<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, 1996
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
OCTOBER 10, 1996 - $ 2,743,399
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:
19,762,643 SHARES OF COMMON STOCK, PAR VALUE
$.05 PER SHARE, AS OF OCTOBER 22, 1996
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 and related sportswear and beachwear. 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. The Robby Len Division markets its
swimwear primarily under the Robby Len, Roxanne and Coco Reef "branded" labels
to many national and regional department stores, specialty stores and catalogs,
as well as under "private label" programs for many of the nation's leading
retailers. In addition, the Robby Len Division competes in the discount chain
market under its "Lenee" label. The "branded" market segment accounts for
approximately $540 million of retail sales, or approximately 49% of the total
$1.1 billion retail women's swimwear industry. Robby Len is the second largest
misses' swimwear brand and has a market share of approximately 10%. The top ten
competitors in the branded women's swimwear market, all of which, except for
Robby Len, are privately owned or are subsidiaries of larger companies, account
for an estimated 70% of such sales. Both the Robby Len and Roxanne labels have
competed well in the misses' swimwear market for over 50 years and the Company
believes that its Robby Len Division offers a high quality product at a
reasonable price.
Three major customers of the Robby Len Division accounted for an aggregate
of approximately 37% of the Company's total sales for fiscal year ended July
1996. Shipments to Sears Roebuck & Co. were approximately $5,604,000 (11%) for
the year ended July 31, 1996, $5,301,000 (13%) for the year ended July 31, 1995
and $4,620,000 (13%) for the year ended July 31, 1994. Shipments to Federated
Stores were $7,328,000 (14%) for the year ended July 31, 1996 and less than 10%
of sales for the years ended July 31, 1995 and 1994. Shipments to May Company
were approximately $6,235,000 (12%) for the year ended July 31, 1996 and less
than 10% of sales for the years ended July 31, 1995 and 1994.
<PAGE>
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 80% 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 domestic outside
facilities and, to a lesser extent, at outside facilities located in Mexico,
Colombia and the Dominican Republic. Approximately 82% of the fabric cutting
and 33% of the sewing is done at the Company's in-house facilities with the
balance produced at outside contractors. Approximately 7% of the sewn garments
were produced by off-shore 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 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, 1996, the Robby Len
Division employed approximately 418 employees, including 72 managerial, sales
and clerical employees and 346 employees engaged in the Robby Len Division's
manufacturing operations. Approximately 298 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 175 employees, including 72
managerial, sales and clerical employees and 103 employees engaged in the Robby
Len Division's manufacturing operations, approximately 74 of whom are covered by
the collective bargaining agreement with the ILGWU.
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<PAGE>
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," "Fit Zone," "Sport Form," "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. The Company also
uses the trademarks "Roxanne," "Harbour Casual" and the tradename "Coco Reef,"
all of which were acquired in August 1995. 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,
Lida, Inc. and Missbrenner, Inc.. The Company expects sufficient supplies of
fabric and other raw material to be available to meet the 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, 1996 and 1995, the Robby Len Division's backlog of unshipped
customer orders was approximately $2,098,000 and $463,000, respectively.
Substantially all of the backlog of unshipped orders at July 31, 1996 was filled
by October 25, 1996.
RECENT TRANSACTIONS
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 which commenced 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
Roxanne, Harbour Casual and Coco Reef labels over the next seven years. In
addition, at the Closing (August 7, 1995) the Company
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<PAGE>
paid an advance against the purchase price of $500,000. Further, the 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.
Effective November 1, 1995, the Company entered into an agreement for the
exchange of its $1,000,000 Subordinated Note plus unpaid interest of $150,000
for an Amended and Restated Subordinated Note in the amount of $600,000. The
amended and restated note is due on June 30, 1998. A principal payment of
$50,000 was made in February 1996 and additional annual principal payments of
$50,000 can be made subject to excess cash flow provisions of senior debt. The
amended and restated note is subordinate to payment in full of all senior debt.
During fiscal year 1996, the Company and its senior debt lenders negotiated
three amendments to their credit agreement. These amendments, among other
things, authorized the establishment of a foreign subsidiary, deferred a portion
of the scheduled June 1996 principal payment, permitted the payment of dividends
and redemption of a portion of Series H Preferred Stock and revised certain
financial covenants.
In July 1996, outstanding warrants to purchase 3,876,140 shares of the
Company's common stock at a price of $.10 per share were exercised. The
warrants, which were issued in connection with the conversion of certain debt to
Series F Preferred Stock, were held primarily by affiliates of the Company.
Effective July 30, 1996, the Company entered into agreements for the
exchange of all outstanding Series E, F and G Preferred Stock for 8,096,940
shares of common stock. The Series E, F and G Preferred Stock was held
principally by affiliates of the Company or members of the family holding
majority ownership of the Company.
In September 1996, the Company incorporated a subsidiary in Mexico, Trajes
de Bano Morelos, S.A. de C.V. ("TBM"), for the purpose of establishing a
manufacturing facility in Mexico. At the present time, it is anticipated that
this facility will begin operations in the spring of 1997. TBM is projected to
produce approximately 15% of the Company's swimwear within two years of
commencement of operations.
-4-
<PAGE>
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.
The following table sets forth the Company's leased facilities:
Type of Approximate Expiration
Location Facility Square Feet of Lease
- -------- -------- ----------- ----------
1175 State Street Manufacturing/ 182,500 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 1999
72nd Avenue
Miami, FL
1411 Broadway Showroom 3,296 2000
30th Floor
New York, NY (1)
777 Northwest Showroom 450 1999
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)
-5-
<PAGE>
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
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
During the fiscal years ended July 31, 1996 and 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 years ended July 31, 1996 and
July 31, 1995 according to the National Quotations Bureau, Inc. is as follows:
Fiscal Year Fiscal Year
July 31,1996 July 31,1995
-------------- --------------
High Low High Low
----- ---- ----- ----
August 1 - October 31 $1.000 $.0625 $.0625 $.0625
November 1 - January 31 $.8750 $.1250 $.0625 $.0625
February 1 - April 30 $.5625 $.1875 $.0700 $.0625
May 1 - July 31 $.5938 $.4375 $.1250 $.0625
The Company had approximately 5,007 holders of record of its Common
Stock as of October 22, 1996.
No dividends were paid by the Company on its Common Stock during the
fiscal years ended July 31, 1996, 1995 and 1994. 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>
Six Months Ended
Year Ended July 31, July 31, Year Ended January 31,
--------------------------- ----------------- ----------------------
1996 1995 1994 1993 1992 1993 1992
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data(1)
Net sales $49,876 $38,964 $34,273 $19,339 $22,529 $33,608 $30,926
Operating income 642 2,849 1,575 504 2,459 1,888 1,661
Interest and
financing costs 1,265 779 1,804 1,088 1,418 2,394 2,769
Income (loss) from
continuing
operations
before income taxes (387) 1,691 162 (584) 1,041 (506) (905)
Income (loss) from
continuing operations (407) 1,671 142 (594) 638 (532) (929)
Income (loss) from
discontinued
operations -- -- -- 99 201 (7,537) (3,096)
Extraordinary
Income 550 -- 4,165 -- 395 -- --
Net income (loss) 143 1,671 4,307 (495) 1,234 (8,069) (4,025)
Preferred stock
dividends 504 718 540 270 270 540 540
Net income (loss)
applicable to common
stockholders (361) 953 3,767 (765) 964 (8,609) (4,565)
Net income (loss) per
common share:
Income (loss) from
continuing operations $(.12) $.13 $ (.05) $ (.11) $ .05 $ (.14) $(.20)
Income (loss) from
discontinued
operations -- -- -- $ .01 $ .03 $ (1.02) $(.42)
Extraordinary income $.07 -- $ .56 -- .05 -- --
Net income (loss) $(.05) $.13 $ .51 $ (.10) $ .13 $ (1.16) $(.62)
Weighted average
number of common shares
outstanding 7,760 7,390 7,390 7,390 7,390 7,390 7,390
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
July 31, January 31,
----------------------------------- ---------------------
1996 1995 1994 1993(1) 1993(1) 1992
---- ---- ---- ---- ------- ----
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
- ------------------
Total assets $20,408 $15,095 $14,664 $14,977 $19,388 $41,142
Working capital
(deficit) 1,407 3,288 3,947 (12,434) (11,905) (10,334)
Long-term debt(2)
(excluding current
portion) 8,616 8,523 10,940 -- -- --
Subordinated notes
payable(3) 468 1,000 1,000 1,000 1,000 1,000
Cumulative redeemable
preferred stock(4) 4,568 4,537 5,583 5,412 5,329 5,166
$12 Preferred series
E stock(5) -- 16,383 16,383 14,383 14,383 14,383
$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 4 to the Financial Statements.
(3) See Note 5 to the Financial Statements.
(4) See Note 6 to the Financial Statements.
(5) See Note 7 to the Financial Statements.
-8-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
- --------------------------------
The following table sets forth, for the periods indicated, certain
items expressed as a percentage of net sales:
Year Ended Year Ended Year Ended
July 31, 1996 July 31, 1995 July 31, 1994
------------- ------------- -------------
Net sales 100.0% 100.0% 100.0%
------ ------ ------
Cost of goods sold 78.6 72.4 74.0
Operating expenses 20.1 20.3 21.4
Interest and financing
costs 2.5 2.0 5.3
Other, net (0.4) 1.0 (1.1)
------ ----- -----
100.8 95.7 99.6
------ ------ -----
Income (loss) before
provision for
income taxes and
extraordinary income (0.8) 4.3 0.4
Provision for income
taxes - - -
--- --- ---
Income (loss) before
extraordinary income (0.8) 4.3 0.4
Extraordinary income 1.1 - 12.2
----- --- ------
Net income 0.3 4.3 12.6
----- ----- ------
----- ----- ------
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<PAGE>
Year Ended July 31, 1996 Compared
to Year Ended July 31, 1995
- ---------------------------------
Net sales increased by $10,912,000, or 28.0%, to $49,876,000 for the
year ended July 31, 1996 as compared to $38,964,000 for the year ended July
31, 1995. This increase is due principally to an increase in unit sales
volume as unit selling prices rose by approximately 4% compared to the prior
year. Sales of goods relating to the August 1995 acquisition of the Roxanne,
Harbour Casual and Coco Reef labels (see Item 1 - Recent Transactions for
further information) represented approximately 75% of the sales increase.
The balance of the increase is primarily attributable to increased sales of
"Sand Dollars" swimwear cover-ups and sportswear and increased sales of
non-branded, or "private label", swimwear.
Gross profit as a percentage of net sales declined to 21.4% for the year
ended July 31, 1996 as compared to 27.6% for the year ended July 31, 1995. This
decline is due principally to a) increased manufacturing and product development
costs relating to goods produced under the newly acquired Roxanne, Harbour
Casuals and Coco Reef labels b) a change in product mix related to increased
sales of non-branded "private label" swimwear and c) a poor retail selling
environment which led to increased promotional sales and liquidation of certain
unsold inventory.
Operating expenses increased by $2,150,000, or 27.2%, to $10,042,000 for
the year ended July 31, 1996 as compared to $7,892,000 for the year ended July
31, 1995. The increase in selling, design and promotion expenses of $1,552,000
is composed principally of Roxanne and Harbour Casual sales salaries,
commissions, showroom rent and related overhead expenses. Shipping expenses
increased by $619,000 primarily due to staff additions, additional shipping
supplies and maintenance costs and increases in freight costs necessary to
warehouse and ship Roxanne and Harbour Casual product along with certain
variable shipping costs associated with increased sales volume. Certain
inflationary increases in salaries, supplies and other operating overhead costs
also contributed to this increase.
The above activities resulted in a decline in operating income of
$2,207,000, or 77.5%, to $642,000 for the year ended July 31, 1996 as compared
to operating income of $2,849,000 for the year end July 31, 1995.
Interest and financing costs increased by $486,000, or 62.4%, to $1,265,000
for the year ended July 31, 1996 as compared to $779,000 for the year ended July
31, 1995. This increase is principally related to increased borrowings under
the Company's working capital line of credit necessary to fund the acquisition
and development of the Roxanne, Harbour Casuals and Coco Reef product lines and,
to a lesser extent, the growth of the Company's Robby Len business.
Other income of $236,000 for the year ended July 31, 1996 is primarily
related to the recognition of a net settlement gain in connection with the
termination of the Company's defined benefit pension plan. See Note 8 to the
Financial Statements for additional information.
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<PAGE>
The aggregate effect of the above activities resulted in a loss before
provision for income taxes and extraordinary income of $387,000 for the year
ended July 31, 1996 as compared to income before provision for income taxes and
extraordinary income of $1,691,000 for the year ended July 31, 1995.
Extraordinary income of $550,000 for the year ended July 31, 1996 is a
result of the restructuring of the Subordinated Note described in Note 5 to the
Financial Statements.
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
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<PAGE>
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.
Litigation settlement expense of $412,000 for the year ended July 31, 1995
is attributable to the settlement of certain litigation described in Note 4 to
the Financial Statements.
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. Refer to Note 8 to the Financial Statements for
additional information.
The aggregate effect of the above activities resulted in income before
provision for income taxes and extraordinary income of $1,691,000 for the year
ended July 31, 1995 as compared to income before provision for income taxes and
extraordinary income of $162,000 for the year ended July 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was 1.13 to 1.00 at July
31, 1996 as compared to 1.59 to 1.00 at July 31, 1995. Working capital declined
by $1,881,000 to $1,407,000 at July 31, 1996 as compared to $3,288,000 at July
31, 1995. This decrease in working capital is primarily attributable to the net
loss for the period (before extraordinary income) along with a $500,000 payment
in connection with the purchase of the Roxanne and Harbour Casual trademarks and
Coco Reef tradename and capital expenditures of approximately $574,000.
The Company's working capital requirements are affected significantly by
the highly seasonal nature of its business, through which it markets women's
swimwear and related sportswear under the Robby Len, Harbour Casual, Roxanne,
and Coco Reef labels, among others. As a leading manufacturer of women's
swimwear, the Company builds inventory during the first five months of the
fiscal year (August - December) in order to meet its shipping requirements in
January through June (approximately 80% of annual sales are shipped in this time
period). The $2,213,000 increase in inventory is due primarily to the addition
of the Roxanne, Harbour Casual and Coco Reef product lines and, to a lesser
extent, to anticipated sales increases in the first quarter of fiscal year 1997
as compared to the prior year period. The $647,000 increase in accounts payable
and accrued expenses and the $5,488,000 increase in the revolving loan balance
are attributable primarily to the increase in inventory. In addition, the
increases in the accounts receivable and revolving loan balance as well as the
decrease in the due from factor balance is related to the September 1995
replacement of the Company's factoring agreement with a revolving loan agreement
(see Note 4 to the Financial Statements). The $6,412,000 of net cash used in
operating activities for the year ended July 31, 1996 is primarily reflected in
the increases in inventory, accounts receivable and accounts payable along with
the net loss before extraordinary income (adjusted for non-cash items) and the
elimination of the Company's factoring agreement.
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<PAGE>
The Company's investing activities consist primarily of purchases of
machinery and equipment as well as leasehold improvements. During fiscal years
1995 and 1996, the Company purchased certain production and pattern making
equipment financed primarily through long-term arrangements (see Note 4 to the
Financial Statements for further information). The balance of capital
expenditures were financed through the Company's working capital line of credit
and internally generated funds. The Company expects to finance its capital
expenditures in the next twelve months through a combination of internally
generated funds and long-term borrowings.
The Company's primary ongoing cash needs are for working capital
requirements, capital expenditures, dividends and redemption of Series H
Preferred Stock and term debt amortization (both principal and interest). In
addition, the Company is also planning for fiscal year 1997 capital expenditures
amounting to approximately $700,000 for certain sewing equipment required by its
Mexican subsidiary and leasehold improvements for its New Haven, CT facility.
The three present sources for the Company's liquidity needs are internally
generated funds, long-term capital expenditure borrowings and short-term
borrowings available under its revolving loan agreement (see Note 4 to the
Financial Statements). Through this agreement, the Company finances its
inventory and receivables build-up during the first five months of the fiscal
year and repays these borrowings over the remainder of the fiscal year. Under
the terms of this agreement which expires August 31, 1997, the Company can
borrow up to 85% against eligible receivables and 50% of eligible inventories
along with specified seasonal overadvances. The outstanding loan balance under
the agreement at July 31, 1996 was $5,488,000. In January 1996, the maximum
loan balance under the revolving credit facility was increased from $15,000,000
to $23,000,000 in order to support increased borrowing requirements (including
certain seasonal overadvances) principally related to the acquisition,
development and production of goods under the newly acquired Roxanne, Harbour
Casual and Coco Reef product lines.
Management believes that the current financial resources available to the
Company (short-term borrowings under revolving credit facility, certain
long-term capital expenditure borrowings and funds from operations) are expected
to be adequate to meed its foreseeable liquidity requirements, including
scheduled repayments of term indebtedness along with dividends and redemption of
Series H Preferred Stock, in the twelve months.
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.
-13-
<PAGE>
FUTURE TRENDS
In August 1995, the Company acquired the trademarks Roxanne and
Harbour Casual and the tradename Coco Reef from Milady Brassiere & Corset Co.,
Inc. (see Item 1 - Recent Transactions for further discussion of the
acquisition). As discussed above, 75% of the Company's approximate $11,000,000
sales increase for the year ended July 31, 1996 was attributable to sales of
goods bearing these trademarks and tradename. In addition, this acquisition was
a principal factor in the decline in gross profit and increase in operating
expenses for fiscal year 1996. 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. It is also the belief of management that both
gross profit and operating expenses as a percentage of sales should improve over
fiscal year 1996 levels as certain start-up and fixed costs associated with the
Roxanne acquisition will be reduced or remain relatively constant in concert
with anticipated increases in sales volume.
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 engaged in contract manufacturing programs in
Mexico and the Dominican Republic. Currently, approximately 7% of the Company's
production requirements are sourced from these areas, with additional growth
planned for the future. These plans include the establishment of a contract
manufacturing program in Columbia for the upcoming fiscal year. In addition, in
September 1996 the Company established a subsidiary in Mexico, Trajes de Bano
Morelos, S.A. de C.V.. This subsidiary will operate a swimwear manufacturing
facility in Cuernavaca, Mexico. The production facility is scheduled to open in
the spring of 1997 and it is anticipated that approximately 15% of the Company's
production requirements will be fulfilled by this operation. 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 enhance 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.
-14-
<PAGE>
RECENT ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," which
requires that certain long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The adoption of this pronouncement is not expected to have a
significant effect on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which allows the choice of
either the intrinsic value method or the fair value method of accounting for
employee stock options. The Company has selected the option to continue the use
of the current intrinsic value method.
Both of these statements are effective for fiscal years beginning after
December 15, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required to be submitted in response to 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
-15-
<PAGE>
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, 1996:
Name Age Capacity
---- --- --------
Burton I. Koffman(3) 70 Chairman of the Board
and Chief Executive
Officer of the Company
Richard E. Koffman(2) 63 Vice Chairman of the
Board, Executive Vice
President and Secretary
of the Company
Arthur G. Cohen(2)(3) 66 Director of the Company
Jeffrey P. Koffman(1)(3) 31 Director and President of
the Company
Eric T. Weitz 52 Director and Executive Vice
President of the Company,
President of the Robby Len
Division
Bernard Tessler(2) 45 Director of the Company
David L. Koffman 37 Vice President and
Assistant Secretary of
the Company
Mark D. Greenberg 44 Vice President of the Company,
Vice President - Operations of the
Robby Len Division
Murray Merl 59 Vice President -
Manufacturing of the
Robby Len Division
Frederick M. D'Amato 42 Vice President - Finance
of the Company and the
Robby Len Division
-16-
<PAGE>
- ---------------
(1) Elected President of the Company in February 1996
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
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. Mr. Koffman served as President of the Company from January 1989 until
October 1989 and from June 1995 to February 1996.
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.
Arthur G. Cohen has served as a Director of the Company since July 25,
1989. Mr. Cohen is a self-employed real estate developer and investor. Among
other positions, he serves as Chairman of the Board of The Arlen Corporation.
Jeffrey P. Koffman has served as a Director of the Company since June
1995 and Executive Vice President from June 1994 to February 1996. Mr. Koffman
was appointed President of the Company in February 1996. 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.
Eric T. Weitz has served as a Director of the Company since January
1995 and as President of the Robby Len Division since January 1994. Mr. Weitz
was appointed Executive Vice President of the Company in February 1996. 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
served in various sales and executive capacities in the apparel industry.
Bernard Tessler was elected a Director of the Company in February
1996. Mr. Tessler is Chairman, President, and Chief Executive Officer of LFS
Acquisition, Inc., a Company which owns a chain of children's specialty apparel
stores, a position he assumed in June 1995. From 1987 until 1991, Mr. Tessler
was President and CEO of Children's Creative Workshop, Ltd.
-17-
<PAGE>
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.
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 . Messrs.
David L. Koffman and Jeffrey P. Koffman are brothers.
The Board of Directors held two meetings during the year ended July
31, 1996. All other actions of the Board of Directors during the year ended
July 31, 1996 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.
-18-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued by the
Company for the years ended July 31, 1996, July 31, 1995 and July 31, 1994 to or
for the chief executive officer and the remaining four most highly compensated
executive officers and key employees of the Company.
Summary Compensation Table
--------------------------
Annual Compensation All Other
Name and -------------------
Principal Position Year Salary($) Bonus($) Compensation ($)
- ------------------ ---- --------- -------- ----------------
Burton I. Koffman 1996 - - 40,000
Chairman of the Board, 1995 - - 40,000
Chief Executive 1994 - - 40,000
Officer of the Company
Eric T. Weitz 1996 240,000 33,240 3,840
Executive Vice Pres- 1995 240,000 144,600 4,800
ident of the Company, 1994 192,000 100,000 -
President of the
Robby Len Division
Mark D. Greenberg 1996 150,000 16,620 3,696
V.P. of the Company, 1995 150,000 72,300 3,000
V.P. - Operations 1994 150,000 50,000 -
of the Robby Len
Division
Murray Merl 1996 136,500 16,620 3,347
V.P. - Manufacturing 1995 130,000 54,225 2,600
of the Robby Len 1994 130,000 37,500 -
Division
Frederick M. D'Amato 1996 110,300 16,620 3,770
Vice President- 1995 105,000 54,225 2,100
Finance 1994 100,000 25,000 -
Directors who are not officers or employees of the Company receive an
annual fee of $5,000 and $500 per meeting attended for their services as
directors. The Board of Directors held two meetings during the year ended July
31, 1996.
Mr. Burton I. Koffman and Mr. Richard E. Koffman receive an annual
consulting fee of $40,000 (as disclosed above) and $60,000, respectively. Mr.
Jeffrey P. Koffman receives an annual salary of $36,000.
-19-
<PAGE>
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 1996 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.
Salaries for the year ended July 31, 1996 for Messrs. Merl and D'Amato
were based on levels established and approved by the Company's Board of
Directors in August 1995. Mr. Greenberg's salary for the year ended July 31,
1996 was based on a level established and approved by the Company's Board of
Directors in August 1992. Mr. Weitz's salary for the year ended July 31, 1996
was based on a level established and approved by the Company's Board of
Directors in August 1994. Mr. Burton I. Koffman's compensation is based on a
consulting arrangement.
-20-
<PAGE>
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, 1996 to Messrs. Weitz, Greenberg, Merl and
D'Amato.
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
Company's cumulative total stockholder return on Common Stock with (i) the
cumulative total return of the NASDAQ market index and (ii) the cumulative total
return of companies with the standard industrial code (SIC) Code 2339 over the
period from August 1, 1991 through July 31, 1996. The component entities of SIC
Code 2339 were generated by Media General Financial Service, Inc. All the
entities in SIC Code 2339 were incorporated into the peer group.
[GRAPH]
- ----------------------------Fiscal Year Ending --------------------------------
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Apparel America Inc. 100.00 100.00 100.00 100.00 200.00 900.00
Industry Index 100.00 68.87 39.75 41.32 52.94 55.75
(SIC Code 2339)
Broad Market Index 100.00 102.46 127.27 138.88 170.19 185.53
(NASDAQ Market)
</TABLE>
Assumes $100 invested on August 1, 1991. Assumes dividends reinvested
through fiscal year ended July 31, 1996.
-21-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the holdings, as of October 25, 1996,
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
- ---------------- -------- ------------ --------
PLC, Inc. Common Stock 4,211,400(1) 21.31%
300 Plaza Drive $.05 par value
Vestal, New York
Mayfair Industries, Inc. Common Stock 3,563,640(1) 18.03%
300 Plaza Drive $.05 par value
Vestal, New York
Burton I. Koffman Common Stock 2,124,456(2) 10.75%
300 Plaza Drive $.05 par value
Vestal , New York
REK Corp. Common Stock 1,901,677(1) 9.62%
300 Plaza Drive $.05 par value
Vestal, New York
Richard E. Koffman Common Stock 1,074,037(2) 5.43%
300 Plaza Drive $.05 par value
Vestal, New York
Arthur G. Cohen Common Stock 884,000(3) 4.47%
1501 Broadway $.05 par value
New York, New York
Jeffrey P. Koffman Common Stock 600,000 3.04%
300 Plaza Drive $.05 par value
Vestal, New York
All Directors and Common Stock 5,187,599(4) 26.25%
Officers as a Group $.05 par value
(5 persons)
The Koffman Group Common Stock 15,220,778(5) 77.02%
(13 persons) $.05 par value
300 Plaza Drive
Vestal, New York
______________________________
(1) PLC, Inc., Mayfair Industries, Inc. and REK Corp. are substantially all
owned, directly or indirectly, by members of the Koffman family. See
Footnote (5) below.
-22-
<PAGE>
(2) 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.
(3) 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. Mr. Cohen also disclaims beneficial ownership of 194,720
shares of Common Stock owned by Karen Cohen, his wife.
(4) 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, Arthur C. Cohen and Jeffrey P. Koffman. Also included herein are
505,106 shares of Common Stock beneficially owned by Mr. David L. Koffman,
a Vice President and Assistant Secretary of the Company and the son of
Burton I. Koffman and brother of Jeffrey P. Koffman.
(5) 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, as well as entities controlled by members of the
Koffman family. 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.
-23-
<PAGE>
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 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
$227,000, $214,000 and $164,000 for the years ended July 31, 1996, 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 25, 1996 By:Burton I. Koffman
--------------------------
Burton I. Koffman
Chairman of the Board
and Chief Executive
Officer
By:Frederick M. D'Amato
--------------------------
Frederick M. 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 25, 1996
- --------------------------
Burton I. Koffman
Richard E. Koffman Vice Chairman of the October 25, 1996
- --------------------------
Richard E. Koffman Board, Executive Vice
President and Secretary
Jeffrey P. Koffman Director and October 25, 1996
- --------------------------
Jeffrey P. Koffman President of the Company
Arthur G. Cohen Director October 25, 1996
- --------------------------
Arthur G. Cohen
Eric T. Weitz Director and Executive Vice October 25, 1996
- --------------------------
Eric T. Weitz President of the Company
Bernard Tessler Director October 25,1996
- --------------------------
Bernard Tessler
-25-
<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.)
-26-
<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.)
-27-
<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.)
-28-
<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. (previously filed)
4.23 Specimen Certificate of $8.50
Cumulative Preferred Series H Stock
of Apparel America, Inc. (previously
filed)
4.24 Form of Amended and Restated
Subordinated Note dated November 1,
1995 by Apparel America, Inc. (filed
herewith)
-29-
<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.)
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.)
-30-
<PAGE>
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, 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.)
-31-
<PAGE>
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 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.)
-32-
<PAGE>
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 incorporated 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.)
-33-
<PAGE>
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 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)
-34-
<PAGE>
10.30 Fifth Amended and Restated Credit
Agreement dated as of July 31, 1994
among Apparel America, Inc.,
Connecticut Development Authority,
Binghamton Savings Bank, A.I.
Associates, Inc. and Binghamton
Savings Bank, as Agent. (Previously
filed)
10.31 First Amendment dated January 12,
1996 to the Fifth Amended and
Restated Credit Agreement dated as
of July 31, 1994 among Apparel
America, Inc., Connecticut
Development Authority, Binghamton
Savings Bank, A.I. Associates, Inc.
and Binghamton Savings Bank, as
Agent. (filed herewith)
10.32 Second Amendment dated June 1, 1996
to the Fifth Amended and Restated
Credit Agreement dated as of July
31, 1994 among Apparel America,
Inc., Connecticut Development
Authority, Binghamton Savings Bank,
A.I. Associates, Inc. and Binghamton
Savings Bank, as Agent. (filed
herewith)
10.33 Third Amendment dated October 15,
1996 to the Fifth Amended and
Restated Credit Agreement dated as
of July 31, 1994 among Apparel
America, Inc., Connecticut
Development Authority, Binghamton
Savings Bank, A.I. Associates, Inc.
and Binghamton Savings Bank, as
Agent. (filed herewith)
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.)
-35-
<PAGE>
APPAREL AMERICA, INC.
FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
<PAGE>
APPAREL AMERICA, INC.
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
- --------------------------------------------------------------------------------
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, 1996 and 1995 F-3 - F-4
Statements of operations for the years ended July 31,
1996, 1995 and 1994 F-5
Statements of stockholders' deficit for the years
ended July 31, 1996, 1995 and 1994 F-6
Statements of cash flows for the years ended July 31,
1996, 1995 and 1994 F-7
Notes to financial statements F-8 - F-22
The following schedule of Apparel America, Inc.
is 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, 1996 and 1995, and the related statements of
operations, stockholders' deficit, and cash flows for each of the three years in
the period ended July 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended July 31, 1996 in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
September 23, 1996
F-2
<PAGE>
APPAREL AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
JULY 31, 1996 1995
- --------------------------------------------------------------------------------
ASSETS (NOTE 4)
CURRENT:
Cash and cash equivalents (Note 1) $ 41 $ 29
Accounts receivable 4,187 463
Due from factor (Note 4) - 2,249
Inventories (Notes 1 and 3) 7,730 5,517
Due from affiliates 185 256
Prepaid expenses and other current assets 477 307
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 12,620 8,821
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTE 1):
Machinery and equipment 4,765 4,320
Leasehold improvements 2,549 2,420
- --------------------------------------------------------------------------------
7,314 6,740
Less: Accumulated depreciation and amortization 5,613 5,123
- --------------------------------------------------------------------------------
1,701 1,617
- --------------------------------------------------------------------------------
INTANGIBLES AND OTHER ASSETS:
Trademarks, net of accumulated amortization of
$113 (Notes 1 and 2) 1,587 -
Cost in excess of net assets acquired, less
accumulated amortization of $1,196 and $1,037
(Note 1) 4,488 4,647
Other assets 12 10
- --------------------------------------------------------------------------------
6,087 4,657
- --------------------------------------------------------------------------------
$20,408 $15,095
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
APPAREL AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
JULY 31, 1996 1995
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
Current portion of long-term debt (Note 4) $1,649 $1,520
Current portion of deferred interest (Note 4) 452 573
Current portion of subordinated note payable (Note 5) 100 -
Loan payable - revolver (Note 4) 5,488 -
Accounts payable 2,062 1,366
Accrued expenses 908 690
Accrued compensation 554 859
Due to affiliates - 525
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 11,213 5,533
LONG-TERM DEBT, LESS CURRENT PORTION (NOTE 4) 5,032 6,002
ACCRUED PURCHASE PRICE - TRADEMARK (NOTE 2) 1,200 -
DEFERRED INTEREST - LONG-TERM PORTION (NOTE 4) 730 1,182
DIVIDENDS PAYABLE (NOTE 6) 1,654 1,339
SUBORDINATED NOTE PAYABLE (NOTE 5) 468 1,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 20,297 15,056
- --------------------------------------------------------------------------------
$9 CUMULATIVE REDEEMABLE PREFERRED STOCK, NET OF
DISCOUNT OF $50 AND $128 (NOTE 6) 3,450 3,372
- --------------------------------------------------------------------------------
$8.50 CUMULATIVE REDEEMABLE PREFERRED STOCK (NOTE 6) 1,118 1,165
- --------------------------------------------------------------------------------
COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS
(NOTES 2, 8, 11, 12 AND 13)
STOCKHOLDERS' DEFICIT (NOTES 6 AND 7):
$12 preferred stock, Series E (Note 4) - 16,383
$12 preferred stock, Series F - 7,022
$10 preferred stock, Series G - 17,079
Common stock, $.05 par value - shares authorized
30,000,000 at July 31, 1996 and 15,000,000 at
July 31, 1995; issued 19,783,308 at July 31, 1996
and 7,410,223 at July 31, 1995 989 371
Additional paid-in capital 64,071 23,803
Deficit (41,556) (41,195)
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 (4,457) (4,498)
- --------------------------------------------------------------------------------
$20,408 $15,095
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JULY 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (NOTE 13) $ 49,876 $ 38,964 $ 34,273
COST OF GOODS SOLD (NOTE 9) 39,192 28,223 25,374
- --------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 10,684 10,741 8,899
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, design and promotion 4,659 3,107 2,777
Shipping and warehousing 1,684 1,065 951
General and administrative 3,699 3,720 3,596
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 10,042 7,892 7,324
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 642 2,849 1,575
- --------------------------------------------------------------------------------------------------------------------------------
NONOPERATING CHARGES (INCOME):
Interest and financing costs 1,265 779 1,804
Litigation settlement (Note 4) - 412 -
Other income (Note 8) (236) (33) (391)
- --------------------------------------------------------------------------------------------------------------------------------
1,029 1,158 1,413
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY INCOME (387) 1,691 162
PROVISION FOR INCOME TAXES (NOTES 1 AND 10) 20 20 20
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY INCOME (407) 1,671 142
EXTRAORDINARY INCOME:
Gain on debt restructuring (Notes 4 and 5) 550 - 4,165
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME 143 1,671 4,307
PREFERRED STOCK DIVIDENDS AND ACCRETION OF REDEEMABLE PREFERRED STOCK
(NOTE 6) 504 718 540
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (361) $ 953 $ 3,767
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE (NOTE 1):
Income (loss) before extraordinary income $ (.12) $ .13 $ (.05)
Extraordinary income .07 - 56
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (.05) $ .13 $ .51
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,760,154 7,389,552 7,389,542
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
APPAREL AMERICA, INC.
STATEMENTS 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, AUGUST 1, 1993 384,847 $ 38,484 7,410,203 $371 20,665 $(129)
Net income - - - - - -
Fractional shares - - 10 - - -
Issuance of Series E Preferred
Stock (Note 4) 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 6) - - - - - -
Dividends on cumulative redeemable
preferred stock - - - - - -
Accretion on cumulative redeemable
preferred stock - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1995 404,847 40,484 7,410,223 371 20,665 (129)
Net income - - - - - -
Fractional shares - - 5 - - -
Exchange of preferred stock (404,847) (40,484) 8,096,940 405 - -
Dividends on cumulative redeemable
preferred stock - - - - - -
Accretion on cumulative redeemable
preferred stock - - - - - -
Issuance of common stock - - 400,000 20 - -
Exercise of common stock purchase
warrants (Note 7) - - 3,876,140 193 - -
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1996 - $ - 19,783,308 $989 20,665 $(129)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Acquisition 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, AUGUST 1, 1993 $23,406 $(45,915) $(27,832) $(11,615)
Net income - 4,307 - 4,307
Fractional shares - - - -
Issuance of Series E Preferred
Stock (Note 4) (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 6) 2,097 - - 2,097
Dividends on cumulative redeemable
preferred stock - (521) - (521)
Accretion on cumulative redeemable
preferred stock - (197) - (197)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1995 23,803 (41,195) (27,832) (4,498)
Net income - 143 - 143
Fractional shares - - - -
Exchange of preferred stock 40,079 - - -
Dividends on cumulative redeemable
preferred stock - (426) - (426)
Accretion on cumulative redeemable
preferred stock - (78) - (78)
Issuance of common stock (5) - - 15
Exercise of common stock purchase
warrants (Note 7) 194 - - 387
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1996 $64,071 $(41,556) $(27,832) $ (4,457)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
APPAREL AMERICA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 143 $ 1,671 $ 4,307
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Extraordinary gain on debt restructuring (550) - (4,165)
Amortization of deferred interest (573) (685) (231)
Write-off of interest expense - - 324
Depreciation and amortization 490 372 314
Other amortization 290 160 331
Provision for possible losses on accounts receivable 158 229 100
Litigation settlement - 412 -
Decrease (increase) in:
Accounts receivable (4,309) (243) (187)
Inventories (2,213) (2,536) 1,041
Due from affiliates 71 54 -
Prepaid expenses and other current assets (169) (14) 62
Other assets (2) 2 (5)
Net assets of discontinued operations - 334 31
Increase (decrease) in:
Accounts payable and accrued expenses 647 692 414
Accrued loss on discontinued operations - - (183)
Due to affiliates (395) 78 50
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,412) 526 2,203
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (574) (780) (266)
Purchase of trademark (Note 2) (500) - -
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,074) (780) (266)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving debt 5,488 - -
Proceeds from equipment loans 166 - -
Proceeds from the issuance of common stock 402 - -
Payments on subordinated debt (50) - -
Preferred stock dividends and redemption (158) - -
Due from factor 2,675 1,940 (2,508)
Payments on long-term debt (925) (1,452) (1,000)
Payment for the exchange of preferred stock - (85) -
Litigation settlement payments (100) (200) -
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,498 203 (3,508)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12 (51) (1,571)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 29 80 1,651
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $41 $29 $80
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,001 $ 1,394 $ 1,601
Income taxes 72 12 11
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unpaid dividends 315 521 540
Issuance of preferred stock for debt - - 300
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-7
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The operations of Apparel America, Inc. (the "Company") consist of the
design, manufacture and distribution of apparel, primarily women's
swimwear. The Company's products are substantially manufactured and
distributed within the United States by its Robby Len division
("Robby Len").
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market.
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 all of the years presented. 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.
F-8
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ACQUISITION COSTS IN EXCESS OF HISTORICAL BASIS OF NET ASSETS ACQUIRED FROM
AFFILIATES
The Company purchased the net assets and outstanding common stock of
various companies 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.
TRADEMARKS
Trademarks are amortized on the straight-line method over their estimated
useful lives (15 years). Amortization expense amounted to approximately
$113,000 for the year ended July 31, 1996.
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.
F-9
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
prepaid expenses, accounts payable, accrued compensation and other expenses
approximate fair value because of the short maturity of these items. The
carrying amounts of the revolving loan and long-term debt approximate fair
value because the underlying instruments are at terms which reflect
prevailing market conditions.
F-10
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RECENT ACCOUNTING STANDARDS
SFAS No. 121 - In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of," which requires that certain long-lived assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The adoption of
this pronouncement is not expected to have a significant effect on the
Company's financial statements.
SFAS No. 123 - In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
allows the choice of either the intrinsic value method or the fair value
method of accounting for employee stock options. The Company has selected
the option to continue the use of the current intrinsic value method.
Both of these statements are effective for fiscal years beginning after
December 15, 1995.
2. ACQUISITION
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 paid $500,000 of the purchase price at the closing,
with the balance payable based on a percentage of net sales, as defined.
The Company also purchased approximately $500,000 of inventory bearing the
purchased tradenames as well as assumed matching customer purchase orders
against this inventory.
The pro forma effects on the results of operations as if the acquisition
had occurred at August 1, 1994 are not presented since they would not have
been material.
F-11
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVENTORIES
Inventories consist of the following:
JULY 31, 1996 1995
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Raw materials $4,058 $2,791
Work-in-process 1,226 790
Finished goods 2,446 1,936
- --------------------------------------------------------------------------------
$7,730 $5,517
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
JULY 31, 1996 1995
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Term loan payable (a) $6,210 $6,999
Litigation settlement (b) 147 229
Other (including $84 and $132 due to a related party) 324 294
- --------------------------------------------------------------------------------
6,681 7,522
Less: Current portion (1,649) (1,520)
- --------------------------------------------------------------------------------
$5,032 $6,002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The future minimum payments of the long-term debt are as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
1997 $1,649
1998 1,559
1999 1,341
2000 1,358
2001 774
- --------------------------------------------------------------------------------
6,681
Interest through maturity 1,182
- --------------------------------------------------------------------------------
$7,863
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-12
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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 business 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.
F-13
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 5) 266
----------------------------------------------------------------------
$ 4,165
----------------------------------------------------------------------
----------------------------------------------------------------------
The interest on the new debt, which offset the gain recognized upon
restructuring, was deferred and is being recognized as a reduction of
interest expense through the maturity of the new debt. The remaining
balance of deferred interest at July 31, 1996 and 1995 was $1,182,000
and $1,755,000, respectively.
F-14
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The outstanding balance of the term loans is approximately $6,210,000
and $6,999,000 at July 31, 1996 and 1995, 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
(5.9062% and 5.8125% at July 31, 1996 and 1995, respectively) for
loans totaling approximately $3,974,000 and $4,431,000 at July 31,
1996 and 1995, respectively, and accrues at the rate of 1.5% above the
prime rate (8.25% and 8.75% at July 31, 1996 and 1995, respectively)
for the balance of the debt (approximately $2,236,000 and $2,568,000
at July 31, 1996 and 1995, respectively).
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 5)
and the redemption of the cumulative preferred stock (Note 6), (iii)
the level of capital expenditures, and (iv) dividends and other
restricted payments, as defined.
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, 1996.
F-15
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(c) FACTOR AGREEMENT
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 for advances based
on a percentage of the Company's unmatured accounts receivable and
eligible inventories. The Factor Agreement was secured by the
Company's accounts receivable and inventories.
(d) REVOLVING LINE OF CREDIT
In September 1995, the Factor Agreement was replaced with a credit
agreement that provides a $15,000,000 revolving line of credit for
advances of up to 85% of eligible receivables and 50% of eligible
inventories, subject to allowances for specified seasonal
overadvances. Borrowings under the revolving line of credit 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 Company's option, and are
secured by the Company's accounts receivable and inventories. In
January 1996, the maximum loan amount under the revolving credit
facility was increased from $15,000,000 to $23,000,000.
The agreement, as amended, expires August 31, 1997 and 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.
F-16
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. 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%.
Effective November 1, 1995, the Company entered into an agreement for the
exchange of the $1,000,000 subordinated note plus accrued and unpaid
interest of $150,000 for an amended and restated subordinated note in the
aggregate principal amount of $600,000. As a result of this exchange, a
gain of $550,000 was recognized and recorded as extraordinary income in the
year ended July 31, 1996. In February 1996, a principal payment of $50,000
was made on the amended note. The balance of the amended note is payable in
the amount of $50,000 on June 30, 1997 with the remaining balance due on
June 30, 1998. Interest accrues on the unpaid principal balance of the
amended note at a rate of 8-1/2% and is payable on a quarterly basis.
Additional interest accrues at the rate of 4% on the unpaid principal
balance and is payable on June 30, 1998.
The subordinated promissory note is subject to certain restricted payment
covenants and is subordinate to payment in full of all senior debt.
6. CUMULATIVE REDEEMABLE PREFERRED STOCKS
The Company's $9 Cumulative Preferred Series B Stock ("Series B Preferred
Stock") has a redemption value of $100 per share and is subject to
mandatory semi-annual redemption requirements which commenced 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-17
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 was recorded as a capital
contribution of approximately $2,097,000 in fiscal 1995.
7. 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 3,876,140 shares
of the Company's common stock. Each warrant entitled the holder to purchase
the Company's common stock at an exercise price of $.10 per share through
November 1, 1996. The warrants to 3,876,140 shares were exercised at
July 31, 1996.
F-18
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
In February 1996, the stockholders agreed to amend the Company's
Certificate of Incorporation to increase the number of authorized common
shares from 15,000,000 to 30,000,000.
Effective July 30, 1996, the Company effectuated a one-for-20 exchange of
the Series E, F and G Preferred Stock and issued 8,096,940 shares of common
stock. If this conversion occurred effective August 1, 1995, the net loss
per common share for the year ended July 31, 1996 would have decreased $.03
from $.05 to $.02.
8. PENSION PLANS
The Company had 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.
Effective July 31, 1994, the Company suspended the Plan and ceased
contributions. In fiscal 1996, the Company terminated the Plan by settling
the vested benefit portion of the projected benefit obligation through the
purchase of nonparticipating annuity contracts. The Company recognized a
net settlement gain of approximately $220,000 and a curtailment gain of
approximately $340,000 in fiscal 1996 and 1994, respectively.
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 $77,000 and $54,000 for the years ended July 31, 1996 and
1995, respectively.
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 $968,000, $1,029,000 and $774,000 for the
years ended July 31, 1996, 1995 and 1994, respectively.
F-19
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
Certain of the Company's swimwear products are manufactured on a contract
basis by companies owned by certain officers of the Robby Len division.
Amounts paid to such contractors approximated $3,965,000, $2,888,000 and
$2,587,000 for the years ended July 31, 1996, 1995 and 1994, respectively.
Rent expense includes payments to an affiliate of approximately $227,000,
$214,000 and $164,000 for the years ended July 31, 1996, 1995 and 1994,
respectively.
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, 1996 1995
---------------------------------------------------------------------------
(IN THOUSANDS)
Inventory (Section 263A) $(44) $(26)
Accumulated depreciation (356) (129)
Receivable reserve (211) (170)
Other accruals (23) (187)
Net operating loss (17,356) (17,519)
---------------------------------------------------------------------------
Gross deferred tax assets (17,990) (18,031)
Valuation allowance 17,990 18,031
---------------------------------------------------------------------------
Net deferred tax asset $ - $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The current provision for income taxes consists of state income taxes. For
the years ended July 31, 1996, 1995 and 1994, Federal income taxes have not
been provided for because of net operating losses.
At July 31, 1996, the Company has the ability to offset future taxable
income aggregating approximately $43,390,000 with tax loss carryforwards
which expire at various times from 2000 to 2008.
F-20
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 8), under noncancellable operating leases as of July 31, 1996 are as
follows:
---------------------------------------------------------------------------
(IN THOUSANDS)
1997 $794
1998 738
1999 644
2000 376
---------------------------------------------------------------------------
Total $2,552
---------------------------------------------------------------------------
Rent expense amounted to approximately $839,000, 645,000 and $649,000 for
the years ended July 31, 1996, 1995 and 1994, respectively (see Note 9).
12. INCENTIVE COMPENSATION PLANS AND EMPLOYMENT ARRANGEMENTS
The Company has a management incentive compensation plan for certain key
executives and employees. The incentive compensation is based upon
percentages of adjusted pre-tax earnings, as defined, of the Robby Len
division. For the years ended July 31, 1996, 1995 and 1994, such
compensation amounted to approximately $155,000, $364,000 and $300,000,
respectively.
F-21
<PAGE>
APPAREL AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS
(a) The Company is a party to certain litigation incurred in the normal
course of business. 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 three major customers (which sales in excess of 10%
of total sales) approximated, on an individual basis, 14%, 12% and 11%
for the year ended July 31, 1996. Sales to one major customer
approximated 13% for each of the years ended July 31, 1995 and 1994.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Apparel America, Inc.
New Haven, Connecticut
The audits referred to in our report dated September 23, 1996, 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 schedule listed in
the accompanying index. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
New York, New York
September 23, 1996
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
----------------------- ---------------------------
Uncollectible Transferred
accounts to net
Balance at Charged to Charged written off, balance Balance at
beginning costs and to other net of due from end
Description of period expenses accounts recoveries factor of period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts:
Accounts receivable $302 $298 $ 124 $140 $ - $584
Due from factor 124 - (124) - - -
- ------------------------------------------------------------------------------------------------------------------------------
$426 $298 $ - $140 $ - $584
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-2
<PAGE>
Exhibit 4.24
Form of Amended and Restated Subordinated Note
dated November 1, 1995 by Apparel America, Inc.
<PAGE>
AMENDED AND RESTATED SUBORDINATED NOTE
$600,000 November 1, 1995
New Haven, Connecticut
FOR VALUE RECEIVED, APPAREL AMERICA, INC., a Delaware
corporation (the "Maker"), hereby promises to pay to ALJAB Corp.,
a New York corporation, (the "Payee"), the principal sum of SIX
HUNDRED THOUSAND DOLLARS ($ 600,000) in lawful money of the United
States of America, with interest thereon as set forth herein. The
principal amount hereof shall be payable as follows: (i) $50,000 on
February 9, 1996, (ii) to the extent of up to 40% of "Excess Cash
Flow" (as defined in the Credit Agreement referred to below),
$50,000 on June 30, 1996 and $50,000 on June 30, 1997 and (iii) the
balance, and all accrued and unpaid interest thereon shall be paid
in full to the Payee on June 30, 1998 (the "Maturity Date").
1. NOTE. This Amended and Restated Subordinated Note
(the "Note") supersedes and replaces that certain Amended and
Restated Subordinated Note in the original principal amount of
$1,000,000 dated December 15, 1993 (the "Prior Note") made by the
Maker to Braniff, Inc. This Note is the "Braniff Subordinated
Note" referred to and as defined in the Fifth Amended and Restated
Credit Agreement (the "Credit Agreement") dated as of July 31, 1994
among the Maker, Connecticut Development Authority, Binghamton
Savings Bank and A.I. Associates, Inc. and Binghamton Savings Bank,
as Agent.
2. INTEREST. Interest shall accrue on the outstanding
principal amount hereof at the simple interest rate of eight and
one half percent (8 1/2%) per annum, and, shall be payable quarterly
on each June 30, September 30, December 31 and March 31 (or next
business day if not a business day) commencing March 31, 1996. An
additional four percent (4%) shall accrue, on a simple interest
basis, on the outstanding principal balance hereof and be payable
on the Maturity Date.
3. PREPAYMENTS. The Maker may prepay any interest on
or principal of this Note at any time or from time to time to the
extent permitted by its Senior Debt (as hereinafter defined).
4. PLACE AND MANNER OF PAYMENT. All payments under
this Note shall be made in lawful money of the United States of
America and in immediately available funds, and, subject to the
last sentence of this paragraph, shall be made to the Payee at the
offices of the Maker, 1175 State Street, New Haven, Connecticut
06511, or to any subsequent address of the Maker. Payments shall
be applied first to interest on and then to principal of this Note.
<PAGE>
5. SUBORDINATION.
(a) NO PAYMENTS. Notwithstanding any contrary
provisions of this Note or any other instruments or agreements now
or hereafter evidencing or relating to the indebtedness hereunder
(hereinafter sometimes referred to as the "Subordinated Debt"), the
Maker covenants and agrees, and the Payee and each holder of this
Note, by its acceptance of this Note (for purposes of this Section
5, "Payee" shall include any holder of this Note) likewise
covenants and agrees, for the benefit of the lenders, and the
Agent, party to the Credit Agreement and their respective
successors and assigns (collectively, the "Senior Creditor"), in
order to induce the Senior Creditor to extend or continue financial
accommodations to the Maker, that all Subordinated Debt shall be
subject and subordinate in right of payment, in accordance with the
provisions hereof, to the prior payment in full in cash of the Bank
Debt. As used herein, "BANK DEBT" means, collectively, all
indebtedness of the Maker to the Senior Creditor under the Credit
Agreement in respect of the Term Notes, including, without
limitation, all principal, interest, fees and other amounts payable
with respect thereto. Subject to the terms of Section 5(b) below,
the Maker shall make no payment to the Payee of any Subordinated
Debt until the Bank Debt has been indefeasibly paid in full in cash
PROVIDED, HOWEVER, that so long as there exists no payment default
under the Bank Debt, the Maker may make interest payments of 8 1/2% of
the outstanding principal amount as provided in Section 2 above,
and may make the principal payments referred to in the first
paragraph of this Note.
(b) PROCEEDING. The Maker shall not make any
payments or prepayments under or in respect of this Note in the
event of (i) any insolvency or bankruptcy case or proceeding or any
receivership, liquidation, reorganization or other similar case or
proceeding relative to the Maker or its creditors, as such, or all
or any substantial portion of its assets, (ii) any liquidation,
dissolution or other winding up of the Maker or (iii) any
assignment for the benefit of creditors or any other marshalling of
assets and liabilities of the Maker ((i) through (iii), a
"Proceeding"), and in the event of a Proceeding all Bank Debt shall
first be paid in full in cash before the holders of Subordinated
Debt shall be entitled to receive any payment or distribution of
assets or securities of any kind or character (other than
securities of the Maker (collectively, "Subordinated Securities")
provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided in
these subordination provisions with respect to Subordinated Debt,
to the prior payment in full in cash of all Bank Debt or any
securities issued in exchange for Bank Debt under any such plan of
reorganization or readjustment.
(c) NO SECURITY. The Maker hereby covenants and
agrees that it has not and will not directly or indirectly or
indirectly grant to the Payee any security interest in or lien upon
2
<PAGE>
any of its property, interest or assets as collateral security for
this Note, and the Payee hereby likewise covenants and agrees by
acceptance of this Note that this Note is not secured by an
property, interest or assets of the Maker and that the Payee will
not accept any collateral security to secure the Maker's
obligations under this Note; PROVIDED THAT in the event the Maker
makes a public offering of its common stock under the Securities
Act, the Maker may grant to the holders of the Subordinated Debt,
pari passu with the Secured Debt, a security interest in the
proceeds of such public offering. The proviso above shall not be
construed to permit the grant of any security interest to the
holders of Subordinated Debt except in the instance provided above.
(d) DEFAULT UNDER SECURED DEBT. The Maker shall
not make any payments under this Note in the event of the
occurrence for any reason of a "Default" or "Event of Default"
under the Credit Agreement (including, without limitation a default
in the payment, whether regularly scheduled, at final maturity,
upon acceleration, on the date fixed for any mandatory prepayment,
or otherwise, of any Secured Debt) unless Senior Creditor shall
have delivered to the Payee a written notice of waiver of the
benefits of this sentence.
(e) TURNOVER. In the event that, notwithstanding
the foregoing provisions prohibiting such payment or distribution,
the Payee shall have received any payment or distribution under or
in respect of this Note (i) before all Bank Debt shall have been
indefeasibly paid in full in cash or (ii) otherwise not in
accordance with this Section 5, then and in any such event, such
payment or distribution shall be received and held in trust for the
holders of Secured Debt and shall be forthwith paid over or
delivered (duly endorsed, if appropriate) to the Agent under the
Credit Agreement on behalf of the holders of Secured Debt remaining
unpaid, to the extent necessary, to pay all Bank Debt in full in
cash.
(f) NO IMPAIRMENT. Subject to the express terms
and conditions of this Section 5, no right of any present or future
holder of any Secured Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Maker, the Payee or
any other Person, including, without limitation, any defect in the
execution or delivery of any instrument or agreement creating,
evidencing or relating to any Secured Debt, any renewal,
extension, modification, amendment, compromise or release of any
Secured Debt, any taking, release, surrender or enforcement of, or
failure to enforce or perfect, any lien, collateral security or
guaranty (or similar agreement) relating thereto, any settlement or
compromise of any liability of the Maker or any application of any
sums by whomsoever paid and howsoever realized to any liability of
the Maker, by any invalidity, unenforceability, avoidance or
subordination of any Secured Debt, by any election of the
3
<PAGE>
application of Section 1111 (b) (2) of the Bankruptcy Code, by any
borrowing or grant of a security interest by the Maker, as debtor-
in-possession under Section 364 of the Bankruptcy Code, by the
disallowance of any claim for repayment of any Secured Debt, by
non-compliance by the Maker or the Payee with any provision of this
Section 5 regardless of any knowledge thereof which any holder of
Secured Debt may have or with which any such holder may otherwise
be charged or by any other circumstance that might otherwise
constitute a legal or equitable discharge or defense of a guarantor
or subordinated creditor. The payee will not, while any Secured
Debt is outstanding, subordinate any Subordinated Debt to any debt
other than Secured Debt.
(g) PROOF OF CLAIM. If the Payee does not file a
proper claim or proof of debt or other document or amendment
thereof in the form required in any Proceeding prior to fifteen
(15) days before the expiration of the time to file such claims or
proofs or other documents or amendments thereof, then each holder
of Secured Debt has the right (but not the obligation) to demand,
sue for, collect, receive and receipt for the payments and
distributions in respect of this Note which are required to be paid
or delivered to the holders of Secured Debt as provided in this
Section 5, and to file and prove all claims therefor and to take
all such other action in the name of the Payee, or otherwise, as
any such holder of Secured Debt may determine to be necessary or
appropriate for the enforcement of this Section 5.
(h) WAIVER OF NOTICE; NO REPRESENTATIONS. By
acceptance of this Note, the Payee waives any and all notice of (i)
the receipt and acceptance of the provisions of this Section 5 by
Senior Creditor or any other present or future holders of Secured
Debt or (ii) the creation, renewal, extension or modification of
any Secured Debt. The Payee acknowledges that the holders of
Secured Debt have not made to the Payee, nor do they hereby or
otherwise make to the Payee, any representations or warranties,
express or implied, nor do they assume any liability to the Payee
with respect to any event or condition.
(i) SCOPE OF PROHIBITION OF PAYMENT. Any
prohibition of payment pursuant to this Section 5 shall encompass
any direct or indirect payment (whether in cash, property or
securities or by way of set-off, counterclaim, or otherwise) of
this Note, whether by the Maker, through any of its subsidiaries or
other affiliates or otherwise.
(j) AMENDMENTS. No provision of this Section 5 may
be amended, supplemented or waived in any respect, by course of
dealing, orally or otherwise, except in a writing duly executed and
delivered by each holder of Secured Debt at the time outstanding.
(k) POSTPETITION INTEREST; CERTAIN CLAIMS.
"Subordinated Debt" and "Secured Debt" shall each include (i)
4
<PAGE>
interest calculated during any Proceeding, whether or not the
principal obligation is undersecured or oversecured or the interest
obligation is deemed allowable or provable or interest is deemed to
be accruing against Maker and (ii) any liability (in tort,
contract, or otherwise) to the holder(s) of such Debt arising out
of any claim for rescission of the purchase of such debt, any
untrue statement of any fact or any omission to state any fact in
connection with such Debt, or any other claims for monetary damages
in connection with such Debt.
6. EVENTS OF DEFAULT AND REMEDIES. If any of the
following Events of Default (each, an "Event of Default") shall
occur:
(a) The Maker shall fail to make payment when due
of any principal of or interest on this Note and such failure shall
have continued for a period of ten (10) days after written notice
by the Payee to the Maker that such payment is due and unpaid; or
(b) The Maker shall default under the Credit
Agreement, the Term Notes the maturity of the Bank Debt shall have
been accelerated; or
(c) A Proceeding shall occur, or the maker shall
take appropriate action for the purpose of commencing any
Proceeding;
then, and so long as such Event of Default is continuing, the Payee
may declare the entire unpaid principal of and unpaid interest on
this Note immediately due and payable and exercise any other
remedies the Payee may have at law, all of which shall be
cumulative and not exclusive of any other remedy; PROVIDED HOWEVER,
that the Payee hereby agrees by acceptance of this Note that it may
not exercise any of its remedies until the Bank Debt has been
indefeasibly paid in full in cash, unless Senior Creditor Shall
have delivered to the Payee a written notice of waiver of the
benefits of this sentence.
7. MISCELLANEOUS.
(a) Notices. Any notices, demand or communication
hereunder shall be given in writing (including facsimile
transmission or telex) and mailed or delivered to each party at its
address (or telecopies number) set forth below, or, as to each
party, at such other address (or telecopier number) as shall be
designated by such party by a prior notice to the other party in
accordance with the terms of this Section:
5
<PAGE>
If to:
(i) Maker to:
Apparel America, Inc
1175 State Street
New Haven, Connecticut 06501
Telecopy No.: (203) 772-2512
Attn: Nicholas La Rosa, President
Frederick D'Amato, Vice President
If to:
(ii) Payee to:
ALJAB Corp.
2204 Acorn Drive
Vestal, New York 13820
(b) All notices hereunder shall be effective
upon receipt.
(c) AMENDMENTS, WAIVERS. Subject to Section
5(1), this Notice may not be amended or waived except in a writing
executed by the Maker, Payee and the Agent.
(d) BINDING EFFECT; ASSIGNMENT. This Note
shall be binding upon the Maker and the successors of the Maker.
This Note shall inure to the benefit of (i) the Payee and the
successors and assigns of the Payee and each subsequent holder of
this Note and (ii) the Senior Creditor and the successors and
assigns of Senior Creditor and each subsequent holder of the Term
Notes. The Maker may not assign any of its duties or liabilities
under this Note.
(e) SUBSTITUTION OF NOTE. This Note is issued
in substitution and replacement for the Prior Note, the Payee
hereby agrees that no interest or principal is payable under the
Prior Note and hereby irrevocably waives payment of all accrued and
unpaid interest thereunder.
(f) GOVERNING LAW. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF CONNECTICUT WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF
LAWS.
(g) EXPENSES. Subject to the subordination
provisions herein, The Maker hereby promises to pay to the Payee
all costs of collection or enforcement of this Note, including,
without limitation, any reasonable legal fees incurred in
connection therewith.
6
<PAGE>
(h) JURISDICTION, SERVICE, WAIVERS, ETC. ANY
ACTION OR PROCEEDING IN CONNECTION WITH THIS NOTE MAY BE BROUGHT IN
A COURT OF RECORD OF THE STATE OF NEW YORK, COUNTY OF NEW YORK OR
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, THE MAKER HEREBY CONSENTING TO THE JURISDICTION THEREOF, AND
SERVICE OF PROCESS MAY BE MADE UPON THE MAKER BY MAILING A COPY OF
THE SUMMONS AND ANY COMPLAINT TO THE MAKER, BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS TO BE USED
FOR THE GIVING OF NOTICES UNDER THIS NOTE. THE PAYEE, BY
ACCEPTANCE HEREOF, AND THE MAKER EACH HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY OBJECTION, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OR MAINTAINING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS. IN ANY ACTION TO ENFORCE THIS NOTE, THE
PROVISIONS OF THIS NOTE (INCLUDING BUT NOT LIMITED TO SECTIONS
7(E)) SHALL, TO THE EXTENT PERMITTED BY LAW, PREVAIL
NOTWITHSTANDING ANY PROVISION OF APPLICABLE LAW RESPECTING THE
RECOVERY OF COSTS, DISBURSEMENTS AND ALLOWANCES TO THE CONTRARY.
(i) WAIVER OF JURY TRIAL. THE PAYEE, BY
ACCEPTANCE HEREOF, AND THE MAKER EACH HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING IN CONNECTION
WITH, OUT OF OR OTHERWISE RELATING TO THIS NOTE.
APPAREL AMERICA, INC.
By: /s/ Jeffrey Koffman
------------------------
Name: Jeffrey Koffman
Title: President
7
<PAGE>
Exhibit 10.31
First Amendment dated January 12, 1996 to the
Fifth Amended and Restated Credit Agreement.
<PAGE>
AMENDMENT, dated as of January 12, 1996 (the "Amendment"), to
the Fifth Amended and Restated Credit Agreement dated July 31, 1994
(the "Credit Agreement"; terms not otherwise defined herein shall
be used herein as therein defined), among APPAREL AMERICA, INC., a
Delaware corporation (the "Borrower"); CONNECTICUT DEVELOPMENT
AUTHORITY ("CDA") an assignee of Chemical Bank, BINGHAMTON SAVINGS
BANK ("BINGHAMTON") an assignee of Chemical Bank, and A.I.
ASSOCIATES,INC. ("AI") (each a "Bank" and collectively the
"Banks"); and BINGHAMTON SAVINGS BANK as agent for the Banks (and
as successor agent to Chemical Bank) (in such capacity, the
"Agent" ).
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Credit Agreement
be amended to reflect changes in certain covenants made by
Borrower;
WHEREAS, the Borrower, the Agent and the Banks have agreed to
so amend the Credit Agreement on the terms set forth below;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. AMENDMENTS TO SECTION 1.1 OF THE CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by
adding thereto the following definitions in the proper alphabetical
order:
"AGREEMENT" means the Fifth Amended and Restated Credit
Agreement dated July 31, 1994, as amended by the Amendment dated
January 12, 1996.
"SERIES H PREFERRED STOCK" means the $8.50 Preferred
Stock, $.05 par value per share, of the Borrower.
2. AMENDMENT TO SECTION 8.1 OF THE CREDIT AGREEMENT.
Subsection 8.1 (c), item (vii) is hereby amended by
inserting in line 10 thereof, immediately after the phrase "such
budget and financial plan" the phrase ", which may subsequently be
revised by Borrower from time to time,"
3. AMENDMENTS TO SECTION 8.2 OF THE CREDIT AGREEMENT.
(a) Subsection 8.2 (a) of the Credit Agreement is hereby
amended by deleting the dollar amount "$15,000,000" from item (ii)
thereof and substituting therefor the dollar amount "$23,000,000.
<PAGE>
(b) Subsection 8.2 (h) of the Credit Agreement is hereby
amended by inserting at the end thereof, immediately after the word
"issued", the phrase ", except, however, Borrower may pay cash dividends
on its Series H Preferred Stock".
(c) Subsection 8.2 (i) of the Credit Agreement is hereby
amended by inserting at the end thereof, immediately after the word
"Stock", the phrase ", except for its Series H Preferred Stock".
(d) Subsection 8.2 (k) of the credit Agreement is hereby
amended by deleting the dollar amounts "$250,000" from the third line
thereof and "$350,000" from the seventh line thereof and substituting
therefor the dollar amounts "500,000" and "600,000" respectively, for the
fiscal year ending 7/31/96 only. Thereafter, the amounts shall revert to
$250,000 and $350,000 respectively.
4. AMENDMENTS TO SECTION 8.3 OF THE CREDIT AGREEMENT.
(a) Subsection. 8.3 (a) of the Credit Agreement is hereby
amended by deleting the table therein in its entirety and substituting
in lieu thereof the following table:
PERIOD MINIMUM DEBIT
1994 Fiscal Year $ 1,750,000
1995 Fiscal Year 2,250,000
1996 Fiscal Year 2,000,000
1997 Fiscal Year 2,500,000
1998 Fiscal Year 2,500,000
1999 Fiscal Year 2,500,000
2000 Fiscal Year 2,500,000
2001 Fiscal Year 2,500,000
(b) Subsection 8.3 (b) of the Credit Agreement is hereby
amended by deleting the dollar amount "4,000,000" from item (i) thereof
and substituting therefor the dollar amount "$2,000,000"; deleting the
dollar amount "$4,500,000" from item (i) thereof and substituting
therefor the dollar amount "$3,000,000"; deleting the dollar amount
"$5,500,000" from item (iii) thereof and substituting therefor the dollar
amount "$5,000,000"; and deleting the dollar amount "$5,500,000" from item
(iv) thereof and substituting therefor the dollar amount "$3,000,000".
(c) Subsection 8.3 (c) of the Credit Agreement is hereby
amended by inserting immediately after the phrase "projected budget and
financial plan" the phrase ", or any revisions thereof,".
5. BORROWER'S CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS. The Borrower, by signing below, represents that it has the
power and authority, and the legal right, to make, deliver and perform all
terms and obligations set forth in this Amendment and that the Borrower has
taken all necessary corporate action to authorize the terms and obligations
set forth in this Amendment. No consent or authorization of, filing with or
other Act by or in
<PAGE>
respect of, any Governmental Authority or any other person in required in
connection with the execution, delivery, performance, validity or
enforceability of this Amendment. This Amendment has been duly executed end
delivered on behalf of the Borrower. This Amendment constitutes a legal,
valid and binding obligation of the Borrower, enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in
equity or at law).
6. SCOPE. This Amendment is to be narrowly construed. Except as expressly
amended herein, all of the covenants and provisions of the Credit Agreement
are and shall continue to be in full force and effect.
7. COUNTERPARTS. This Amendment may be simultaneously
executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers as
of the day and year first above written.
Address: APPAREL AMERICA, INC.
1175 State Street
New Haven, Connecticut
06501 By: /s/ Frederick M. D'Amato
Telecopy No.: --------------------------
(203) 772-2512 Name: Frederick M. D'Amato
Attn: Burton I. Koffman Title: Vice President-Financial
President
with a copy to:
Shustak Jalil Sanders & Heller
545 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 688-6151
Attn: James P. Jalil, Esq.
Address: BINGHAMTON SAVINGS BANK, AS
58-68 Exchange Street AGENT AND BANK
Binghamton, NY 13902
Telecopy No.: (607) 772-6287
Attn: Glenn Small By: /s/ John B. Westcott
--------------------------
Name: John B. Westcott
Title: Vice President
<PAGE>
with a copy to:
Howard Rittberg, Esq.
Levene, Gouldin & Thompson
450 Plaza Drive
Vestal, NY 13850
Address: A.I. ASSOCIATES, INC., AS BANK
300 Plaza Drive
Vestal, New York 13850
Telecopy No.: By: /s/ Milton Koffman
(607) 797-7103 -------------------------
Attn: Milton Koffman Name: Milton Koffman
President Title: President
Address: CONNECTICUT DEVELOPMENT
845 Brook Street AUTHORITY, AS BANK
Rocky Hill, CT 06067
Telecopy No.:
(203) 257-8331 By: /s/ Richard P. Graff
Attn: Loan Administration -------------------------
Name: Richard P. Graff
Title: Vice President
with a copy to:
William G. Rock, Esq.
Shipman & Goodwin
One American Row
Hartford, CT 06103
<PAGE>
Exhibit 10.32
Second Amendment dated June 1, 1996 to the
Fifth Amended and Restated Credit Agreement.
SECOND AMENDMENT, dated as of June 1, 1996 (the "Amendment"),
to the Fifth Amended and Restated Credit Agreement dated July 31,
1994 (the "Credit Agreement"; terms not otherwise defined herein
shall be used herein as therein defined), among APPAREL AMERICA,
INC., a Delaware corporation (the "Borrower"); CONNECTICUT
DEVELOPMENT AUTHORITY ("CDA") an assignee of Chemical Bank,
BINGHAMTON SAVINGS BANK ("BINGHAMTON") an assignee of Chemical
Bank, and A.I. ASSOCIATES, INC. ("AI") ( each a "Bank" and
collectively the "Banks"); and BINGHAMTON SAVINGS BANK as agent for
the Banks (and as successor agent to Chemical Bank) (in such
capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Credit Agreement
be amended to reflect changes in certain covenants made by
Borrower;
WHEREAS, the Borrower, the Agent and the Banks have agreed to
so amend the Credit Agreement on the terms set forth below;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. AMENDMENT TO SECTION 1.1 OF THE CREDIT AGREEMENT.
Section 1.1 of the Credit Agreement is hereby amended by
adding thereto the following definition in the proper alphabetical
order:
"AGREEMENT" means the Fifth Amended and Restated Credit
Agreement dated July 31, 1994, as amended by the Amendment dated
January 12, 1996 and Second Amendment dated June 1, 1996.
2. AMENDMENTS TO SECTION 2.2 OF THE CREDIT AGREEMENT.
Section 2.2 (b) (i) is amended to substitute the amount
"$85,920" in place of the amount "$257,760" appearing after the
date June 30, 1996 and to substitute the amount "$494,081" in place
of the amount "$322,241" appearing after the date June 30, 2000.
Subsection 2.2 (b) (ii) is amended to substitute the amount
"$66,380" in place of the amount "$199,138" appearing after the
date June 30, 1996 and to substitute the amount "$582,758" in place
of the amount "$450,000" appearing after the date June 30, 2001.
<PAGE>
Subsection 2.2 (b) (iii) is amended to substitute the
amount "$110,688" in place of the amount "$332,068" appearing after
the date June 30, 1996 and to substitute the amount "$521,380" in
place of the amount "$300,000" appearing after the date June 30,
2000.
Section 2.2 shall be further amended by inserting at the
end thereof a new Subsection (e), such Subsection (e) to read in
its entirety as follows: "(e) In the event the number of persons
employed by the Borrower in the State of Connecticut at December
31, 1996, and at each December 31 thereafter until maturity of the
CDA Term Loan, shall be less than 400 persons, the Borrower shall
pay to the CDA the sum $171,840, which amount shall be deducted
from the amount of $494,081, payable on June 30, 2000. Said
$171,840, together with a penalty of $17,184, for a total of
$189,024 shall be payable thirty (30) days after requested by the
CDA, invoking in writing the provisions of this Subsection 2.2 (e)".
3. AMENDMENT TO SECTION 8.2 OF THE CREDIT AGREEMENT.
Subsection 8.2 (k) of the Credit Agreement is hereby
amended by adding at the end thereof the following "PROVIDED,
HOWEVER, that in any event the capital expenditures may be up to
$700,000 for the fiscal year ending July 31, 1996."
4. AMENDMENT TO SECTION 8.2 OF THE CREDIT AGREEMENT.
Subsection 8.2 (p) is hereby amended by inserting at the
end thereof the phrase "PROVIDED, HOWEVER, the Borrower may create
a subsidiary, foreign or domestic, to own and operate a sewing
facility in Mexico, PROVIDED, HOWEVER, that such subsidiary shall,
upon organization, guarantee unconditionally the Term Loans".
5. BORROWER'S CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS. The Borrower, by signing below, represents that it
has the power and authority, and the legal right, to make, deliver
and perform all terms and obligations set forth in this Amendment
and that the Borrower has taken all necessary corporate action to
authorize the terms and obligations set forth in this Amendment.
No consent or authorization of, filing with or other act by or in
respect of, any Governmental Authority or any other person in
required in connection with the execution, delivery, performance,
validity or enforceability of this Amendment. This Amendment has
been duly executed and delivered on behalf of the Borrower. This
Amendment constitutes a legal, valid and binding obligation of the
Borrower, enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings
in equity or at law).
<PAGE>
6. AFFIRMATIVE ACTION PLAN. The Borrower covenants that it
shall provide the CDA with an updated Affirmative Action Plan
acceptable to the CDA.
7. EXPENSES. All expenses of CDA counsel incurred as a
result of this Second Amendment shall be the responsibility of the
Borrower.
8. SCOPE. This Amendment is to be narrowly construed.
Except as expressly amended herein, all of the covenants and
provision of the Credit Agreement are and shall continue to be in
full force and effect.
9. COUNTERPARTS. This Amendment may be simultaneously
executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers as
of the day and year first above written.
Address: APPAREL AMERICA, INC.
1175 State Street
New Haven, Connecticut
06501 By: /s/ Frederick M. D'Amato
Telecopy No.: ----------------------------
(203) 772-2512 Name: Frederick M. D'Amato
Attn: Burton I. Koffman Title: Vice President-Finance
President
with a copy to:
Shustak & Jalil Sanders & Heller
545 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 688-6151
Attn: James P. Jalil, Esq.
Address: BINGHAMTON SAVINGS BANK, AS
58-68 Exchange Street AGENT AND BANK
Binghamton, NY 13902
Telecopy No.: (607) 772-6287
Attn: Glenn Small By: /s/ John B. Westcott
---------------------------
Name: John B. Westcott
Title: Vice President
<PAGE>
with a copy to:
Howard Rittberg, Esq.
Levene, Gouldin & Thompson
450 Plaza Drive
Vestal, NY 13850
Address: A.I. ASSOCIATES, INC., AS BANK
300 Plaza Drive
Vestal, New York 13850
Telecopy No.: By: /s/ Milton Koffman
(607) 797-7103 ----------------------------
Attn: Milton Koffman Name: Milton Koffman
President Title: President
Address: CONNECTICUT DEVELOPMENT
845 Brook Street AUTHORITY, AS BANK
Rocky Hill, CT 06067
Telecopy No.:
(203) 257-8331 By:
Attn: Loan Administration -----------------------------
Name: Richard P. Graff
Title: Vice President
with a copy to:
William G. Rock, Esq.
Shipman & Goodwin
One American Row
Hartford, CT 06103
<PAGE>
with a copy to:
Howard Rittberg, Esq.
Levene, Gouldin & Thompson
450 Plaza Drive
Vestal, NY 13850
Address: A.I. ASSOCIATES, INC., AS BANK
300 Plaza Drive
Vestal, New York 13850
Telecopy No.: By:
(607) 797-7103 -------------------------
Attn: Milton Koffman Name: Milton Koffman
President Title: President
Address: CONNECTICUT DEVELOPMENT
845 Brook Street AUTHORITY, AS BANK
Rocky Hill, CT 06067
Telecopy No.:
(203) 257-8331 By: /s/ Richard P. Graff
Attn: Loan Administration -----------------------
Name: Richard P. Graff
Title: Vice President
with a copy to:
William G. Rock, Esq.
Shipman & Goodwin
One American Row
Hartford, CT 06103
<PAGE>
Exhibit 10.33
Third Amendment dated October 15, 1996 to the
Fifth Amended and Restated Credit Agreement.
<PAGE>
THIRD AMENDMENT, dated as of October 15, 1996 (the
"Amendment"), to the Fifth Amended and Restated Credit Agreement
dated July 31, 1994 (the "Credit Agreement"; terms not otherwise
defined herein shall be used herein as therein defined), among
APPAREL AMERICA, INC., a Delaware corporation (the "Borrower");
CONNECTICUT DEVELOPMENT AUTHORITY ("CDA") an assignee of Chemical
Bank, BINGHAMTON SAVINGS BANK ("BINGHAMTON") an assignee of
Chemical Bank, and A.I. ASSOCIATES, INC. ("AI") (each a "Bank" and
collectively the "Banks"); and BINGHAMTON SAVINGS BANK as agent for
the Banks (and as successor agent to Chemical Bank) (in such
capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Credit Agreement
be amended to reflect changes in certain covenants made by
Borrower;
WHEREAS, the Borrower, the Agent and the Banks have agreed to
so amend the Credit Agreement on the terms set forth below;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. AMENDMENTS TO SECTION 1.1 OF THE CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by
adding thereto the following definitions in the proper alphabetical
order:
"AGREEMENT" means the Fifth Amended and Restated Credit
Agreement dated July 31, 1994, as amended by the Amendment dated
January 12, 1996, the Second Amendment dated June 1, 1996 and the
Third Amendment dated October 15, 1996.
2. AMENDMENTS TO SECTION 8.2 OF THE CREDIT AGREEMENT.
(a) Subsection 8.2 (a) of the Credit Agreement is hereby
amended by deleting the dollar amount "$23,000,000" from item (ii)
thereof (as amended pursuant to the Amendment dated January 12,
1996) and substituting therefor the dollar amount "$27,000,000."
(b) Subsection 8.2 (k) of the Credit Agreement is hereby
amended by adding the following phrase at the end of Section 8.2
(k): "PROVIDED, HOWEVER, that the Borrower may make capital
expenditures in the fiscal year ending July 31, 1997 in an amount
of $1,200,000 in addition to the amounts provided above."
<PAGE>
3. AMENDMENTS TO SECTION 8.3 OF THE CREDIT AGREEMENT.
(a) Subsection 8.3 (b) of the Credit Agreement is hereby
amended by deleting the dollar amount in (i) as it now stands and
replacing it with "$1,000,000" and by deleting the dollar amount in
(iv) as it now stands and replacing it with "$500,000."
(b) Subsection 8.3 (c) (i) and 8.3 (c)(ii) of the Credit
Agreement are hereby amended by adding the following phrase at the
end of each of said Section 8.3(c)(i) and Section (c)(ii):
"PROVIDED, HOWEVER, no such requirement shall apply to aggregate
sales revenue for the three (3) month period ending July 31, 1996
and no such requirement shall apply to the Net Income for the
respective three (3) month periods ending April 30, 1996 and July
31, 1996, respectively."
4. BORROWER'S CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS. The Borrower, by signing below, represents that it
has the power and authority, and the legal right, to make, deliver
and perform all terms and obligations set forth in this Amendment
and that the Borrower has taken all necessary corporate action to
authorize the terms and obligations set forth in this Amendment.
No consent or authorization of, filing with or other act by or in
respect of, any Governmental Authority or any other person in
required in connection with the execution, delivery, performance,
validity or enforceability of this Amendment. This Amendment has
been duly executed and delivered on behalf of the Borrower. This
Amendment constitutes a legal, valid and binding obligation of the
Borrower, enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings
in equity or at law).
5. SCOPE. This Amendment is to be narrowly construed.
Except as expressly amended herein, all of the covenants and
provisions of the Credit Agreement are and shall continue to be in
full force and effect.
<PAGE>
6. COUNTERPARTS. This Amendment may be simultaneously
executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers as
of the day and year first above written.
Address: APPAREL AMERICA, INC.
1175 State Street
New Haven, Connecticut By: /s/ Frederick M. D'Amato
06501 ----------------------------
Telecopy No.: Name: Frederick M. D'Amato
(203) 772-2512 Title: Vice President-Finance
Attn: Burton I. Koffman
President
with a copy to:
Shustak Jalil Sanders & Heller
545 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 688-6151
Attn: James P. Jalil, Esq.
Address: BINGHAMTON SAVINGS BANK, AS
58-68 Exchange Street AGENT AND BANK
Binghamton, NY 13902
Telecopy No.: (607) 772-6287 By: /s/ Glenn R. Small
Attn: Glenn Small ---------------------------
Name: Glenn R. Small
Title: Vice President
with a copy to:
Howard Rittberg, Esq.
Levene, Gouldin & Thompson
450 Plaza Drive
Vestal, NY 13850
Address: A.I. ASSOCIATES, INC., AS BANK
300 Plaza Drive
Vestal, New York 13850 By: /s/ Milton Koffman
Telecopy No.: ---------------------------
(607) 797-7103 Name: Milton Koffman
Attn: Milton Koffman Title: President
President
<PAGE>
Address: CONNECTICUT DEVELOPMENT
845 Brook Street AUTHORITY, AS BANK (see below)
Rocky Hill, CT 06067
Telecopy No.: By: /s/ Richard P. Graff
(203) 257-8331 -----------------------------
Attn: Loan Administration Name: Richard P. Graff
Title: Vice President
with a copy to:
William G. Rock, Esq.
Shipman & Goodwin
One American Row
Hartford, CT 06103
Special provision for Connecticut Development Authority, as
Bank:
This Third Amendment is agreed to by Connecticut Development
Authority, as Bank, only insofar as it affects amendments to the
Credit Agreement relating to periods prior to August 1, 1996.
Insofar as this Agreement relates to amendments to the Credit
Agreement for periods subsequent to July 31, 1996, such agreement
is withheld pending approval of the Board of Directors of
Connecticut Development Authority (the "Board of Directors"). At
such time as the Board of Directors gives its approval, Connecticut
Development Authority shall give prompt written notice to the
Borrower and this Agreement shall become fully effective and agreed
to by the Connecticut Development Authority for amendments
affecting periods subsequent to July 31, 1996.
<PAGE>
Exhibit 22
SUBSIDIARIES OF APPAREL AMERICA, INC.
1) Trajes de Bano Morelos, S.A. de C.V.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE AUDITED BALANCE SHEET AS OF JULY 31, 1996 AND THE AUDITED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 41
<SECURITIES> 0
<RECEIVABLES> 4,717
<ALLOWANCES> 530
<INVENTORY> 7,730
<CURRENT-ASSETS> 12,620
<PP&E> 7,314
<DEPRECIATION> 5,613
<TOTAL-ASSETS> 20,408
<CURRENT-LIABILITIES> 11,213
<BONDS> 9,084
4,568
0
<COMMON> 989
<OTHER-SE> (5,446)
<TOTAL-LIABILITY-AND-EQUITY> 20,408
<SALES> 49,876
<TOTAL-REVENUES> 49,876
<CGS> 39,192
<TOTAL-COSTS> 39,192
<OTHER-EXPENSES> 9,556
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> 1,265
<INCOME-PRETAX> (387)
<INCOME-TAX> 20
<INCOME-CONTINUING> (407)
<DISCONTINUED> 0
<EXTRAORDINARY> 550
<CHANGES> 0
<NET-INCOME> 143
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
