DISCONTINUED OPERATIONS
In November 1992, the Company announced plans for the discontinuance
of its Mayfair Division. By January 31, 1993, the Company had ceased
substantially all operations at its Mayfair facilities.
Income from the disposal of the Mayfair Division of $99,000 for the
six months ended July 31, 1993 consisted primarily of adjustments of certain
disposal provisions and accruals recorded at January 31, 1993. Income from the
discontinued Mayfair operations was $201,000 for the six months ended July 31,
1992.
Income from operations of the discontinued Mayfair Division was
$838,000 for the year ended January 31, 1993. In addition, the Company recorded
a loss on the disposal of the Mayfair Division of $8,375,000 consisting
primarily of the write-off of costs in excess of net assets acquired and certain
intangible assets of approximately $6,579,000 as well as provisions for certain
contractual obligations, salaries, services and write-downs of machinery and
equipment. In addition, an approximate net loss of $761,000 from operations
during the phase-out period (resulting primarily from the write-down and
disposal of inventories) was also included in the loss on disposal.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was 1.59 to 1.00 at July
31, 1995 as compared to 1.84 to 1.00 at July 31, 1994. Working capital
decreased by $659,000 to $3,288,000 at July 31, 1995 as compared to $3,947,000
at July 31, 1994. This decline was primarily attributable to capital
expenditures as well as repayments of long-term debt which was partially offset
by the net income for the period.
The Company's working capital requirements are significantly affected by
the highly seasonal nature of Robby Len Fashions, its sole operating division.
As a leading manufacturer of women's swimwear, Robby Len builds inventory during
the first five months of the fiscal year (August - December) to be in position
to fill its sales orders and commitments for January through June, when
approximately 81% of its annual sales volume is shipped. The increase in
inventory of $2,536,000 is related to increased production requirements
resulting from anticipated sales volume increases, and, to a lesser extent, to
an increase in unsold inventory to be carried over into the following season.
The $523,000 increase in accounts payable and $2,169,000 decline in the due from
factor balance are attributable primarily to the increase in inventory. The
$526,000 of net cash provided by operating activities is primarily related to
the increase in accounts payable and inventory as well as the net income for the
period (adjusted for non-cash items).
The Company's investing activities consist primarily of purchases of
-13-
<PAGE>
machinery and equipment as well as leasehold improvements. During the fiscal
year ended July 31, 1995, the Company purchased $300,000 of computerized fabric
cutting equipment which was financed primarily through a loan from the Company's
working capital lender. In addition, the Company purchased $193,000 of
computerized pattern making and grading equipment which was financed primarily
through a loan by the wife of the Chairman of the Board and President of the
Company on terms and conditions similar to those of the working capital lender.
The remaining $287,000 of capital expenditures (primarily composed of leasehold
improvements necessary for the installation of the above mentioned equipment
purchases) were financed by internally generated funds. The Company expects to
finance its remaining capital expenditures in the next twelve months from either
internally generated funds or short term borrowings.
Effective July 31, 1994, the Company entered into a Fifth Amended and
Restated Credit Agreement with the Connecticut Development Authority, and
assignee of Chemical Bank, Binghamton Savings Bank, as assignee of Chemical Bank
and A.I. Associates, Inc. Prior to the Fifth Amended and Restated Credit
Agreement, the outstanding balance due by the Company to the lenders had been
$13,500,000 together with any unpaid interest and fees accrued through that
date. Pursuant to the Fifth Amended and Restated Credit Agreement, $4,755,173
of the principal amount of the loan was discharged, leaving an outstanding
balance of $8,744,827 which is to repaid in unequal annual installments
commencing in 1995 and ending in 2001 (See Note 3 to the Financial Statements).
The Company's primary ongoing cash needs are for working capital
requirements, term debt amortization (both principal and interest) and capital
expenditures. Currently, the Company's sources for liquidity needs are funds
generated from internal operations and loan advances under its $15,000,000
working capital loan agreement. Prior to September 1, 1995, the Company was
party to a $15,000,000 factoring agreement whereby the Company assigned
substantially all accounts receivable to the factor for advances up to 80% of
unmatured accounts receivable and 35% of eligible inventories. Through this
agreement, the Company financed its inventory and receivables build up over the
first five months of the fiscal year (August - December) and repaid these
borrowings during the remainder of the year through collections of sales
invoices. At July 31, 1995, the matured sales balance due from the factor was
$2,905,000. The balance of assigned unmatured accounts receivable due from the
factor was $482,000 at July 31, 1995.
Effective September 1, 1995, the Company entered into a $15,000,000
revolving credit facility under which the Company can borrow up to 85% of
eligible receivables and 50% of eligible inventories along with specified
seasonal overadvances. The revolving credit agreement expires on August 31,
1997.
In June 1995, the Company entered into agreements providing for the
exchange of 25,000 shares of $9 Series B Cumulative Redeemable Preferred Stock
and accrued dividends thereon for 11,650 shares of $8.50 Series H Cumulative
Redeemable Preferred Stock plus cash consideration of $85,000. This exchange
resulted in a contribution to capital of approximately $2,100,000
-14-
<PAGE>
and has enhanced the capital structure of the Company. Annual dividend and
stock redemption costs associated with the Series H Preferred Stock are
estimated between $200,000 to $250,000 through fiscal year July 2002.
Management believes that the current financial resources available to the
Company (short-term borrowings under the revolving credit facility and
internally generated funds) are expected to be adequate to meet its foreseeable
liquidity requirements, including scheduled repayments of term indebtedness
along with Series H Preferred Stock dividends and redemption, in the year ahead.
INFLATION
The Company's Robby Len Division has historically been able to
increase selling prices to the extent permitted by competition as the costs of
merchandise and related operating expenses have increased and, therefore,
inflation has not had a significant effect on the operations.
FUTURE TRENDS
In August 1995, the Company acquired the tradenames Roxanne, Harbour
Casual and Coco Reef from Milady Brassiere & Corset Co., Inc. (see Recent
Transactions for further discussion of the acquisition). It is the belief of
management that there is potential for significant growth in sales volume as a
result of this acquisition over the next several years.
In an effort to lower its overall production costs and obtain additional
production capacity necessary to meet its current and anticipated future growth,
the Company is pursuing contract manufacturing programs in Mexico and the
Dominican Republic. It is anticipated that approximately 5%-10% of the
Company's production requirements for the upcoming fiscal year July 1996 will be
sourced from these areas, with additional growth planned for the future. It is
management's belief that the acquisition of sources of lower manufacturing costs
will be an important factor in the ability of the Company to continue to compete
in its market and maintain profitability.
While the Company is aggressively pursuing its plans for business growth
and reduced production costs, there can be no assurance that it will be
successful in its efforts in these areas.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes," (SFAS 109). Effective February
1, 1993 the Company adopted the provisions of SFAS 109. The adoption of this
statement had no significant effect on the Company's financial position or
results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required to be submitted in response to
-15-
<PAGE>
this Item 8 are set forth in Part IV, Item 14 of the report.
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
Set forth below is a list of the directors, executive officers and key
employees of the Company and their respective ages as of July 31, 1995:
Name Age Capacity
---- --- --------
Burton I. Koffman(1) 69 Chairman of the Board
and President and
Chief Executive
Officer of the Company
Richard E. Koffman 62 Vice Chairman of the
Board, Executive Vice
President and Secretary
of the Company
Nicholas LaRosa(2) 51 Director of the Company
Dennis Newman(3) 50 Director of the Company
Arthur G. Cohen(3) 65 Director of the Company
Jeffrey P. Koffman(4) 30 Director and Executive Vice
President of the Company
David L. Koffman 36 Vice President and
Assistant Secretary of
the Company
Eric T. Weitz 51 Director of the Company and
President and Chief
Executive Officer of Robby
Len Division
Mark D. Greenberg 43 Vice President of the Company,
Executive Vice President of Robby
Len Division
-16-
<PAGE>
Murray Merl 58 Vice President -
Manufacturing of
Robby Len Division
Frederick M. D'Amato 41 Vice President - Finance
of the Company and the
Robby Len Division
- ---------------
(1) Elected President of the Company in June 1995
(2) Resigned as President of the Company in June 1995
(3) Member of Audit Committee
(4) Elected a Director and Executive Vice President of the Company in June 1995
-17-
<PAGE>
Burton I. Koffman has served as Chairman of the Board of the Company
since January 1989 and as Chief Executive Officer of the Company since October
1989. From January 1989 until October 1989, Mr. Koffman served as President of
the Company and assumed this position again in June 1995.
Richard E. Koffman has served as Vice Chairman of the Board of the
Company since October 1989 and as a Director, Executive Vice President and
Secretary of the Company since January 1989. Mr. Koffman is also Treasurer,
Vice President, Secretary and a director of Empire Industries, Inc. and
Executive Vice President and Secretary of Public Loan Company, Inc.
Nicholas LaRosa served as President of the Company from August 1993 to
June 1995 and Director of the Company since November 1993. Previously, Mr.
LaRosa was Vice President-Merchandising for W.H. Smith Co. for six years and
served two years as National Merchandise Manager for women's apparel for
Montgomery Ward. In addition, Mr. LaRosa also served for 17 years in various
executive capacities in woman's apparel merchandising and marketing for Sears,
Roebuck & Co.
Dennis Newman has served as a Director of the Company since January
1994. Mr. Newman is also President of Lizden Corp., an apparel manufacturer, a
position he has held since 1987. Previously, Mr. Newman served in various
executive capacities in the apparel industry.
Arthur G. Cohen has served as a director of the Company since July 25,
1989. Mr. Cohen has been a self-employed real estate developer, an investor,
and among other positions, has served as chairman of the Board of The Arlen
Corporation.
Jeffrey P. Koffman has served as a Director and Executive Vice
President of the Company since June 1995. Mr. Koffman served as a financial
analyst with Security Pacific from 1987 to 1989. In 1989, Mr. Koffman became
Vice President of Pilgrim Industries and in 1990, he became the President of
that Company. From 1994 to present, Mr. Koffman has served in an executive
capacity with Tech Aerofoam Products.
David L. Koffman has served as Vice President of the Company since
January 1989. From January 1989 until October 1989, he was a Director of the
Company and from 1984 until January 1989 he served as Chairman of the Board of
the Company. In addition, Mr. Koffman served as Secretary of the Company from
October 1985 until January 1989. For the past five years, Mr. Koffman has
served as President of Jayark Corporation.
Eric T. Weitz has served as a Director of the Company since January
1995 and as President and Chief Executive Officer of the Robby Len Division
since January 1994. Mr. Weitz served as Vice President-Marketing for Robby Len
Fashions from 1983 until it was acquired by the Company in January 1989 and
continued in that capacity for the Company's Robby Len Division until January
1994. Previously, Mr. Weitz
-18-
<PAGE>
served in various sales and executive capacities in the apparel industry.
Mark D. Greenberg was employed in various capacities by Robby Len
Fashions from 1979 until it was acquired by the Company in January 1989. From
1979 to 1981, Mr. Greenberg served as a senior accountant and from 1981 to 1985
he was the controller of Robby Len Fashions. In 1985, Mr. Greenberg became Vice
President of Finance and Administration of Robby Len Fashions, a position he
held until January 1993, when he undertook his present position.
Murray Merl was employed in various capacities by Robby Len Fashions
from January 1987 until it was acquired by the Company in January 1989. From
January 1987 to September 1988, Mr. Merl served as Assistant Vice President and
in September 1988 he became Vice President-Manufacturing of Robby Len Fashions,
a position he currently holds with the Company's Robby Len Division. In
addition, Mr. Merl has served as President of Tarrytown Garment Company from
1984 to the present.
Frederick M. D'Amato was employed by Mayfair in various capacities for
more than five years prior to the acquisition of Mayfair by the Company in May
1989. Mr. D'Amato served as Assistant Secretary of Mayfair from July 1987 until
May 1989 and as Vice President-Finance of Mayfair, a position he held through
January 1993 whereupon he assumed his present position.
Messrs. Burton I. Koffman and Richard E. Koffman are brothers. Burton
I. Koffman is the father of David L. Koffman and Jeffrey P. Koffman .
The Board of Directors held four meetings during the year ended July
31, 1995. All other actions of the Board of Directors during the year ended
July 31, 1995 were taken by unanimous written consent. There are two committees
of the Board of Directors, an Audit Committee and an Executive Compensation
Committee. The Company has no standing nominating committee of the Board of
Directors or committee performing a similar function. Officers are elected by,
and serve at the discretion of, the Board of Directors.
-19-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued by the
Company for the years ended July 31, 1995, July 31, 1994, the six months ended
July 31, 1993, and for the year ended January 31, 1993 to or for the chief
executive officer, the former president and the remaining four most highly
compensated executive officers and key employees of the Company.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and ------------------- All Other
Principal Position Year Salary($) Bonus($) Compensation ($)
- ------------------ ---- --------- -------- ----------------
Burton I. Koffman 1995 - - 40,000
Chairman of the Board 1994 - - 40,000
and President and 1993* - - 20,000
Chief Executive 1993 - - 40,000
Officer of the Company(1)
Nicholas LaRosa 1995 133,333 - 2,427
Director and President 1994 160,000 - -
of the Company(2) 1993* - - -
1993 - - -
Eric T. Weitz 1995 240,000 144,600 4,800
President and Chief 1994 192,000 100,000 -
Executive Officer- 1993* 96,000 - -
Robby Len Division 1993 184,730 72,240 -
Mark D. Greenberg 1995 150,000 72,300 3,000
V.P. of the Company and 1994 150,000 50,000 -
Executive V.P. of 1993* 75,000 - -
the Robby Len Division 1993 111,459 42,140 -
Murray Merl 1995 130,000 54,225 2,600
V.P. of Manufacturing 1994 130,000 37,500 -
of Robby Len Division 1993* 65,000 - -
1993 130,000 42,140 -
Frederick D'Amato 1995 105,000 54,225 2,100
Vice President- 1994 100,000 25,000 -
Finance 1993* 50,000 - -
1993 100,000 35,000 -
*Represents compensation for the six months ended July 31, 1993
(1) Mr. Koffman was elected President of the Company in June 1995.
(2) Mr. LaRosa resigned as President of the Company in June 1995.
-20-
<PAGE>
Directors who are not officers or employees of the Company receive an
annual fee of $7,500 and $500 per meeting attended for their services as
directors. The Board of Directors held four meetings during the year ended July
31, 1995.
Mr. LaRosa receives a $5,000 per month consulting fee pursuant to a
consulting arrangement effective June 1995 which expires May 31, 1996. Mr.
Burton I. Koffman and Richard E. Koffman receive an annual consulting fee of
$40,000 and $60,000, respectively.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee was established in 1989 when the Company
acquired the existing Robby Len Division and the now discontinued Mayfair
Division. At the time of the 1989 acquisitions, the Company's Compensation
Committee reviewed the compensation level of the executive officers of Robby Len
and Mayfair and adopted their existing compensation plans.
COMPENSATION PHILOSOPHY
The Compensation Committee's executive compensation philosophy is to
provide competitive levels of compensation, integrate executive officer's pay
with the achievement of the Company's annual and long-term performance goals,
reward above average corporate performance, recognize individual initiative and
achievement, and assist the Company in attracting and retaining qualified
executive officers. Executive officer compensation is intended to be set at
levels that the Compensation Committee believes are consistent with others in
the Company's industry and gives emphasis to the need for the best creative
talent available in product related positions.
The Compensation Committee plans to further review the Company's
existing executive officer compensation plans in 1995 and intends to modify such
plans as required to fit within the announced philosophy of the Committee.
BASE SALARIES
Base salaries for new executive officers are determined initially by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for managerial and
creative talent. Annual salary adjustments are determined by evaluating the
competitive marketplace, the performance of the Company, the performance of the
executive and any increased responsibilities assumed by the executive. Salary
adjustments are determined and normally made on an annual basis.
-21-
<PAGE>
For the year ended July 31, 1995, Nicholas LaRosa's salary was based
on a level established and approved by the Company's Board of Directors in
August 1993. Salaries for the year ended July 31, 1995 for Messrs. Weitz and
D'Amato were based on levels established and approved by the Company's Board of
Directors in August 1994. Mr. Greenberg's salary for the year ended July 31,
1995 was based on a level established and approved by the Company's Board of
Directors in August 1992. Mr. Merl's salary for the year ended July 31, 1995
was based on a level established and approved by the Company's Board of
Directors in September 1991. Mr. Burton I. Koffman's compensation is based on a
consulting arrangement.
ANNUAL BONUSES
The Company has a bonus incentive program for its executive officers.
The bonuses, if any, awarded are based upon minimum levels of profitability, as
defined. Based on the performance of the Robby Len Division, bonuses were
awarded for the year ended July 31, 1995 to Messrs. Weitz, Greenberg, Merl and
D'Amato.
PERFORMANCE GRAPH
There has been no trading of the Company's common stock prior to the
last fiscal year. Last year there was a minimal amount of trading. For further
information, see Item 5-Market for Registrant's Common Equity and Related
Stockholder Matters. However, because of the insignificant trading and lack of
meaningful stock prices, the Company has not prepared a performance graph
comparing the five year return on its stock with a broad market equity index.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the holdings, as of October 27, 1995,
of the Company's Common Stock by (i) each person who held of record more than 5%
of the Company's Common Stock, (ii) each of the directors of the Company and
(iii) all directors and officers as a group:
Shares
Title of Beneficially Percent
Name and Address Class Owned of Class
- ---------------- -------- ------------ --------
Burton I. Koffman Common Stock 1,898,366(1) 25.69%
300 Plaza Drive $.05 par value
Binghamton, New York
Richard E. Koffman Common Stock 1,042,667(1) 14.11%
300 Plaza Drive $.05 par value
Binghamton, New York
-22-
<PAGE>
Arthur G. Cohen Common Stock 884,000(2) 11.96%
1501 Broadway $.05 par value
New York, New York
Ruthanne Koffman Common Stock 661,500 8.95%
300 Plaza Drive $.05 par value
Binghamton, New York
Jeffrey P. Koffman Common Stock 600,000 8.12%
300 Plaza Drive $.05 par value
David L. Koffman Common Stock 505,106(3) 6.84%
300 Plaza Drive $.05 par value
Binghamton, New York
The Koffman Group Common Stock 4,827,178(4) 65.32%
(13 persons) $.05 par value
300 Plaza Drive
Binghamton, New York
All Directors and Common Stock 4,930,139(1)(3) 66.72%
Officers as a Group $.05 par value
(5 persons)
______________________________
(1) The number of shares of Common Stock set forth herein includes 943 shares
of Common Stock jointly held by Messrs. Burton I. Koffman and Richard E.
Koffman, of which each owns an undivided 50% interest, and 645,817 in the
case of Mr. Burton I. Koffman and 601,347 in the case of Mr. Richard E.
Koffman of the shares held by Empire Industries, Inc. and Public Loan
Company, Inc., all of the stock of which is owned directly or indirectly by
them and members of their families.
(2) Mr. Arthur G. Cohen holds the shares of Common Stock set forth herein for
the benefit of Ben Arnold Company, Inc., a corporation owned 50% by members
of Mr. Cohen's immediate family, the beneficial ownership of which Mr.
Cohen disclaims, and 50% by members of Messrs. Burton I. Koffman and
Richard E. Koffman's immediate families, the beneficial ownership of which
each disclaims.
(3) The number of shares of Common Stock set forth herein includes 56,000
shares of Common Stock beneficially owned by Mr. David L. Koffman held in
the name of Mr. Arthur G. Cohen for the benefit of Ben Arnold Company,
Inc., the beneficial ownership of which Mr. Cohen disclaims and 12,706 of
the shares held by Public Loan Company, Inc., of which Mr. David L. Koffman
is a stockholder.
-23-
<PAGE>
(4) The members of this reporting group include Messrs. Burton I. Koffman,
Richard E. Koffman, Jeffrey P. Koffman, David L. Koffman and members of
their immediate families. The number of shares of Common Stock set forth
herein includes the shares of Common Stock reported above for Messrs.
Burton I. Koffman, Richard E. Koffman, Jeffrey P. Koffman and David L.
Koffman.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended July 31, 1995 the Company purchased $193,000
of computerized pattern making and grading equipment. This was financed
primarily through a loan by the wife of the Chairman of the Board and President
of the Company on terms and conditions similar to those of the Company's working
capital lender.
Certain of the Company's swimwear products are manufactured on a contract
basis by companies owned by certain officers of the Robby Len Division. See
Note 9 to the Financial Statements for further information.
The Company leases a warehouse and production facility from an affiliate.
Rental amounts paid by the Company to this affiliate were approximately $214,000
and $164,000 for the years ended July 31, 1995 and 1994, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
See the accompanying Financial Statements and Financial Statement
Schedules filed herewith.
(b) Reports on Form 8-K
Refer to Form 8-K dated August 16, 1995 and related Form 8-K/A dated
September 27, 1995 disclosing the acquisition of the Roxanne, Harbour
Casual and Coco Reef tradenames by the Company.
(c) Exhibits
See the accompanying Exhibit Index.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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.
APPAREL AMERICA, INC.
Date: October 27, 1995 By:Burton I. Koffman
--------------------------------
Burton I. Koffman
Chairman of the Board and President
& Chief Executive Officer
By:Frederick D'Amato
--------------------------------
Frederick D'Amato
Vice President-Finance
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 dates indicated below.
Date
----
Burton I. Koffman Chairman of the Board October 27, 1995
- --------------------------
Burton I. Koffman
Richard E. Koffman Vice Chairman of the October 27, 1995
- -------------------------- Board, Executive Vice
Richard E. Koffman President and Secretary
Jeffrey P. Koffman Director and Executive October 27, 1995
- -------------------------- Vice President of the
Jeffrey P. Koffman Company October 27, 1995
Nicholas LaRosa Director October 27, 1995
- --------------------------
Nicholas LaRosa
Arthur G. Cohen Director October 27, 1995
- --------------------------
Arthur G. Cohen
Eric Weitz Director October 27, 1995
- --------------------------
Eric Weitz
Dennis Newman Director October 27,1995
- --------------------------
Dennis Newman
-25-
<PAGE>
APPAREL AMERICA, INC.
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
- --------------------------------------------------------------------------------
The following financial statements of Apparel America, Inc.
are included in Item 8:
Report of independent certified public accountants F-2
Balance sheets as of July 31, 1995 and July 31, 1994 F-3 - F-4
Statements of operations for the years ended July 31,
1995 and 1994, the six months ended July 31, 1993
and 1992 (unaudited) and the year ended
January 31, 1993 F-5
Statements of stockholders' deficit for the years
ended July 31, 1995 and 1994, the six months ended
July 31, 1993 and the year ended January 31, 1993 F-6
Statements of cash flows for the years ended July 31,
1995 and 1994, the six months ended July 31, 1993
and 1992 (unaudited) and the year ended
January 31, 1993 F-7
Notes to financial statements F-8 - F-23
The following schedules of Apparel America, Inc.
are included in Item 14(d):
Report of independent certified public accountants S-1
Schedule II Valuation and qualifying accounts S-2
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Apparel America, Inc.
New Haven, Connecticut
We have audited the accompanying balance sheets of Apparel America, Inc. (the
"Company") as of July 31, 1995 and 1994, and the related statements of
operations, stockholders' deficit, and cash flows for the years ended July 31,
1995 and 1994, the six months ended July 31, 1993 and the year ended January 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to report on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Apparel America, Inc. at July
31, 1995 and 1994, and the results of its operations and its cash flows for the
years ended July 31, 1995 and 1994, the six months ended July 31, 1993 and the
year ended January 31, 1993 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
New York, New York
September 21, 1995
F-2
<PAGE>
APPAREL AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (NOTE 3)
CURRENT:
Cash and cash equivalents (Note 1) $ 29 $ 80
Accounts receivable 463 220
Due from factor - net (Note 13) 2,249 4,418
Inventories (Notes 1 and 2) 5,517 2,981
Due from affiliates 256 310
Prepaid expenses and other current assets 307 293
Net assets of discontinued operations (Note 8) - 334
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,821 8,636
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTE 1):
Machinery and equipment 4,320 3,698
Leasehold improvements 2,420 2,262
- --------------------------------------------------------------------------------
6,740 5,960
Less: Accumulated depreciation and amortization 5,123 4,751
- --------------------------------------------------------------------------------
1,617 1,209
- --------------------------------------------------------------------------------
INTANGIBLES AND OTHER ASSETS:
Cost in excess of net assets acquired, less
accumulated amortization of $1,037 and $878,
(Notes 1 and 8) 4,647 4,807
Other assets 10 12
- --------------------------------------------------------------------------------
4,657 4,819
- --------------------------------------------------------------------------------
$15,095 $14,664
- --------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
APPAREL AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
Current portion of long-term debt (Note 3) $ 1,520 $ 1,315
Current portion of deferred interest (Note 3) 573 702
Accounts payable 1,366 843
Accrued expenses 690 698
Accrued compensation 859 684
Due to affiliates 525 447
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,533 4,689
LONG-TERM DEBT, LESS CURRENT PORTION (NOTE 3) 6,002 7,430
DEFERRED INTEREST - LONG-TERM PORTION (NOTE 3) 1,182 1,755
DIVIDENDS PAYABLE (NOTE 5) 1,339 1,755
SUBORDINATED NOTE PAYABLE (NOTE 4) 1,000 1,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 15,056 16,629
- --------------------------------------------------------------------------------
$9 CUMULATIVE REDEEMABLE PREFERRED STOCK, NET OF
DISCOUNT OF $128 AND $417 (NOTE 5) 3,372 5,583
- --------------------------------------------------------------------------------
$8.50 CUMULATIVE REDEEMABLE PREFERRED STOCK (NOTE 5) 1,165 -
- --------------------------------------------------------------------------------
COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS
(NOTES 2, 7, 11, 12 AND 13)
STOCKHOLDERS' DEFICIT (NOTES 5 AND 6):
$12 preferred stock, Series E (Note 3) 16,383 16,383
$12 preferred stock, Series F 7,022 7,022
$10 preferred stock, Series G 17,079 17,079
Common stock, $.05 par value - shares authorized
15,000,000; issued 7,410,223 at July 31, 1995 and
issued 7,410,213 at July 31, 1994 371 371
Additional paid-in capital 23,803 21,706
Deficit (41,195) (42,148)
Less:
Treasury stock, at cost - 20,665 shares (129) (129)
Acquisition costs in excess of historical basis of
net assets acquired from affiliates (Note 1) (27,832) (27,832)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (4,498) (7,548)
- --------------------------------------------------------------------------------
$15,095 $14,664
- --------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
APPAREL AMERICA, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Six months ended
July 31, July 31, Year ended
-------------------- -------------------- January 31,
1995 1994 1993 1992 1993
(Unaudited)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES (NOTE 13) $38,964 $34,273 $19,339 $22,529 $33,608
COST OF GOODS SOLD (NOTE 9) 28,223 25,374 15,107 16,226 24,349
- -------------------------------------------------------------------------------------------------------
GROSS PROFIT 10,741 8,899 4,232 6,303 9,259
- -------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, design and promotion 3,107 2,777 1,457 1,486 2,716
Shipping and warehousing 1,065 951 298 557 1,032
General and administrative 3,720 3,596 1,973 1,801 3,623
- -------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 7,892 7,324 3,728 3,844 7,371
- -------------------------------------------------------------------------------------------------------
OPERATING INCOME 2,849 1,575 504 2,459 1,888
- -------------------------------------------------------------------------------------------------------
NONOPERATING CHARGES (INCOME):
Interest and financing costs 779 1,804 1,088 1,418 2,394
Litigation settlement (Note 3) 412 - - - -
Other income (Note 7) (33) (391) - - -
- -------------------------------------------------------------------------------------------------------
1,158 1,413 1,088 1,418 2,394
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 1,691 162 (584) 1,041 (506)
PROVISION FOR INCOME TAXES (NOTES 1 AND 10) 20 20 10 403 26
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 1,671 142 (594) 638 (532)
- -------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (NOTE 8):
Income from discontinued Mayfair division - - - 201 838
Income on disposal of Mayfair division, including
provision for operating losses during phase-out
period - - 99 - (8,375)
- -------------------------------------------------------------------------------------------------------
- - 99 201 (7,537)
- -------------------------------------------------------------------------------------------------------
EXTRAORDINARY INCOME:
Gain on debt restructuring (Note 3) - 4,165 - - -
Utilization of net operating loss carryforwards - - - 395 -
- -------------------------------------------------------------------------------------------------------
- 4,165 - 395 -
- -------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 1,671 4,307 (495) 1,234 (8,069)
PREFERRED STOCK DIVIDENDS AND ACCRETION of
REDEEMABLE PREFERRED STOCK (NOTE 5) 718 540 270 270 540
- -------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS $ 953 $ 3,767 $ (765) $ 964 $(8,609)
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE (NOTE 1):
Income (loss) from continuing operations $ .13 $ (.05) $ (.11) $ .05 $ (.14)
Income (loss) from discontinued operations - - .01 .03 (1.02)
Extraordinary income - .56 - .05 -
- -------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ .13 $ .51 $ (.10) $ .13 $ (1.16)
- -------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,389,552 7,389,542 7,389,537 7,389,525 7,389,528
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
APPAREL AMERICA, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred stock Common stock
------------------------ ------------------------ --------------------------
Issued Issued In treasury
------------------------ ----------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1992 384,847 $38,484 7,410,182 $371 20,665 $(129)
Net loss - - - - - -
Fractional shares - - 16 - - -
Dividends on $9 cumulative
redeemable preferred stock - - - - - -
- ----------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1993 384,847 38,484 7,410,198 371 20,665 (129)
Net loss - - - - - -
Fractional shares - - 5 - - -
Dividends on $9 cumulative
redeemable preferred stock - - - - - -
- ----------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1993 384,847 38,484 7,410,203 371 20,665 (129)
Net income - - - - - -
Fractional shares - - 10 - - -
Issuance of Series E Preferred
Stock (Note 3) 20,000 2,000 - - - -
Dividends on $9 cumulative
redeemable preferred stock - - - - - -
- ----------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1994 404,847 40,484 7,410,213 371 20,665 (129)
Net income - - - - - -
Fractional shares - - 10 - - -
Exchange of redeemable
preferred stock (Note 5) - - - - - -
Dividends on $9 cumulative
redeemable preferred stock - - - - - -
Accretion on $9 cumulative
redeemable preferred stock - - - - - -
- ----------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1995 404,847 $40,484 7,410,223 $371 20,665 $(129)
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Acquisiton costs
in excess of
historical
basis of
Additional net assets Total
paid-in acquired from stockholders'
capital Deficit affiliates deficit
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1992 $23,406 $(36,541) $(27,832) $(2,241)
Net loss - (8,069) - (8,069)
Fractional shares - - - -
Dividends on $9 cumulative
redeemable preferred stock - (540) - (540)
- -----------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1993 23,406 (45,150) (27,832) (10,850)
Net loss - (495) - (495)
Fractional shares - - - -
Dividends on $9 cumulative
redeemable preferred stock - (270) - (270)
- -----------------------------------------------------------------------------------
BALANCE, JULY 31, 1993 23,406 (45,915) (27,832) (11,615)
Net income - 4,307 - 4,307
Fractional shares - - - -
Issuance of Series E Preferred
Stock (Note 3) (1,700) - - 300
Dividends on $9 cumulative
redeemable preferred stock - (540) - (540)
- -----------------------------------------------------------------------------------
BALANCE, JULY 31, 1994 21,706 (42,148) (27,832) (7,548)
Net income - 1,671 - 1,671
Fractional shares - - - -
Exchange of redeemable
preferred stock (Note 5) 2,097 - - 2,097
Dividends on $9 cumulative
redeemable preferred stock - (521) - (521)
Accretion on $9 cumulative
redeemable preferred stock - (197) - (197)
- -----------------------------------------------------------------------------------
BALANCE, JULY 31, 1995 $23,803 $(41,195) $(27,832) $(4,498)
- -----------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
APPAREL AMERICA, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Six months ended
July 31, July 31, Year ended
-------------------- -------------------- January 31,
1995 1994 1993 1992 1993
- -------------------------------------------------------------------------------------------------------
(Unaudited)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $1,671 $4,307 $(495) $1,234 $(8,069)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gain on debt restructuring - (4,165) - - -
Amortization of deferred interest (685) (231) - - -
Write-off of interest expense - 324 - - -
Depreciation and amortization 372 314 138 245 516
Other amortization 160 331 163 249 488
Write-off of license rights and trademarks
and costs in excess of net assets acquired - - - - 6,578
Accrued loss on discontinued operations - - - - 736
Write-down of Mayfair machinery and equipment - - - - 127
Provision (credit) for possible losses on
accounts receivable 229 100 97 (176) (1,104)
Litigation settlement 412 - - - -
Decrease (increase) in:
Accounts receivable (243) (187) 107 6,609 10,282
Inventories (2,536) 1,041 7,134 4,371 4,001
Due from affiliates 54 - (1) 422 526
Prepaid expenses and other current assets (14) 62 (39) (437) (64)
Other assets 2 (5) 12 18 11
Net assets of discontinued operations 334 31 611 - (398)
Increase (decrease) in:
Accounts payable and accrued expenses 692 414 (2,391) (876) (937)
Accrued loss on discontinued operations - (183) (553) - -
Due to affiliates 78 50 425 46 61
- -------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 526 2,203 5,208 11,705 12,754
- -------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (780) (266) (77) (206) (260)
- -------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Decrease in notes payable - banks - - - (11,461) (12,688)
Due from factor 1,940 (2,508) (2,009) - (90)
Payments on long-term debt (1,452) (1,000) (1,480) (325) (1,020)
Payment for the exchange of preferred stock (85) - - - -
Litigation settlement payments (200) - - - -
- -------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 203 (3,508) (3,489) (11,786) (13,798)
- -------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (51) (1,571) 1,642 (287) (1,304)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 80 1,651 9 1,313 1,313
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $29 $80 $1,651 $1,026 $9
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,394 $1,601 $1,193 $1,367 $2,513
Income taxes 12 11 11 8 19
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Unpaid dividends 521 540 270 270 540
Issuance of preferred stock for debt - 300 - - -
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-7
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
THE COMPANY The operations of Apparel America, Inc. (the "Company")
consist of the design, manufacture and distribution of
apparel, primarily women's swimwear ("Robby Len"),
substantially all within the United States. In November
1992, the Company announced its plans to discontinue
its imprinted and casual sportswear division
("Mayfair") as described in Note 8.
1. SIGNIFICANT CHANGE IN YEAR-END
ACCOUNTING POLICIES
At a meeting on June 3, 1993, the Board of Directors of
the Company authorized management to change the fiscal
year from January 31 to July 31, subject to the consent
of the Company's lenders, which was received August 23,
1993.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements for the
period ended July 31, 1992 reflect all adjustments
(consisting of normal recurring accruals) which are, in
the opinion of management, considered necessary for a
fair presentation of the results of such period.
ACQUISITION COSTS IN EXCESS OF HISTORICAL BASIS OF NET
ASSETS ACQUIRED FROM AFFILIATES
The Company purchased the net assets of Mayfair and the
outstanding common stock of Robby Len in a series of
transactions with affiliates. The acquisitions have
been accounted for as combinations of companies under
common control, with the net assets acquired (including
costs in excess of net assets acquired arising from
prior acquisitions by the affiliates) recorded at their
historical cost, comparable to a pooling of interests.
The acquisition costs in excess of the historical basis
of the net assets acquired have been recorded as a
charge to stockholders' equity.
INVENTORIES
Inventories are valued at the lower of cost (first-in,
first-out) or market.
F-8
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization are computed by the
straight-line method over the estimated useful lives of
the assets for financial reporting purposes.
CASH EQUIVALENTS
The Company's policy is to invest cash in excess of
operating requirements in income-producing investments.
Cash equivalents consist of certain highly liquid
investments with an original maturity of less than
three months. The Company has substantially all of its
cash and cash equivalents in one financial institution.
COSTS IN EXCESS OF NET ASSETS ACQUIRED
Costs in excess of net assets acquired are being
amortized by the straight-line method over 40 years.
Amortization expense amounted to approximately $160,000
for the years ended July 31, 1995 and July 31, 1994,
$80,000 and $170,000 for the six months ended July 31,
1993 and 1992, respectively, and $293,000 for the year
ended January 31, 1993. The net book value relating to
Mayfair totaled approximately $6,301,000 and was
written off as part of discontinued operations during
the year ended January 31, 1993 (see Note 8). The
Company periodically reevaluates the carrying amount of
the costs in excess of net assets acquired. Based on
the Company's projections, and the estimated
undiscounted future operating profits and cash flows of
Robby Len, the Company expects to recover the remaining
amount of the costs in excess of net assets acquired
over the remaining estimated useful life of the asset.
LICENSE RIGHTS AND TRADEMARKS
License rights and trademarks have been amortized on
the straight-line method over their estimated useful
lives. Amortization expense amounted to $32,000 for the
year ended January 31, 1993. The remaining net book
value relating to Mayfair totaled approximately
$278,000 and was written off as part of discontinued
operations during the year ended January 31, 1993.
F-9
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
Sales are recognized when products are shipped.
Provision for estimated sales returns and allowances
and losses are accrued at the time revenue is
recognized.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been computed,
after deducting applicable preferred stock dividend
requirements, based upon the weighted average number of
common shares outstanding during each of the respective
years. In each year, common share equivalents relating
to warrants were anti-dilutive and, therefore, not
included in the computation.
INCOME TAXES
Effective February 1993, the Company adopted the
provisions of Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). SFAS 109 requires a
company to recognize deferred tax liabilities and
assets for the expected future tax consequences of
events that have been recognized in a company's
financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined
based on the difference between the financial statement
carrying amounts and tax basis of assets and
liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
Deferred tax assets have been reduced by a valuation
allowance since realization is uncertain. The adoption
had no cumulative effect on the financial statements.
2. INVENTORIES Inventories consist of the following:
JULY 31, 1995 1994
------------------------------------------------------
(IN THOUSANDS)
Raw materials $2,791 $1,653
Work-in-process 790 350
Finished goods 1,936 978
------------------------------------------------------
$5,517 $2,981
------------------------------------------------------
F-10
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
3. LONG-TERM DEBT Long-term debt consists of the following:
AND CREDIT
ARRANGEMENTS
JULY 31, 1995 1994
------------------------------------------------------
(IN THOUSANDS)
Term loan payable (a) $6,999 $8,745
Litigation settlement (b) 229 -
Other (including $132 due to a
related party) 294 -
------------------------------------------------------
7,522 8,745
Less: Current portion (1,520) (1,315)
------------------------------------------------------
$6,002 $7,430
------------------------------------------------------
The future minimum payments of the long-term debt are
as follows:
(IN THOUSANDS)
------------------------------------------------------
1996 $1,520
1997 1,527
1998 1,528
1999 1,341
2000 965
Thereafter 641
------------------------------------------------------
7,522
Interest through maturity 1,755
------------------------------------------------------
$9,277
------------------------------------------------------
F-11
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
(a) TERM LOAN
In a prior year, the Company entered into a credit
agreement with two banks to provide a term loan
facility of $24,000,000, the proceeds of which
were used to fund the cash portions of the Robby
Len and Mayfair acquisitions, and a revolving
credit facility of $12,000,000, the proceeds of
which were used to refinance short-term debt.
Various amendments to the credit agreement were
made during the past few years to (i) extend the
maturity of the term loan payable in varying
principal amounts through May 31, 1995; (ii)
refinance the revolving credit borrowings with
funds provided from a factoring agreement (see
below); and (iii) cure previously existing events
of default under certain loan covenants.
In fiscal 1994, the Company negotiated two
additional significant amendments to the loan
agreement. The first one, dated December 15,
1993, modified the payment terms and interest
rates of the term loans and reduced the
outstanding principal amount of the debt (payable
to a related party, see below), upon the issuance
of 20,000 shares of the $12 Preferred Series E
Stock (the "Series E Preferred Stock"). The
second amendment, dated July 31, 1994, extended
the maturity dates of the loans, modified the
payment terms and interest rates and reduced the
outstanding principal amount of the debt by a
total of $4,755,000.
The outstanding balance of the term loans is
approximately $6,999,000 and $8,745,000 at July
31, 1995 and 1994, respectively. The loans are
repayable in varying amounts through fiscal 2001.
Interest, which is payable monthly, accrues at the
rate of 1.5% above the one-year LIBOR (7.3125% at
July 31, 1995 and 1994) for loans totaling
approximately $4,431,000 and $5,478,000 at July
31, 1995 and 1994, respectively, and accrues at
the rate of 1.5% above the prime rate (8.75% at
July 31, 1995 and 1994) for the balance of the
debt (approximately $2,568,000 and $3,267,000 at
July 31, 1995 and 1994, respectively).
F-12
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
Accounting for these amendments, which is based on
Statement of Financial Accounting Standards No.
15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings", resulted in an
extraordinary gain of approximately $4,165,000 in
the year ended July 31, 1994, as follows:
(IN THOUSANDS)
--------------------------------------------------
Balance of debt, July 31, 1993 $16,500
Principal payments, fiscal 1994 (1,000)
--------------------------------------------------
15,500
Fair value of preferred stock issued
to retire debt (300)
Amortization in fiscal 1994 of deferred
interest resulting from first amendment (231)
Accrued interest at date of second
amendment 290
--------------------------------------------------
Balance of debt prior to second amendment 15,259
Principal amount of new debt (8,745)
Estimated interest on new debt through
maturity (2,457)
Professional fees and other costs (158)
--------------------------------------------------
Subtotal 3,899
Forgiveness of accrued interest on the
subordinated note (see Note 4) 266
--------------------------------------------------
$4,165
--------------------------------------------------
The new term loan agreement contains various
covenants, including requirements relating to the
maintenance of certain specified ratios and
levels of income, as defined, and limitations on
(i) the creation of new debt, (ii) the
amortization of the subordinated debt (Note 4)
and the redemption of the cumulative preferred
stock (Note 5), (iii) the level of capital
expenditures, and (iv) dividends and other
restricted payments, as defined. At July 31,
1995, the Company was in violation of certain
covenants for which waivers have been obtained.
F-13
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
The term loans are subject to certain
mandatory repayment provisions using proceeds
received from (i) the sale of capital stock,
(ii) the collection of certain receivables
from related parties, (iii) the sale of
collateral, and (iv) excess cash flow as
defined in the agreement.
(b) LITIGATION SETTLEMENT
In December 1994, the Company entered into an
agreement to pay $460,000 to a former
executive in settlement of certain
litigation. According to the terms of the
agreement, an initial payment of $150,000
was made in December 1994, with the balance
payable in five semi-annual installments of
$50,000 commencing June 30, 1995 and a final
payment of $60,000 on December 31, 1997. The
settlement has been discounted at an annual
effective interest rate of 9% to reflect its
present value at July 31, 1995.
(c) CREDIT AGREEMENTS
In fiscal 1993, the Company entered into a
$15,000,000 factoring agreement (the "Factor
Agreement") whereby the Company assigned
substantially all accounts receivable to the
factor on a pre-approved nonrecourse basis
for advances of up to 80% of unmatured
accounts receivable and 35% of eligible
inventories. Effective January 1, 1994, the
Factor Agreement was amended from a
nonrecourse to a recourse basis, whereby the
Company bears all credit risk associated
with the factored receivables. The Factor
Agreement is secured by the Company's
accounts receivable and inventories.
In September 1995, the Factor Agreement was
replaced with a credit agreement that
provides a $15,000,000 revolving line of
credit for advances based on a percentage of
eligible inventory and accounts receivable.
Borrowings under the revolving line of
credit shall bear interest at either 1% above
the higher of Federal Funds Rate plus 1/2%
or the prime rate (the "Alternative Base
Rate") or 2-1/2% above the applicable LIBOR
reserve rate, at the
F-14
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
Company's option, and be secured by the
Company's accounts receivable and
inventories. The agreement, which expires
August 31, 1997, contains various covenants
including requirements relating to the
maintenance of specific levels of working
capital, net worth and net income, and
restrictions on (i) the creation of new
debt, (ii) the level of capital expenditures,
(iii) the payment of dividends and (iv) the
redemption of stock and other restricted
payments.
4. SUBORDINATED NOTE In May 1989, the Company issued to a related party
a $1,000,000 subordinated promissory note which
bears interest at the rate of 9% per annum,
payable semi-annually, with an original maturity
of December 31, 1993. In connection with an
amendment to the credit agreement, in December
1993, the holder of this note agreed to (i)
forgive accrued and unpaid interest through
December 15, 1993, in the amount of $266,250,
(ii) extend the maturity date of the note to June
1998, and (iii) reduce the interest rate to 8%.
The subordinated promissory note is subject to
certain restricted prepayment covenants and is
subordinate to payment in full of all senior
debt.
5. CUMULATIVE The Company's $9 Cumulative Preferred Series B
REDEEMABLE Stock ("Series B Preferred Stock") has a
PREFERRED STOCKS redemption value of $100 per share and is subject
to mandatory semi-annual redemption requirements
commencing on June 30, 1995, with a final
redemption on December 31, 1997. Such redemptions
are not permitted according to the terms of the
Company's loan agreement until payment in full of
the senior debt. The shares were issued at a
discount which is being amortized over the
redemption period.
The Series B Preferred Stock is nonvoting and
contains certain restrictions on the payment of
dividends on the Common Stock or the acquisition
of Common Stock by the Company.
F-15
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
In fiscal 1995, the Company entered into
agreements providing for the exchange of 25,000
shares of the Series B Preferred Stock and accrued
dividends thereon for 11,650 shares of the
Company's $8.50 Cumulative Preferred Series H
Stock ("Series H Preferred Stock") plus
consideration of $85,000. The Series H Preferred
Stock has a redemption value of $100 per share
and is subject to mandatory redemption
requirements commencing on May 1, 1996, with a
final redemption on May 1, 2002.
The excess of the carrying value of the exchanged
Series B Preferred Stock and accrued dividends
thereon over the redemption value of the Series H
Preferred Stock and consideration paid have been
recorded as a capital contribution of
approximately $2,097,000.
6. STOCKHOLDERS' EQUITY The Series E Preferred Stock, with a stated value
$100 per share, is nonvoting and may be redeemed,
subject to certain conditions, at the Company's
option at anytime. The Series E Preferred Stock
ranks senior to common shares as to dividends and
liquidation preference.
The $12 Preferred Series F Stock (the "Series F
Preferred Stock"), with a stated value of $100
per share, is nonvoting and may be redeemed,
subject to certain conditions, at the Company's
option. The Series F Preferred Stock was issued
with warrants to purchase an aggregate of
3,918,140 shares of the Company's common stock.
Each warrant entitles the holder to purchase the
Company's common stock at an exercise price of
$.10 per share through November 1, 1996.
The $10 Preferred Series G Stock (the "Series G
Preferred Stock") has a stated value of $100 per
share, is non-voting and may be redeemed by the
Company, subject to certain conditions.
F-16
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
7. PENSION PLANS The Company has a noncontributory defined benefit
pension plan (the "Plan") covering substantially
all employees in the Robby Len Division who are
not members of a collective bargaining unit, and
have met certain age and service requirements.
The normal retirement age is 65 with early
retirement at age 55 provided the length of
service requirements as defined in the plan have
been met. Benefits are based upon a percentage of
compensation. The Plan also provides for
disability and death benefits. Effective July 31,
1994, the Company suspended the Plan and
contributions have ceased. In fiscal 1994, a gain
of approximately $340,000 was recorded on the
curtailment and is included in other income.
The following table sets forth the Plan's funded
status:
JULY 31, 1995 1994
--------------------------------------------------
(IN THOUSANDS)
Actuarial present value of
benefit obligations:
Accumulated benefit obligations,
including vested benefits of
$3,092 and $3,031 $3,096 $3,042
--------------------------------------------------
Projected benefit obligation for
services rendered to date $3,096 $3,042
Plan assets at fair value,
primarily listed corporate stocks
and bonds 3,335 3,123
--------------------------------------------------
Plan assets in excess of projected
benefit obligation 239 81
Unrecognized net gain from past
experience different from that
assumed (127) -
--------------------------------------------------
Prepaid pension costs $112 $81
--------------------------------------------------
F-17
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
Net pension cost (credit) included the following
components:
<TABLE>
<CAPTION>
July 31,
---------------------------January 31,
PERIOD OR YEAR ENDED 1995 1994 1993 1993
-------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost-benefit
earned during the
period $ - $ 100 $ 61 $ 123
Interest cost on
projected benefit
obligations 195 219 103 189
Actual return on plan
assets (396) (129) (164) (230)
Net amortization and
deferral 170 (90) (54) 15
-------------------------------------------------------------
Net periodic pension
cost (credit) $ (31) $ 100 $ (54) $ 97
-------------------------------------------------------------
</TABLE>
The following is a summary of significant
actuarial assumptions used:
<TABLE>
<CAPTION>
July 31,
---------------------------January 31,
PERIOD OR YEAR ENDED 1995 1994 1993 1993
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rates 6.5% 6.5% 6.5% 6.75%
Rates of increase in
compensation levels N/A 5.0 5.0 5.50
Expected long-term
rate of return on
assets 7.5 7.5 7.5 7.75
-------------------------------------------------------------
</TABLE>
The Company estimated the net pension cost for the
six months ended July 31, 1992 based on
historical results.
Effective October 1, 1994, the Company adopted a
tax qualified 401(k) plan. Participants may
contribute up to 15% of their salary. The Company
will match 40% of the participant's contribution
up to a maximum of 6% of each participant's
salary. The expense related to the 401(k) plan
was approximately $54,000 for the year ended July
31, 1995.
F-18
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
The Company also contributes to noncontributory,
multi-employer retirement and health plans for
its union employees. The Company's contributions
to the plans were approximately $1,029,000 and
$774,000 for the years ended July 31, 1995 and
1994, $278,000 and $363,000 for the six months
ended July 31, 1993 and 1992, respectively, and
$739,000 for the year ended January 31, 1993.
8. DISCONTINUED In November 1992, the Company announced plans for
OPERATIONS the discontinuance of its Mayfair division. The
Mayfair division designed, manufactured and
distributed juniors', misses' and children's
specialty apparel, including sportswear imprinted
with proprietary and licensed characters and
logos. By July 31, 1993, the Company had ceased
substantially all operations at its Mayfair design
and showroom facilities, as well as its
manufacturing and warehousing locations. Upon
the discontinuation of the sportswear operations
of the Mayfair division, the primary remaining
operations of the Company consisted of the Robby
Len swimwear business. The net assets of the
Mayfair discontinued operations at July 31, 1994
consisted of approximately $334,000 of property,
plant and equipment that was sold in fiscal 1995
for the approximate carrying value.
The loss on disposal of the Mayfair division for
the year ended January 31, 1993 consisted of the
following :
------------------------------------------------
(IN THOUSANDS)
Write-off of costs in excess of net
assets acquired $6,301
Write-off of license rights and
trademarks 278
Provision for contractual obligations 335
Write-down of machinery and equipment 127
Provision for salaries and services 385
Miscellaneous write-offs and provisions 188
Net loss from operations during phase-out
period (primarily inventory write-downs) 761
------------------------------------------------
$8,375
------------------------------------------------
F-19
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
During the six months ended July 31, 1993, the
Company recognized income of approximately
$99,000 related to the adjustment of prior
estimated accruals on the discontinued Mayfair
operations.
Net sales of the Mayfair division were
approximately $10,704,000 for the six months
ended July 31, 1992 and $22,013,000 for the year
ended January 31, 1993.
9. RELATED PARTY Certain of the Company's swimwear products are
TRANSACTIONS manufactured on a contract basis by companies
owned by certain officers of the Robby Len
division. Amounts paid to such contractors
approximated $2,888,000 and $2,587,000 for the
years ended July 31, 1995 and 1994, respectively,
$1,349,000 and $1,916,000 for the six months ended
July 31, 1993 and 1992, respectively, and
$3,641,000 for the year ended January 31, 1993.
Rent expense includes payments to an affiliate of
approximately $214,000 and $164,000 for the years
ended July 31, 1995 and 1994, respectively,
$82,000 for each of the six months ended July 31,
1993 and 1992, and $164,000 for the year ended
January 31, 1993 for rental of a warehouse and
production facility.
F-20
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
10. INCOME TAXES Deferred income taxes reflect the impact of
temporary differences between the amount of
assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws
and regulations. These temporary differences are
determined in accordance with SFAS 109. Deferred
tax liabilities (assets) are comprised of the
following:
JULY 31, 1995 1994
--------------------------------------------------
(IN THOUSANDS)
Inventory (Section 263A) $ (26) $ 24
Accumulated depreciation (129) -
Receivable reserve (170) (79)
Other accruals (187) (292)
Net operating loss (17,519) (18,313)
--------------------------------------------------
Gross deferred tax assets (18,031) (18,660)
Accumulated depreciation - 233
--------------------------------------------------
Subtotal (18,031) (18,427)
Valuation allowance 18,031 18,427
--------------------------------------------------
Net deferred tax asset $ - $ -
--------------------------------------------------
The current provision for income taxes consists of
state income taxes. For the years ended July 31,
1995 and 1994, the six months ended July 31, 1993
and the year ended January 31, 1993, Federal
income taxes have not been provided for because
of net operating losses. The provision for income
taxes for the six months ended July 31, 1992
consists of current state income taxes of
approximately $8,000 and deferred Federal and
state income taxes of approximately $395,000,
which is offset by net operating loss
carryforwards.
At July 31, 1995, the Company has the ability to
offset future taxable income aggregating
approximately $43,797,000 with tax loss
carryforwards which expire at various times from
1998 to 2009.
F-21
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
11. LEASES The Company leases plant, warehouse and office
facilities and machinery and equipment under
noncancellable operating leases that expire in
various years through 2000. One of the plant
facilities is leased from an affiliate (see Note
9). Certain of the leases, which may be renewed
for periods ranging from five to ten years,
provide for rental adjustments based upon cost of
living escalations, changes in the Consumer Price
Index and for payments by the Company for
maintenance costs, property taxes and other
occupancy costs in excess of specified amounts
and insurance obligations on the leased property.
Future minimum lease payments, including rent
payable to an affiliate (see Note 9), under
noncancellable operating leases as of July 31,
1995 are as follows:
-------------------------------------------------
(IN THOUSANDS)
1996 $ 806
1997 774
1998 717
1999 622
2000 370
-------------------------------------------------
Total $3,289
-------------------------------------------------
Rent expense amounted to approximately $645,000
and $649,000 for the years ended July 31, 1995
and 1994, respectively, $339,000 and $285,000 for
the six months ended July 31, 1993 and 1992,
respectively, and $1,103,000 and for the year
ended January 31, 1993.
12. INCENTIVE The Company has a management incentive
COMPENSATION PLANS compensation plan for certain key executives and
AND EMPLOYMENT employees. The incentive compensation is based
ARRANGEMENTS upon percentages of adjusted pre-tax earnings, as
defined, of the Robby Len division. For the year
ended July 31, 1995, such compensation amounted
to approximately $364,000. For each of the years
ended July 31, 1994 and January 31, 1993, such
compensation amounted to approximately $300,000.
Such compensation for the period ended July 31,
1993 was not significant.
F-22
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED
JULY 31, 1992 IS UNAUDITED)
- --------------------------------------------------------------------------------
13. COMMITMENTS, (a) The Company is a party to certain litigation
CONTINGENCIES AND incurred in the normal course of business.
OTHER COMMENTS While any litigation has an element of
uncertainty, the litigation pending against
the Company either (i) seeks immaterial
damage amounts, or (ii) in the opinion of
management and the Company's outside legal
counsel, will be resolved in a manner that
should not have a material adverse effect on
the Company's financial statements.
(b) Financial instruments which potentially
expose the Company to concentrations of
credit risk, as defined by Statement of
Financial Accounting Standards No. 105,
consist primarily of trade accounts
receivable. The Company's customers are not
concentrated in any specific geographic
region, but are concentrated in the apparel
retail business. Sales to one customer
approximated 13% for each of the years ended
July 31, 1995 and 1994, 16% and 24% for the
six months ended July 31, 1993 and 1992,
respectively, and 23% for the year ended
January 31, 1993. Pursuant to the amended
Factor Agreement (see Note 3), the
receivables are assigned to the factor on a
recourse basis. At July 31, 1995, the
outstanding accounts receivable with the
factor totaled approximately $4,900,000.
14. SUBSEQUENT EVENTS On August 7, 1995, the Company acquired from
Milady Brassiere & Corset Co., Inc. ("Milady")
the tradenames Roxanne, Harbour Casual and Coco
Reef. The purchase price for the tradenames is to
be determined based on a percentage of net sales
of goods bearing the tradenames Roxanne and
Harbour Casual over the next seven years, with a
minimum guaranteed purchase price of $1,700,000.
The Company also agreed to (i) purchase
approximately $500,000 of inventory bearing the
purchased tradenames as well as assumed matching
customer purchase orders against this inventory
and (ii) enter into employment agreements with
two of the principals of Milady. The Company
advanced $200,000 to Milady prior to July 31,
1995, which is included in prepaid expenses and
other current assets.
F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Apparel America, Inc.
New Haven, Connecticut
The audits referred to in our report dated September 21, 1995, relating to the
financial statements of Apparel America, Inc. which is included in Item 8 of
this Form 10-K, included the audit of the financial statement schedules listed
in the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based upon our audits.
In our opinion, such financial statement schedules present fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
New York, New York
September 21, 1995
S-1
<PAGE>
APPAREL AMERICA, INC.
VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
SCHEDULE II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------- ---------- --------------------------------------------------------------- -----------
Additions Deductions
---------------------- ---------------------------------------
Transferred
Uncollectible to net Transferred
accounts balance to Balance
Balance at Charged to Charged written due net ssets of at
beginning costs and to other off, net of from discontinued end
Description of period expenses accounts recoveries factor operations period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $ 147 $195 $ - $ 40 $ - $ - $302
Due from factor 50 - - (74) - - 124
- --------------------------------------------------------------------------------------------------------------------------------
$ 197 $195 $ - $ (34) $ - $ - $426
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $ - $197 $ - $ - $50 $ - $147
Due from factor 97 - 50 97 - - 50
- --------------------------------------------------------------------------------------------------------------------------------
$ 97 $197 $ 50 $ 97 $50 $ - $197
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JULY 31, 1993:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $ - $ 97 $ - $ - $97 $ - $ -
Due from factor 89 - 97 89 - - 97
Net assets of discontinued
operations 525 - - 525 - - -
- --------------------------------------------------------------------------------------------------------------------------------
$ 614 $ 97 $ 97 $ 614 $97 $ - $ 97
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1993:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $1,194 $ 89 $ - $ 66 $89 $1,128 $ -
Due from factor - - 89 - - - 89
Net assets of discontinued
operations - 370 1,128 973 - - 525
- --------------------------------------------------------------------------------------------------------------------------------
$1,194 $459 $1,217 $1,039 $89 $1,128 $614
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Balance transferred from allowance for uncollectible accounts recoverable.
S-2
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
2.1 Joint Plan of Reorganization dated
July 7, 1987 (filed as Exhibit 2.1
to the Company's Annual Report on
Form 10-K for the fiscal year ended
January 31, 1988 and incorporated
herein by reference.)
2.2 Amended Joint Plan of Reorganization
dated September 29, 1987 (filed as
Exhibit 2.2 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1988 and
incorporated herein by reference.)
3.1 Articles of Incorporation of Apparel
America, Inc. (filed as Exhibit 3(i)
to the Company's Current Report on
Form 8-K dated January 26, 1989 and
incorporated herein by reference.)
3.2 By-Laws of Apparel America, Inc.
(filed as Exhibit 3(i) to the
Company's Annual Report on Form 10-K
for the fiscal year ended January
31, 1988 and incorporated herein by
reference.)
4.1 Specimen Certificate of Common Stock
of Apparel America, Inc. (filed as
Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1989 and
incorporated herein by reference.)
4.2 Certificate of Designation,
References and Rights of $12
Cumulative Preferred Stock of
Apparel America, Inc. (filed as
Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1989 and
incorporated herein by reference.)
4.3 Specimen Certificate of $12
Cumulative Preferred Stock of
Apparel America, Inc. (filed as
Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1989 and
incorporated herein by reference.)
-i-
<PAGE>
4.4 Form of Registration Rights
Agreement Relating to Apparel
America, Inc. Common Stock (filed as
Exhibit (4)(i) to the Company's
Current Report on Form 8-K dated May
29, 1989 and incorporated herein by
reference.)
4.5 Certificate of Designation,
Preferences and Rights of $9
Cumulative Preferred Series B Stock
of Apparel America, Inc. (filed as
Exhibit (4)(ii) to the Company's
Current Report on Form 8-K dated May
29, 1989 and incorporated herein by
reference.)
4.6 Specimen Certificate of $9
Cumulative Preferred Series B Stock
of Apparel America, Inc. (Filed as
Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1990 and
incorporated herein by reference.)
4.7 Certificate of Designation,
Preferences and Rights of $12
Cumulative Preferred Series C Stock
of Apparel America, Inc. (filed as
Exhibit (4)(iii) to the Company's
Current Report on Form 8-K dated May
29, 1989 and incorporated herein by
reference.)
4.8 Specimen Certificate of $12
Cumulative Preferred Series C Stock
of Apparel America, Inc. (Filed as
Exhibit 4.8 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1990 and
incorporated herein by reference.)
4.9 Form of 9% Subordinated Note due
December 31, 1993 of Apparel
America, Inc. (filed as Exhibit
(4)(iv) to the Company's Current
Report on Form 8-K dated May 29,
1989 and incorporated herein by
reference.)
4.10 Form of 11% Subordinated Notes due
December 31, 1994 of Apparel
America, Inc. (filed as Exhibit
(4)(v) to the Company's Current
Report on Form 8-K dated May 29,
1989 and incorporated herein by
reference.)
-ii-
<PAGE>
4.11 Form of 12% Subordinated Notes due
December 31, 1998 of Apparel
America, Inc. (included as Exhibit B
to the Asset Purchase Agreement
filed as Exhibit 2 to the Company's
Current Report on Form 8-K dated May
29, 1989 and incorporated herein by
reference.)
4.12 Certificate of Amendment of
Certificate of Designation,
Preferences and Rights of $12
Cumulative Preferred Stock of
Apparel America, Inc. (Filed as
Exhibit 4.12 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1990 and
incorporated herein by reference.)
4.13 Certificate of Amendment of
Certificate of Designation,
Preferences and Rights of $12
Cumulative Preferred Series C Stock
of Apparel America, Inc. (Filed as
Exhibit 4.13 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1990 and
incorporated herein by reference.)
4.14 Certificate of Designation, Rights
and Preferences of $10 Cumulative
Preferred Series D Stock of Apparel
America, Inc. (Filed as Exhibit
4.14 to the Company's Annual Report
on Form 10-K for the fiscal year
ended January 31, 1990 and
incorporated herein by reference.)
4.15 Specimen Certificate of $10
Cumulative Preferred Series D Stock
of Apparel America, Inc. (Filed as
Exhibit 4.15 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1990 and
incorporated herein by reference.)
4.16 Certificate of Designation, Rights
and Preferences of $12 Preferred
Series E Stock of Apparel America,
Inc. (Filed as Exhibit 4.16 to the
Company's Annual Report on Form 10-K
for the fiscal year ended
January 31, 1990 and incorporated
herein by reference.)
-iii-
<PAGE>
4.17 Specimen Certificate of $12
Preferred Series E Stock of Apparel
America, Inc. (Filed as Exhibit
4.17 to the Company's Annual Report
on Form 10-K for the fiscal year
ended January 31, 1990 and
incorporated herein by reference.)
4.18 Certificate of Designation, Rights
and Preferences of $12 Preferred
Series F Stock of Apparel America,
Inc. (Previously filed)
4.19 Specimen Certificate of $12
Preferred Series F Stock of Apparel
America, Inc. (Previously filed)
4.20 Certificate of Designation, Rights
and Preferences of $10 Preferred
Series G Stock of Apparel America,
Inc. (Previously filed)
4.21 Specimen Certificate of $10
Preferred Series G Stock of Apparel
America, Inc. (Previously filed)
4.22 Certificate of Designation, Rights
and Preferences of $8.50 Cumulative
Preferred Series H Stock of Apparel
America, Inc. (filed herewith)
4.23 Specimen Certificate of $8.50
Cumulative Preferred Series H Stock
of Apparel America, Inc. (filed
herewith)
-iv-
<PAGE>
10.1 Form of Promissory Note from Miller
Shoe Industries, Inc. to affiliates
of certain stockholders (filed as
Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1988 and
incorporated herein by reference.)
10.2 Stock Acquisition Agreement dated
January 3, 1989 between Apparel
America, Inc. and Great American
Industries, Inc. (filed as Exhibit
10.2 to the Company's Annual Report
on Form 10-K for the fiscal year
ended January 31, 1989 and
incorporated herein by reference.)
10.3 12% Subordinated Promissory Note
dated January 13, 1989 from Apparel
America, Inc. to Great American
Industries, Inc. in the original
principal amount of $1,650,000
(filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K
for the fiscal year ended
January 31, 1989 and incorporated
herein by reference.)
-v-
<PAGE>
10.4 Asset Purchase Agreement dated as of
April 27, 1989 by and between
Apparel America, Inc. and Mayfair
Industries, Inc. (filed as Exhibit 2
to the Company's Current Report on
Form 8-K dated May 29, 1989 and
incorporated herein by reference.)
10.5 Amended and Restated Credit
Agreement dated as of May 12, 1989
among Apparel America, Inc., Norstar
Bank, Manufacturers Hanover Trust
Company and Norstar Bank, as Agent
(filed as Exhibit (10)(i) to the
Company's Current Report on Form 8-K
dated May 29, 1989 and incorporated
herein by reference.)
10.6 Form of Purchase Agreement for
60,000 Units consisting of 60,000
Shares of $9 Cumulative Preferred
Series B Stock and 498,000 Shares of
Common Stock of Apparel America,
Inc. (filed as Exhibit (10)(ii) to
the Company's Current Report on Form
8-K dated May 29, 1989 and
incorporated herein by reference.)
10.7 Form of Purchase Agreement for
$5,000,000 Subordinated C Notes due
December 31, 1994 of Apparel
America, Inc. (filed as Exhibit
(10)(iii) to the Company's Current
Report on Form 8-K dated May 29,
1989 and incorporated herein by
reference.)
10.8 Form of Purchase Agreement for
$1,000,000 Subordinated B Note due
December 31, 1993 Apparel America,
Inc. (filed as Exhibit (10)(iv) to
the Company's Current Report on Form
8-K dated May 29, 1989 and
incorporated herein by reference.)
10.9 Amendment dated as of December 21,
1989 to Amended and Restated Credit
Agreement dated as of May 12, 1989
among Apparel America, Inc., Norstar
Bank, Manufacturers Hanover Trust
Company and Norstar Bank, as Agent.
(Filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K
for the fiscal year ended
January 31,
-vi-
<PAGE>
1990 and incorporated herein by reference.)
10.10 Preferred Stock and Warrant Purchase
Agreement dated as of January 29,
1990 between Mayfair Industries,
Inc. and Apparel America, Inc.
(Filed as Exhibit 10.9 to the
Company's Annual Report on Form 10-K
for the fiscal year ended
January 31, 1990 and incorporated herein
by reference.)
10.11 Preferred Stock and Warrant Purchase
Agreement dated as of January 29,
1990 between Great American
Industries, Inc. and Apparel
America, Inc. (Filed as Exhibit
10.10 to the Company's Annual Report
on Form 10-K for the fiscal year
ended January 31, 1990 and
incorporated herein by reference.)
10.12 Agreement to Extend Payment Dates
dated as of January 29, 1990 between
Mayfair Industries, Inc. and Apparel
America, Inc. (Filed as Exhibit
10.11 to the Company's Annual Report
on Form 10-K for the fiscal year
ended January 31, 1990 and
incorporated herein by reference.)
10.13 Agreement to Extend Payment Dates
dated as of January 29, 1990 between
Great American Industries, Inc. and
Apparel America, Inc. (Filed as
Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the
fiscal year ended January 31, 1990
and incorporated herein by
reference.)
10.14 Letter Agreement dated January 29,
1990 from Burton I. Koffman to
Apparel America, Inc. re 11%
Subordinated Note Due December 31,
1994. (Filed as Exhibit 10.13 to
the Company's Annual Report on Form
10-K for the fiscal year ended
January 31, 1990 and incorporated
herein by reference.)
10.15 Letter Agreement dated February 1,
1990 from REK Corp. to Apparel
America, Inc. re 11% Subordinated
Notes Due December 31, 1994 (Filed
as Exhibit
-vii-
<PAGE>
10.14 to the Company's Annual
Report on Form 10-K for the
fiscal year ended January 31, 1990
and incorporated herein by
reference.)
10.16 Forms of Warrants dated as of
January 29, 1990 issued by Apparel
America, Inc. to Mayfair Industries,
Inc. and Great America Industries,
Inc. (Filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K
for the fiscal year ended
January 31, 1990 and incorporated
herein by reference.)
10.17 Amendment dated as of April 27, 1990
to Amended and Restated Credit
Agreement dated as of May 12, 1989
among Apparel America, Inc., Norstar
Bank, Manufacturers Hanover Trust
Company and Norstar Bank, as Agent.
(Filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K
for the fiscal year ended
January 31, 1990 and incorporated
herein by reference.)
10.18 Preferred Stock and Warrant
Assignment dated as of January 31,
1990 from Great American Industries,
Inc. to REK Corp. (Filed as Exhibit
10.17 to the Company's Annual Report
on Form 10-K for the fiscal year
ended January 31, 1990 and
incorporated herein by reference.)
10.19 Preferred Stock Exchange Agreement
dated as of April 19, 1990 between
Mayfair Industries, Inc. and Apparel
America, Inc. (Filed as Exhibit
10.18 to the Company's Annual Report
on Form 10-K for the fiscal year
ended January 31, 1990 and
incorporated herein by reference.)
10.20 Preferred Stock Exchange Agreement
dated as of April 19, 1990 between
Great America Industries, Inc. and
Apparel America, Inc. (Filed as
Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the
fiscal year ended January 31, 1990
and incor-
-viii-
<PAGE>
porated herein by reference.)
10.21 Preferred Stock Exchange Agreement
dated as of April 19, 1990 between
REK Corp. and Apparel America, Inc.
(Filed as Exhibit 10.20 to the
Company's Annual Report on Form 10-K
for the fiscal year ended
January 31, 1990 and incorporated
herein by reference.)
10.22 Second Amended and Restated Credit
Agreement dated as of October 1,
1991 among Apparel America, Inc.,
Norstar Bank, Manufacturers Hanover
Trust Company and Norstar Bank, as
Agent. (Previously filed)
10.23 First Amendment to Second Amended
and Restated Credit Agreement dated
as of October 1, 1991 by and among
Apparel America, Inc., Norstar Bank
and Manufacturers Hanover Trust
Company. (Previously filed)
10.24 Preferred Stock Exchange Agreement
dated November 4, 1991 and effective
as of February 1, 1991 between Great
American Industries, Inc. and
Apparel America, Inc. (Previously
filed)
10.25 Preferred Stock Exchange Agreement
dated November 4, 1991 and effective
as of February 1, 1991 between
Mayfair Industries, Inc. and Apparel
America, Inc. (Previously filed)
10.26 Preferred Stock Exchange Agreement
dated November 4, 1991 and effective
as of February 1, 1991 between REK
Corp. and Apparel America, Inc.
(Previously filed)
10.27 Preferred Stock Exchange Agreement
dated November 4, 1991 and effective
as of February 1, 1991 between Ben
Arnold Company, Inc. and Apparel
America, Inc. (Previously filed)
10.28 Preferred Stock Exchange Agreement
dated November 4, 1991 and effective
as of October 1, 1991 between
Mayfair
-ix-
<PAGE>
Industries, Inc. and Apparel
America, Inc. (Previously filed)
10.29 Preferred Stock Exchange Agreement
dated November 4, 1991 between
Burton I. Koffman and Apparel
America, Inc. (Previously filed)
10.30 Fifth Amended and Restated Credit
Agreement dated as of effective July
31, 1994 andy Apparel America, Inc.
Connections Development Authority,
A.I. Associates and Binghamton
Savings Bank. (Previously filed)
22 Subsidiaries of Apparel America,
Inc. (filed herewith)
28.1 Bankruptcy Court Order dated
November 25, 1987 Confirming Joint
Plan of Reorganization (filed as
Exhibit 28.1 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1988 and
incorporated herein by reference.)
-x-
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF $8.50 CUMULATIVE
PREFERRED SERIES H STOCK
OF
APPAREL AMERICA, INC.
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
Apparel America, Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article FOURTH of its
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution creating a series of its
Preferred Stock, par value $.05 per share, designated as $8.50 Cumulative
Preferred Series H Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of
the Corporation be hereby created and that the designation and amount thereof
and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as $8.50 Cumulative Preferred Series H Stock (the "$8.50 Preferred H
Stock") and the number of shares
<PAGE>
constituting such series shall be 25,000 and the stated value of the $8.50
Preferred H Stock shall be $100 per share.
SECTION 2. VOTING (A) Except as provided in Section 2B, the $8.50
Preferred H Stock shall have no voting rights.
(B) The Corporation shall not, without the affirmative consent of the
holders of a majority of the $8.50 Preferred H Stock, in any manner alter or
change the designations or the powers, preferences or rights, or the
qualifications, limitations or restrictions or increase the number of authorized
shares of the $8.50 Preferred H Stock in any material respect prejudicial to the
holders thereof.
SECTION 3. DIVIDENDS. In each year the holders of the $8.50
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors of the Corporation, out of funds legally available for that
purpose, quarterly dividends payable in cash on August 1, November 1, February 1
and May 1 in each year (each such date being referred to herein as "Quarterly
Dividend Payment Date"), commencing August 1, 1995, in the amount of $2.125 per
share.
In the case of the original issuance of shares of $8.50 Preferred H
Stock, dividends shall begin to accrue and be cumulative from the date of issue.
In the case of shares of $8.50
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Preferred H Stock issued in exchange for issued thereof, dividends shall begin
to accrue and be cumulative from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares to which such dividends have been
paid, unless the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of $8.50
Preferred H Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
be cumulative from such Quarterly Dividend Payment Date; provided , however,
that if dividends shall not be paid on such Quarterly Dividend Payment Date,
then dividends shall accrue and be cumulative from the Quarterly Dividend
Payment Date to which such dividends have been paid. Accrued but unpaid
dividends shall not bear interest. Dividends paid on shares of $8.50 Preferred
H Stock in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro-rata on a share-by-
share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of $8.50
Preferred H Stock entitled to receive payment of a dividend declared thereon,
which record date shall be no more than sixty days prior to the date fixed for
the payment thereof.
Whenever quarterly dividends payable on the $8.50 Preferred H Stock as
provided in this Section 3 are in arrears, thereafter and until dividends,
including all accrued dividends, on shares of the $8.50 Preferred H Stock
outstanding shall have been
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<PAGE>
paid in full or declared and set apart for payment, the Corporation shall not
(A) pay dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the $8.50 Preferred
H Stock, (B) pay dividends on or make any other distributions on any stock
ranking on a parity (either as to dividends or upon liquidation, dissolution, or
winding up) with the $8.50 Preferred H Stock, except dividends paid ratably on
the $8.50 Preferred H Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled, (C) redeem or purchase or otherwise acquire
for consideration any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the $8.50 Preferred H Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking on a parity or junior to the $8.50 Preferred H Stock,
(D) purchase or otherwise acquire for consideration any shares of the $8.50
Preferred H Stock, unless required pursuant to Section 5A, or any shares of
stock ranking on a parity with the $8.50 Preferred H Stock, except with respect
to the exchange of any stock for debt of the Corporation. The Corporation shall
not permit any subsidiary of the Corporation to purchase or otherwise acquire
for consideration any shares of stock of the Corporation unless the Corporation
could purchase such shares at such time and in such
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<PAGE>
manner.
SECTION 5. REDEMPTION BY CORPORATION. The Corporation shall redeem
shares of $8.50 Preferred H Stock pursuant to the following provisions:
(A) The Corporation shall, commencing on May 1, 1996 and annually on
each May 1 thereafter redeem a number of shares of $8.50 Preferred H Stock equal
to 10% of the number of shares first issued by the Corporation, PROVIDED,
HOWEVER, that on May 1, 1999 through and including May 1, 2001, the percentage
shall be 17.86% and the final redemption on May 1, 2002 shall be 16.42%, at a
redemption price equal to its liquidation value of $100 per share, plus an
amount equal to all unpaid dividends thereon, including accrued dividends,
whether or not declared, to the redemption date; PROVIDED, HOWEVER, that the
Corporation shall not so redeem the $8.50 Preferred H Stock as set forth above
to the extent the Corporation is prohibited from making such redemption pursuant
to the provisions of any debt instrument which evidences debt of the Corporation
or pursuant to which the Corporation has issued debt securities, or to the
extent mandatory prepayments on any such debt have not been made or provided
for; PROVIDED, HOWEVER, that to the extent the Corporation is prohibited from
making any such redemption in whole or in part, the shares of $8.50 Preferred H
Stock which have not been so redeemed shall be subject to redemption the next
year and so on;
5
<PAGE>
(B) To the extent the Corporation shall otherwise be permitted
pursuant to the provisions of any debt instrument which evidences debt of the
Corporation or pursuant to which the Corporation has issued debt securities, the
Corporation shall have the right at its option and election to redeem the shares
of $8.50 Preferred H Stock, in whole or in part, at any time and from time to
time at a redemption price equal to its liquidation value of $100 per share plus
an equal amount to all unpaid dividends thereon, including accrued dividends,
whether or not declared, to redemption date;
(C) If less then all of the $8.50 Preferred H Stock at the time
outstanding is to be redeemed, the shares so to be redeemed shall be selected by
lot, pro-rata or in such other manner as the Board of Directors may determine to
be fair and proper;
(D) Notice of any redemption of the $8.50 Preferred H Stock shall be
mailed at least thirty, but no more than sixty, days prior to the date fixed for
redemption to each holders of $8.50 Preferred H Stock to be redeemed, at such
holder's address as it appears on the books of the Corporation. In accordance
to facilitate the redemption of the $8.50 Preferred H Stock, the Board of
Directors may fix a record date for the determination of holders of $8.50
Preferred H Stock to be redeemed, or may cause the transfer book of the
Corporation to be closed for the transfer of the $8.50 Preferred H Stock, not
more than sixty days prior to the
6
<PAGE>
date fixed for such redemption;
(E) Upon any notice of redemption being sent to the holders of
Preferred Stock Series H, notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding, the rights to receive dividends thereon
shall cease to accrue from and after the date of redemption designated in the
notice of redemption and all rights of the holders of the shares of the $8.50
Preferred H Stock called for redemption shall cease and terminate, excepting
only the right to receive the redemption price therefor.
SECTION 6. REACQUIRED SHARES. Any shares of the $8.50 Preferred H
Stock redeemed or purchased otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions or restrictions on issuance set forth in
the Corporation's Certificate of Incorporation.
SECTION 7. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) Upon any
liquidation, dissolution or winding up of the Corporation,
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<PAGE>
no distribution shall be made (A) to the holders of Common Stock of the
Corporation and other stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the $8.50 Preferred H Stock unless,
prior thereto, the holders of $8.50 Preferred H Stock shall have received $100
per share, plus an amount equal to unpaid dividends thereon, including accrued
dividends, whether or not declared, to the date of such payment or (B) to the
holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the $8.50 Preferred H Stock, except
distributions made ratably on the $8.50 Preferred H Stock and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
(b) The Preferred H Stock shall rank PERI PASSU to the Company's
$9.00 Cumulative Preferred Series B Stock.
SECTION 8. NOTICES OF CORPORATE ACTION. In the event of:
(A) any taking by the Corporation of a record of the holders of its
Common Stock for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a dividend payable solely in cash or shares
of Common Stock) or other distribution, or any right or warrant to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right;
8
<PAGE>
(B) any capital reorganization, reclassification or recapitalization
of the Corporation (other than a subdivision or combination of the outstanding
shares of its Common Stock), any consolidation or merger involving the
Corporation and any other person (other than a consolidation or merger with a
wholly-owned subsidiary of the Corporation, provided that the Corporation is the
surviving or the continuing Corporation and no change occurs in the Common
Stock), or any transfer of all or substantially all the assets of the
Corporation to any other person; or
(C) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation;
then, and in each such case, the Corporation shall cause to be mailed to the
holders of record of the outstanding shares of the $8.50 Preferred H Stock, at
least 20 days (or 10 days in case of any event specified in clause (A) above)
prior to the applicable record or effective date hereinafter specified, a notice
stating (i) the date or expected date on which any such record is to be taken
for the purpose of such dividend, distribution or right or (ii) the date or
expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock shall be entitled to exchange their
shares of Common Stock for the securities or other property
9
<PAGE>
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding up.
IN WITNESS WHEREOF, said Apparel America, Inc. has caused this
Certificate of Designation, Preferences and Rights of $8.50 Preferred H Stock to
be duly executed by its President and attested to by its Secretary and caused
its corporate seal to be affixed thereto on June , 1995.
Attest: Apparel America, Inc.
By:
- ------------------------- -------------------
10
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER APPAREL AMERICA, INC SHARES
AUTHORIZED ISSUE:
25,000 SHARES OF $8.50 CUMULATIVE PREFERRED SERIES H STOCK
($.05 PAR VALUE)
THIS IS TO CERTIFY THAT __________ is the owner of
( ) fully paid and non-assessable shares of the $8.50 Cumulative Preferred
Series H Stock of the above Corporation transferable only on the books of the
Corporation by the holder hereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed.
The Corporation will furnish without charge to each stockholder
who so requests a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of the
Corporation's stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
WITNESS, the seal of the Corporation and the signatures of its
duly authorized officers.
Dated: , 1995
- -------------------- --------------------
Richard E. Koffman Burton I. Koffman
Secretary/Treasurer President
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE LAWS.
THEY MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR EXEMPTION THEREFROM UNDER
SAID ACT AND SUCH LAWS AND THE RESPECTIVE
RULES AND REGULATIONS THEREUNDER.
<PAGE>
Exhibit 22
SUBSIDIARIES OF APPAREL AMERICA, INC.
NONE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AUDITED BALANCE SHEET AS OF JULY 31, 1995 AND THE AUDITED
STATEMENT OF INCOME FOR THE YEAR ENDED JULY 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 29
<SECURITIES> 0
<RECEIVABLES> 3,138
<ALLOWANCES> 426
<INVENTORY> 5,517
<CURRENT-ASSETS> 8,821
<PP&E> 6,740
<DEPRECIATION> 5,123
<TOTAL-ASSETS> 15,095
<CURRENT-LIABILITIES> 5,533
<BONDS> 9,523
<COMMON> 371
4,537
40,484
<OTHER-SE> (45,353)
<TOTAL-LIABILITY-AND-EQUITY> 15,095
<SALES> 38,964
<TOTAL-REVENUES> 38,964
<CGS> 28,223
<TOTAL-COSTS> 28,223
<OTHER-EXPENSES> 7,771
<LOSS-PROVISION> 121
<INTEREST-EXPENSE> 779
<INCOME-PRETAX> 1,691
<INCOME-TAX> 20
<INCOME-CONTINUING> 1,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,671
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
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