<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, 1997
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(g) of the Act:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.05 par value per share
(Title of Class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 405 of Regulation S-K is not contained herein , and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
Common Stock, $.05 par value per share , as of September 30,
1997 - $ 457,234
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:
19,762,648 shares of Common Stock, par value
$.05 per share, as of October 27, 1997
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.
In May 1997, the Company commenced operation of a manufacturing facility in
Mexico. See Item 1. - Recent Transactions for additional information.
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 and Roxanne "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 and
catalogs. The "branded" market segment accounts for approximately $600 million
of retail sales, or approximately 47% of the total $1.3 billion retail women's
swimwear industry. At the present time, Robby Len is the third largest misses'
swimwear brand in units sold and fifth largest in dollar volume. Roxanne is the
eleventh largest misses' swimwear brand in units sold and seventh largest in
dollar volume. 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.
Three major customers of the Robby Len Division accounted for an aggregate
of approximately 39% of the Company's total sales for fiscal year ended July
1997. Shipments to Sears Roebuck & Co. were approximately $6,314,000 (13%) for
the year ended July 31, 1997, $5,604,000 (11%) for the year ended July 31, 1996
and $5,301,000 (13%) for the year ended July 31, 1995. Shipments to Federated
Stores were $5,648,000 (12%) for the year ended July 31, 1997, $7,328,000 (14%)
for the year ended July 31, 1996 and less than 10% of sales for the year ended
July 31, 1995. Shipments to May Company were approximately $6,530,000 (14%) for
the year ended July 31, 1997, $6,235,000 (12%) for the year ended July 31, 1996
and less than 10% of sales for the year ended July 31, 1995.
<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 and
foreign outside facilities. In May 1997, the Company's Mexican manufacturing
subsidiary commenced operations (see Item 1. - Recent Transactions for
additional information). Approximately 77% of the fabric cutting and 29% of the
sewing is done at the Company's in-house facilities with the balance produced at
outside contractors. Approximately 21% of the sewn garments are 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 and minimizes quality control problems.
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 4.0% and 5.0% of net
sales.
EMPLOYEES
During its peak periods during the year ended July 31, 1997, the Robby Len
Division employed approximately 427 employees, including 97 managerial, sales
and clerical employees and 330 employees engaged in the Robby Len Division's
manufacturing operations. Approximately 262 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 1999.
During the slower manufacturing periods of June through August, the
Robby Len Division employed approximately 180 employees, including 85
managerial, sales and clerical employees and 95 employees engaged in the Robby
Len Division's manufacturing operations, approximately 93 of whom are covered by
the collective bargaining agreement with the ILGWU.
In July 1997, the Company's Mexican subsidiary, Trajes de Bano
Morelos, S.A. de C.V., employed approximately 77 employees, including 31
managerial and clerical employees and 46 employees engaged in manufacturing
operations. Approximately 46 employees are covered by a collective bargaining
agreement with the Mexican National Labor Union for the Textile Industry.
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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," "Roxanne," "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.
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, 1997 and 1996, the Robby Len Division's backlog of unshipped
customer orders was approximately $3,400,000 and $2,098,000, respectively.
Substantially all of the backlog of unshipped orders at July 31, 1997 was filled
by October 27, 1997.
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 paid an
advance against the purchase price of $500,000. Further,
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<PAGE>
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. 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 with the unpaid balance due on June 30, 1998. 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
two amendments to their Fifth Amended and Restated 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. The facility commenced operations in May
1997. TBM is projected to produce approximately 30% of the Company's swimwear
within two years of commencement of operations.
-4-
<PAGE>
During fiscal year 1997 and in September 1997, the Company and its senior debt
lenders negotiated three additional amendments to their Fifth Amended and
Restated Credit Agreement. These amendments provided for, among other things,
the deferral of certain scheduled principal and interest payments for 1997 and
1998, a reduction in the interest rate and the revision of certain financial
covenants.
Effective July 1997, the Company and its working capital lender amended their
loan agreement to provide for the factoring of substantially all of the
Company's accounts receivable with recourse and modified permitted seasonal loan
overadvances. The working capital loan agreement was also amended to modify
certain financial covenants as well as cured existing events of default. In
addition, during the fiscal year July 1997 the loan agreement's expiration was
extended to August 31, 1999. The amended agreement is partially secured by
guarantees aggregating $5,800,000 provided by a corporate affiliate and a member
of the family holding majority ownership of the Company.
In October 1997, the maturity date of the Company's Amended and Restated
Subordinated Note was extended to June 30, 2000.
In October 1997, the holder of the Company's Series H Preferred Stock waived all
unpaid redemptions of stock scheduled through May 1997.
-5-
<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.
In connection with the operations of its Mexican subsidiary, Trajes de Bano
Morelos, S.A. de C.V, the Company leases a manufacturing facility in Cuernavaca,
Mexico.
The following table sets forth the Company's leased facilities:
Type of Approximate Expiration
Location Facility Square Feet of Lease
- -------- -------- ----------- ----------
1175 State Street Manufacturing/ 242,000 2001
New Haven, CT Distribution
1429 Park Street Manufacturing 38,625 2000
Hartford, CT
1411 Broadway Showroom 9,110 2000
30th Floor
New York, NY
110 East 9th Street Showroom 1,432 2000
Los Angeles, CA
777 Northwest Showroom 900 1998
72nd Avenue
Miami, FL
777 Northwest Showroom 600 1999
72nd Avenue
Miami, FL
Ciudad de la Confeccion Manufacturing 32,000 1998
Carr. Temixco
Emiliano Zapata
Morelos, Mexico
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.
-6-
<PAGE>
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, 1997 and July 31 1996,
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,
1997 and July 31, 1996 according to the OTC Bulletin Board is as follows:
Fiscal Year Fiscal Year
July 31,1997 July 31,1996
--------------- ---------------
High Low High Low
------ ------ ------ ------
August 1 - October 31 $.7500 $.2500 $1.000 $.0625
November 1 - January 3 $.7500 $.2500 $.8750 $.1250
February 1 - April 30 $.2500 $.1250 $.5625 $.1875
May 1 - July 31 $.1250 $.1250 $.5938 $.4375
The Company had approximately 4,988 holders of record of its
Common Stock as of October 27, 1997.
No dividends were paid by the Company on its Common Stock during
the fiscal years ended July 31, 1997, 1996 and 1995. It is not anticipated
that any dividends will be paid by the Company on its Common Stock in the
foreseeable future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended
Year Ended July 31, July 31,
------------------------------------- ----------------- Year Ended
1997 1996 1995 1994 1993 1992 January 31, 1993
---- ---- ---- ---- ---- ---- ----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)
- ------------------------
Net sales $47,743 $49,876 $38,964 $34,273 $19,339 $22,529 $33,608
Operating income (loss) (4,696) 642 2,849 1,575 504 2,459 1,888
Interest and
financing costs 1,514 1,265 779 1,804 1,088 1,418 2,394
Income (loss) from
continuing
operations
before income taxes (6,168) (387) 1,691 162 (584) 1,041 (506)
Income (loss) from
continuing operations (6,204) (407) 1,671 142 (594) 638 (532)
Income (loss) from
discontinued
operations -- -- -- -- 99 201 (7,537)
Extraordinary
Income -- 550 -- 4,165 -- 395 --
Net income (loss) (6,204) 143 1,671 4,307 (495) 1,234 (8,069)
Preferred stock
dividends 453 504 718 540 270 270 540
Net income (loss)
applicable to common
stockholders (6,657) (361) 953 3,767 (765) 964 (8,609)
Net income (loss) per
common share:
Income (loss) from
continuing operations $ (.34) $(.12) $ .13 $ (.05) $ (.11) $ .05 $ (.14)
Income (loss) from
discontinued
operations -- -- -- -- $ .01 $ .03 $(1.02)
Extraordinary income -- $.07 -- $ .56 -- .05 --
Net income (loss) $ (.34) $(.05) $ .13 $ .51 $ (.10) $ .13 $(1.16)
Weighted average
number of common shares
outstanding 19,763 7,740 7,390 7,390 7,390 7,390 7,390
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
July 31,
------------------------------------------------
1997 1996 1995 1994 1993(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
(Thousands of dollars)
BALANCE SHEET DATA
Total assets $22,722 $20,408 $15,095 $14,664 $14,977
Working capital
(deficit) (4,386) 1,227 3,288 3,947 (12,434)
Long-term debt(2)
(excluding current
portion) 9,415 8,454 8,523 10,940 --
Subordinated notes
payable(3) 550 450 1,000 1,000 1,000
Cumulative redeemable
preferred stock(4) 4,610 4,568 4,537 5,583 5,412
$12 Preferred series
E stock(5) -- -- 16,383 16,383 14,383
$12 Preferred series
F stock(5) -- -- 7,022 7,022 7,022
$10 Preferred series
G stock(5) -- -- 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.
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<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:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
July 31, 1997 July 31, 1996 July 31, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
------ ------ ------
Cost of goods sold 84.5 78.6 72.4
Operating expenses 25.3 20.1 20.3
Interest and financing
costs 3.2 2.5 2.0
Other, net (0.1) (0.4) 1.0
------ ------ ------
112.9 100.8 95.7
------ ------ ------
Income (loss) before
provision for
income taxes and
extraordinary income (12.9) (0.8) 4.3
Provision for income
taxes (0.1) - -
------ ------ ------
Income (loss) before
extraordinary income (13.0) (0.8) 4.3
Extraordinary income - 1.1 -
------ ------ ------
Net income (loss) (13.0) 0.3 4.3
------ ------ ------
------ ------ ------
</TABLE>
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<PAGE>
Year Ended July 31, 1997 Compared
to Year Ended July 31, 1996
- ---------------------------------
Net sales decreased by $2,133,000, or 4.3%, to $47,743,000 for the year
ended July 31, 1997 as compared to $49,876,000 for the year ended July 31, 1996.
The decline in net sales is primarily due to a decrease in unit sales as unit
prices remained relatively flat as compared to the prior year. This decrease is
principally attributable to an approximate $4.0 million decline in Robby Len
"branded" swimwear sales for the year ended July 31, 1997 as compared to the
prior year. Partially offsetting this decline was an approximate $2.0 million
increase in "Roxanne" branded swimwear sales.
Gross profit as a percentage of net sales decreased to 15.5% for the year
ended July 31, 1997 as compared to 21.4% for the year ended July 31, 1996. This
decline is due primarily to a poor retail performance of "Robby Len" branded
swimwear which led to significant off-price sales and the liquidation or
markdown of certain unsold inventory. Also contributing to the decrease in
gross margin was a change in product mix associated with increased sales to
discount stores under the Company's "Lenee" label and increased sales of
"private label" swimwear.
Operating expenses increased by $2,062,000, or 20.5%, to $12,104,000 for
the year ended July 31, 1997 as compared to $10,042,000 for the year ended July
31, 1996. This increase is principally related to a) the recognition of
$750,000 of restructuring and other special charges related to the financial and
operational restructuring of the Company which commenced in May 1997 b)
increased charges to bad debt expense of approximately $140,000 related to the
write-off of Montgomery Ward receivables subject to Chapter 11 bankruptcy
proceedings and increased reserves against receivables of approximately $590,000
relating to unauthorized customer deductions and c) increased shipping and
warehousing expenses of approximately $435,000 relating to the expansion of the
Company's New Haven, CT warehousing and distribution facility. The $750,000
charge for restructuring expenses is composed primarily of certain legal and
professional fees associated with the negotiation of amended working capital and
term loan agreements and accruals for consulting fees, employee severance
payments and other charges associated with the Company's operational
restructuring.
The above activities resulted in an operating loss of $4,696,000 for the
year ended July 31, 1997 as compared to operating income of $642,000 for the
prior year.
Interest and financing costs increased by $249,000, or 19.7%, to $1,514,000
for the year ended July 31, 1997 as compared to $1,265,000 for the year ended
July 31, 1996. This increase is primarily attributable to increased borrowings
under the Company's revolving loan agreement required to fund the Company's
working capital needs.
The aggregate effect of the above activities resulted in a loss before
provision for income taxes of $6,168,000 for the year ended July 31, 1997 as
compared to a loss before provision for income taxes of $387,000 for the year
ended July 31, 1996.
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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.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was 0.77 to 1.00 at July
31, 1997 as compared to 1.13 to 1.00 at July 31, 1996. The working capital
deficit was $4,386,000 at July 31, 1997 as compared to working capital of
$1,227,000 at July 31, 1996. This decrease in working capital is primarily
attributable to the net loss for the period along with capital expenditures of
approximately $300,000 which were not financed through long-term debt. A
reduction in the current portion of long-term debt (primarily related to the
renegotiation of the Company's term loan agreement) of approximately $1,200,000
partially offset this decrease.
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 $635,000 increase in inventory is due primarily to increased
levels of unsold finished goods carried over from the 1997 season and early
production of 1998 season goods from offshore contractors. The $4,187,000
decline in accounts receivable and the $5,198,000 increase in due from factor is
related to the amendment, effective July 1997, of the Company's working capital
loan to provide for the factoring of substantially all of the Company's accounts
receivable (see Note 4 to the Consolidated Financial Statements). The
$6,716,000 increase in the revolving debt and $2,366,000 increase in accounts
payable and accrued expenses are primarily attributable to the net loss for the
period. The $268,000 of net cash used in operating activities is primarily
reflected in the net loss for the period (adjusted for non-cash items) along
with a) the decrease in accounts receivable b) increases in inventory, accounts
payable and accrued expenses and c) the factoring of the Company's accounts
receivables.
The Company's investing activities consist primarily of purchases of
machinery and equipment as well as leasehold improvements. During fiscal years
1996 and 1997, the Company purchased certain production and pattern making
equipment financed primarily through long-term arrangements (see Note 4 to the
Consolidated 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 its capital
expenditures for the next twelve months to be immaterial.
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<PAGE>
In connection with the Company's establishment of a foreign subsidiary (see
Item 1. - Recent Transactions), approximately $300,000 of sewing equipment was
purchased in the second and third quarters of the 1997 fiscal year. This
equipment was financed under long-term arrangements discussed above. In
addition, certain start-up costs (principally consisting of certain operating
overhead costs including payroll, travel, legal and professional fees)
associated with the establishment of the manufacturing facility of approximately
$100,000 were incurred during the third quarter of fiscal year 1997. Management
believes that the Company's gross profit margin should improve as it expands
production in Mexico and achieves operating efficiencies in that facility.
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). 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 Consolidated
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, 1999, 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, 1997 was $12,204,000. To support peak seasonal
borrowing requirements, an additional $2,000,000 (collateralized by an affiliate
of the Company) was provided under the revolving credit facility from November
1996 to April 1997. Effective July 1997, the revolving credit facility was
amended to provide for a) the factoring of substantially all of the Company's
trade accounts receivable with recourse and b) anticipated seasonal overadvance
requirements for the 1998 fiscal year. The amended agreement is partially
secured by guarantees aggregating $5,800,000 provided by a corporate affiliate
and a member of the family holding majority ownership of the Company.
In fiscal year July 1997 and October 1997, the Company and its term lenders
amended the Fifth Amended and Restated Credit Agreement to modify, among others
things, the principal and interest repayment terms, interest rate and certain
financial covenants. The ability of the Company to meet its foreseeable
liquidity requirements in the year ahead is contingent upon its ability to
regain profitability, generate cash flows sufficient to meet its obligations and
sustain operations and maintain adequate financing with its working capital
lender and its term lenders. The Company's accountants have included an
explanatory paragraph in their 1997 report regarding uncertainties about the
Company continuing as a going concern.
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.
-14-
<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). Sales of swimwear bearing these labels represented approximately
$8,200,000 (16%) and $10,000,000 (21%) of the Company's sales for the years
ended July 31, 1996 and 1997, respectively. It is the belief of management that
there is potential for additional growth in sales volume as a result of this
acquisition over the next several years.
In an effort to lower its overall production costs , the Company is
engaged in contract manufacturing programs in Columbia, Mexico and the Dominican
Republic. Currently, approximately 21% of the Company's production requirements
are sourced from these areas, with additional growth planned for the future. In
addition, in September 1996 the Company established a subsidiary in Mexico,
Trajes de Bano Morelos, S.A. de C.V.. This subsidiary began operation of a
swimwear manufacturing facility in Cuernavaca, Mexico in May 1997. It is
anticipated that approximately 30% of the Company's production requirements will
be fulfilled by this operation in the next two years. 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 regain profitability.
While the Company is aggressively pursuing its plans in these areas,
there can be no assurance that it will be successful in its efforts.
RECENT ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128
("SFAS 128"), "Earnings Per Share". SFAS 128 specifies the computation,
presentation and disclosure requirements for earnings per share. SFAS 128 is
effective for periods ending after December 15, 1997. The adoption of this
statement is not expected to have a material effect on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
SFAS No. 130 ("SFAS 130"), "Reporting Comprehensive Income", establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
SFAS No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information", which supersedes SFAS 14, "Financial Reporting for
Segments of a Business Enterprise", establishes standards for the way that
-15-
<PAGE>
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any, they
may have on future financial statement disclosures.
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
-16-
<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, 1997:
NAME AGE CAPACITY
---- --- --------
Burton I. Koffman(3) 71 Chairman of the Board
and Chief Executive
Officer of the Company
Richard E. Koffman(2) 64 Vice Chairman of the
Board, Executive Vice
President and Secretary
of the Company
Arthur G. Cohen(2)(3) 67 Director of the Company
Jeffrey P. Koffman(1)(3) 32 Director and President of
the Company
Eric T. Weitz 53 Director and Executive Vice
President of the Company,
President of the Robby Len
Division
David L. Koffman 38 Vice President and
Assistant Secretary of
the Company
Mark D. Greenberg 45 Vice President of the Company,
Vice President - Operations of the
Robby Len Division
Murray Merl 60 Vice President -
Manufacturing of the
Robby Len Division
Frederick M. D'Amato 43 Vice President - Finance
of the Company and the
Robby Len Division
- --------------------
(1) Elected President of the Company in February 1996
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
-17-
<PAGE>
Burton I. Koffman has served as Chairman of the Board of the Company
since January 1989 and as Chief Executive Officer of the Company since October
1989. 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.
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.
-18-
<PAGE>
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 three meetings during the year ended July
31, 1997. All other actions of the Board of Directors during the year ended
July 31, 1997 were taken by unanimous written consent. There are two committees
of the Board of Directors, an Audit Committee and an Executive Compensation
Committee. The Company has no standing nominating committee of the Board of
Directors or committee performing a similar function. Officers are elected by,
and serve at the discretion of, the Board of Directors.
-19-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued by the
Company for the years ended July 31, 1997, July 31, 1996 and July 31, 1995 to or
for the chief executive officer and the remaining four most highly compensated
executive officers and key employees of the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND ------------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION ($)
- ------------------ ---- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Burton I. Koffman 1997 - - 40,000
Chairman of the Board, 1996 - - 40,000
Chief Executive 1995 - - 40,000
Officer of the Company
Eric T. Weitz 1997 275,000 - 4,515
Executive Vice Pres- 1996 240,000 33,240 3,840
ident of the Company, 1995 240,000 144,600 4,800
President of the
Robby Len Division
Mark D. Greenberg 1997 157,500 - 4,063
V.P. of the Company, 1996 150,000 16,620 3,696
V.P. - Operations 1995 150,000 72,300 3,000
of the Robby Len
Division
Murray Merl 1997 143,000 - 3,549
V.P. - Manufacturing 1996 136,500 16,620 3,347
of the Robby Len 1995 130,000 54,225 2,600
Division
Frederick M. D'Amato 1997 125,000 - 3,399
Vice President- 1996 110,300 16,620 3,770
Finance 1995 105,000 54,225 2,100
</TABLE>
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 three meetings during the year ended
July 31, 1997.
Mr. Burton I. Koffman and Mr. Richard E. Koffman received an annual
consulting fee of $40,000 (as disclosed above) and $60,000, respectively for the
years ended July 31, 1997, July 31, 1996 and July 31, 1995. Mr. Jeffrey P.
Koffman received an annual salary of $36,000 for the years ended July 31, 1997
and July 31, 1996 and received an annual salary of $24,000 for the year ended
July 31, 1995.
-20-
<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 1997 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, 1997 for Messrs. Weitz,
Greenberg, Merl and D'Amato were based on levels established and approved by the
Company's Board of Directors in August 1996. Mr. Burton I. Koffman's
compensation is based on a consulting arrangement.
-21-
<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. No bonuses were awarded for the year ended July 31, 1997 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, 1992 through July 31, 1997. 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.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPANY 1992 1993 1994 1995 1996 1997
APPAREL AMERICA, INC. 100 100.00 100.00 200.00 900.00 200.00
INDUSTRY INDEX 100 57.71 60.00 76.88 80.96 26.17
BROAD MARKET - 100 124.21 135.54 166.10 181.07 266.18
</TABLE>
THE INDUSTRY INDEX CHOSEN WAS:
SIC CODE 2339 - WOMEN'S, MISSES', & JUNIORS' OUTERWEAR, N.E.C.
THE BROAD MARKET INDEX CHOSEN WAS:
NASDAQ MARKET INDEX
Assumes $100 invested on August 1, 1992
Assumes dividends reinvested
Fiscal year ended July 31, 1997
-22-
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the holdings, as of October 27, 1997,
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.
-23-
<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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended July 31, 1997 and July 31, 1995, the
Company purchased certain pattern making and production equipment and made
certain leasehold improvements to its New Haven, CT manufacturing facility.
These capital expenditures were financed primarily through a loan by the
wife of the Chairman of the Board of the Company and by a corporate
affiliate of the Company on terms and conditions similar to those of the
Company's working capital lender.
-24-
<PAGE>
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 Consolidated 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 $402,000, $227,000 and $214,000 for the years ended July 31,
1997, 1996 and 1995, respectively.
In July 1997, the Company's working capital loan agreement was
amended. The amended agreement is partially secured by loan guarantees in
the aggregate amount of $5,800,000 provided by a corporate affiliate and a
member of the family holding majority ownership of the Company.
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
There were no reports on Form 8-K for the fiscal year
ended July 31, 1997.
(c) Exhibits
See the accompanying Exhibit Index.
-25-
<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: November 10, 1997 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 November 10, 1997
- -------------------------
Burton I. Koffman
Richard E. Koffman Vice Chairman of the November 10, 1997
- ------------------------- Board, Executive Vice
Richard E. Koffman President and Secretary
Jeffrey P. Koffman Director and November 10, 1997
- ------------------------- President of the Company
Jeffrey P. Koffman
Arthur G. Cohen Director November 10, 1997
- -------------------------
Arthur G. Cohen
Eric T. Weitz Director and Executive Vice November 10, 1997
- ------------------------- President of the Company
Eric T. Weitz
-26-
<PAGE>
APPAREL AMERICA, INC.
FINANCIAL STATEMENTS
Years Ended July 31, 1997, 1996 and 1995
<PAGE>
Apparel America, Inc.
and Subsidiary
================================================================================
Consolidated Financial Statements
Years Ended July 31, 1997, 1996 and 1995
F-1
<PAGE>
Apparel America, Inc.
and Subsidiary
Index of Consolidated Financial Statements and
Financial Statement Schedule
================================================================================
The following consolidated financial statements of
Apparel America, Inc. and Subsidiary are included
in Item 8:
Report of independent certified public accountants F-3
Balance sheets as of July 31, 1997 and 1996 F-4 - F-5
Statements of operations for the years ended July 31,
1997, 1996 and 1995 F-6
Statements of stockholders' deficit for the years
ended July 31, 1997, 1996 and 1995 F-7
Statements of cash flows for the years ended July 31,
1997, 1996 and 1995 F-8
Notes to consolidated financial statements F-9 - F-25
The following schedule of Apparel America, Inc. and
Subsidiary is included in Item 14(d):
Report of independent certified public accountants S-1
Schedule II Valuation and qualifying accounts S-2
F-2
<PAGE>
Report of Independent Certified Public Accountants
Apparel America, Inc.
New Haven, Connecticut
We have audited the accompanying consolidated balance sheets of Apparel America,
Inc. and subsidiary (the "Company") as of July 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years in the period ended July 31, 1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Apparel America,
Inc. and subsidiary at July 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company incurred a significant loss in
fiscal 1997 and, at July 31, 1997, had deficiencies in working capital and
equity. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
New York, New York
September 23, 1997
F-3
<PAGE>
Apparel America, Inc.
and Subsidiary
Consolidated Balance Sheets
(in thousands, except share and per share data)
================================================================================
July 31, 1997 1996
- --------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 238 $ 41
Accounts receivable, net of allowance for doubtful
accounts of $675 and $584, respectively 355 4,187
Due from factor, net of allowance for doubtful
accounts of $225 and $-0-, respectively 5,198 --
Inventories 8,365 7,730
Due from affiliates 64 185
Prepaid expenses and other current assets 655 477
- --------------------------------------------------------------------------------
Total current assets 14,875 12,620
- --------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Machinery and equipment 5,468 4,765
Leasehold improvements 2,773 2,549
- --------------------------------------------------------------------------------
8,241 7,314
Less: Accumulated depreciation and amortization (6,214) (5,613)
- --------------------------------------------------------------------------------
2,027 1,701
- --------------------------------------------------------------------------------
Intangibles and other assets:
Trademarks, net of accumulated amortization
of $227 and $113 1,473 1,587
Cost in excess of net assets acquired, less
accumulated amortization of $1,357 and $1,196 4,328 4,488
Other assets 19 12
- --------------------------------------------------------------------------------
5,820 6,087
- --------------------------------------------------------------------------------
$ 22,722 $ 20,408
================================================================================
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Apparel America, Inc.
and Subsidiary
Consolidated Balance Sheets
(in thousands, except share and per share data)
================================================================================
July 31, 1997 1996
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current:
Current portion of long-term debt $ 355 $ 1,649
Current portion of accrued purchase price - trademark 464 162
Current portion of deferred interest 330 452
Current portion of subordinated note payable -- 100
Loan payable - revolver (factor) 12,204 5,488
Accounts payable 3,847 2,062
Accrued expenses 1,860 926
Accrued compensation 201 554
- --------------------------------------------------------------------------------
Total current liabilities 19,261 11,393
Long-term debt, less current portion 6,460 5,032
Accrued purchase price - trademark 586 1,038
Deferred interest - long-term portion 400 730
Dividends payable 1,969 1,654
Subordinated note payable 550 450
- --------------------------------------------------------------------------------
Total liabilities 29,226 20,297
- --------------------------------------------------------------------------------
$9 cumulative redeemable preferred stock, net of
discount of $8 and $50 3,492 3,450
- --------------------------------------------------------------------------------
$8.50 cumulative redeemable preferred stock 1,118 1,118
- --------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' deficit:
Common stock, $.05 par value - shares authorized
30,000,000; issued 19,783,312 989 989
Additional paid-in capital 64,071 64,071
Deficit (48,213) (41,556)
Less:
Treasury stock, at cost - 20,665 shares (129) (129)
Acquisition costs in excess of historical basis
of net assets acquired from affiliates (27,832) (27,832)
- --------------------------------------------------------------------------------
Total stockholders' deficit (11,114) (4,457)
- --------------------------------------------------------------------------------
$ 22,722 $ 20,408
================================================================================
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Apparel America, Inc.
and Subsidiary
Consolidated Statements of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
==========================================================================================
Year ended July 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 47,743 $ 49,876 $ 38,964
Cost of goods sold 40,335 39,192 28,223
- ------------------------------------------------------------------------------------------
Gross profit 7,408 10,684 10,741
- ------------------------------------------------------------------------------------------
Operating expenses:
Selling, design and promotion 4,528 4,659 3,107
Shipping and warehousing 2,119 1,684 1,065
General and administrative 4,707 3,699 3,720
Restructuring and other special charges 750 -- --
- ------------------------------------------------------------------------------------------
Total operating expenses 12,104 10,042 7,892
- ------------------------------------------------------------------------------------------
Operating income (loss) (4,696) 642 2,849
- ------------------------------------------------------------------------------------------
Nonoperating charges (income):
Interest and financing costs 1,514 1,265 779
Litigation settlement -- -- 412
Other income (42) (236) (33)
- ------------------------------------------------------------------------------------------
1,472 1,029 1,158
- ------------------------------------------------------------------------------------------
Income (loss) before provision for income
taxes and extraordinary income (6,168) (387) 1,691
Provision for income taxes 36 20 20
- ------------------------------------------------------------------------------------------
Income (loss) before extraordinary income (6,204) (407) 1,671
Extraordinary income:
Gain on debt restructuring -- 550 --
- ------------------------------------------------------------------------------------------
Net income (loss) (6,204) 143 1,671
Preferred stock dividends and accretion of
redeemable preferred stock 453 504 718
- ------------------------------------------------------------------------------------------
Net income (loss) applicable to common $ (6,657) $ (361) $ 953
stockholders
==========================================================================================
Income (loss) per common share:
Income (loss) before extraordinary income $ (.34) $ (.12) $ .13
Extraordinary income -- .07 --
- ------------------------------------------------------------------------------------------
Net income (loss) $ (.34) $ (.05) $ .13
==========================================================================================
Weighted average number of common shares
outstanding 19,762,645 7,739,489 7,389,552
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Apparel America, Inc.
and Subsidiary
Consolidated Statements of Stockholders' Deficit
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
====================================================================================================================
Years ended July 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------------------------------------------
Preferred stock Common stock
------------------------ -------------------------------------------
Issued Issued In treasury
------------------------ ---------------------- -----------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1994 404,847 $ 40,484 7,410,213 $ 371 20,665 $ (129)
Net income -- -- -- -- -- --
Fractional shares -- -- 10 -- -- --
Exchange of redeemable preferred stock -- -- -- -- -- --
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 -- -- 3,876,140 193 -- --
- --------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1996 -- -- 19,783,308 989 20,665 (129)
Net loss -- -- -- -- -- --
Fractional shares -- -- 4 -- -- --
Dividends on cumulative redeemable
preferred stock -- -- -- -- -- --
Accretion on cumulative redeemable
preferred stock -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1997 -- 19,783,312 $ 989 $ 20,665 -- $ (129)
====================================================================================================================
<CAPTION>
=======================================================================================================
Years ended July 31, 1997, 1996 and 1995
- -------------------------------------------------------------------------------------------------------
Acquisition
costs in excess
of historical
basis of net
Additional assets acquired Total
paid-in capital Deficit from affiliates deficit
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, August 1, 1994 $ 21,706 $ (42,148) $ (27,832) $ (7,548)
Net income -- 1,671 -- 1,671
Fractional shares -- -- -- --
Exchange of redeemable preferred stock 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 194 -- -- 387
- -------------------------------------------------------------------------------------------------------
Balance, July 31, 1996 64,071 (41,556) (27,832) (4,457)
Net loss -- (6,204) -- (6,204)
Fractional shares -- -- -- --
Dividends on cumulative redeemable
preferred stock -- (410) -- (410)
Accretion on cumulative redeemable
preferred stock -- (43) -- (43)
- -------------------------------------------------------------------------------------------------------
Balance, July 31, 1997 $ 64,071 $ (48,213) $ (27,832) $ (11,114)
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Apparel America, Inc.
and Subsidiary
Consolidated Statements of Cash Flows
(in thousands)
================================================================================
Year ended July 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $(6,204) $ 143 $ 1,671
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Extraordinary gain on debt restructuring -- (550) --
Amortization of deferred interest (452) (573) (685)
Depreciation and amortization 601 490 372
Other amortization 288 290 160
Litigation settlement -- -- 412
Decrease (increase) in:
Accounts receivable 4,187 (4,151) (14)
Inventories (635) (2,213) (2,536)
Due from affiliates 121 71 54
Prepaid expenses and other current assets (533) (169) (14)
Other assets (7) (2) 2
Net assets of discontinued operations -- -- 334
Increase (decrease) in:
Accounts payable and accrued expenses 2,366 647 692
Due to affiliates -- (395) 78
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (268) (6,412) 526
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (927) (574) (780)
Purchase of trademark -- (500) --
- --------------------------------------------------------------------------------
Net cash used in investing activities (927) (1,074) (780)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving debt 6,716 5,488 --
(Payment of) proceeds from equipment loans (197) 166 --
Proceeds from the issuance of common stock -- 402 --
Payments on subordinated debt -- (50) --
Preferred stock dividends and redemption (95) (158) --
Due from factor (5,198) 2,675 1,940
Proceeds from long-term debt 649 -- --
Payments of long-term debt (383) (925) (1,452)
Payment for the exchange of preferred stock -- -- (85)
Litigation settlement payments (100) (100) (200)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 1,392 7,498 203
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 197 12 (51)
Cash and cash equivalents, beginning of year 41 29 80
================================================================================
Cash and cash equivalents, end of year $ 238 $ 41 $ 29
================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,394 $ 2,199 $ 2,001
Income taxes -- 72 12
Supplemental disclosures of noncash investing and
financing activities:
Unpaid dividends 315 315 521
================================================================================
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
1. Significant Business
Accounting Policies
The operations of Apparel America, Inc. and
subsidiary (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. In fiscal
1997, the Company opened a manufacturing facility
in Mexico. Through July 31, 1997, assets and
operations of this facility are immaterial.
Basis of Presentation
The accompanying consolidated financial
statements have been prepared assuming that the
Company will continue as a going concern which
contemplates the realization of assets and the
satisfaction of liabilities in the normal course
of business. The Company experienced a
significant loss for the year ended July 31,
1997, and had negative working capital of
approximately $4,400,000 and a capital deficit of
$11,100,000 as of July 31, 1997.
Management cannot be assured that the Company
will be able to continue as a going concern in
view of its weakened financial condition. The
Company's continued existence is dependent upon
its ability to maintain compliance with the loan
covenants in the future (or obtain adequate
waivers), additional debt financings, and
improving operating results by increasing sales
initiatives, reducing overhead expenses and
decreasing manufacturing costs. There can be no
assurance as to the success of these efforts.
The consolidated financial statements do not
include any adjustments that might result from
the outcome of this uncertainty.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its wholly-owned
subsidiary. All significant intercompany accounts
and transactions have been eliminated in
consolidation.
Inventories
Inventories are valued at the lower of cost
(first-in, first-out) or market.
F-9
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
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. Leasehold improvements are amortized
over their estimated useful lives or the lives of
the related leases, whichever is shorter.
Cash Equivalents
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, 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.
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.
F-10
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Trademarks
Trademarks are amortized on the straight-line
method over their estimated useful lives (15
years). Amortization expense amounted to
approximately $113,000 per year for the years
ended July 31, 1997 and 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.
Income Taxes
Income taxes are calculated using the liability
method specified by Statement of Financial
Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". 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 fully
reduced by a valuation allowance since
realization is uncertain.
F-11
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
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, 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 certain long-term debt
approximate fair value because the underlying
instruments are at terms which reflect prevailing
market conditions. It was not practical to
determine the fair value of the term loans, see
Note 4(a).
Long-Lived Assets
Long-lived assets are evaluated for impairment
when events or changes in circumstances indicate
that the carrying amounts of the assets may not
be recoverable. When any such impairment exists,
the related assets will be written down to their
fair value. This policy is in accordance with
Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment
of Long-Lived Assets to be Disposed Of", which
was adopted on August 1, 1996. The adoption of
SFAS 121 had no effect on the financial
statements.
F-12
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
Stock-Based Compensation
The Company accounts for its stock option awards
under the intrinsic value based method of
accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Under the intrinsic value
based method, compensation cost is the excess, if
any, of the quoted market price of the stock at
grant date or other measurement date over the
amount an employee must pay to acquire the stock.
The Company makes pro forma disclosures of net
income and earnings per share as if the fair
value based method of accounting had been applied
as required by SFAS 123, "Accounting for
Stock-Based Compensation."
Recent Accounting Standards
In March 1997, the Financial Accounting Standards
Board issued SFAS No. 128 ("SFAS 128"), "Earnings
Per Share". SFAS 128 specifies the computation,
presentation and disclosure requirements for
earnings per share. SFAS 128 is effective for
periods ending after December 15, 1997. The
adoption of this statement is not expected to
have a material effect on the financial
statements.
In June 1997, the Financial Accounting Standards
Board issued two new disclosure standards.
Results of operations and financial position will
be unaffected by implementation of these new
standards.
SFAS No. 130 ("SFAS 130"), "Reporting
Comprehensive Income", establishes standards for
reporting and display of comprehensive income,
its components and accumulated balances.
Comprehensive income is defined to include all
changes in equity except those resulting from
investments by owners and distributions to
owners. Among other disclosures, SFAS 130
requires that all items that are required to be
recognized under current accounting standards as
components of comprehensive income be reported in
a financial statement that is displayed with the
same prominence as other financial statements.
F-13
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
SFAS No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related
Information", which supersedes SFAS 14,
"Financial Reporting for Segments of a Business
Enterprise", establishes standards for the way
that public enterprises report information about
operating segments in annual financial statements
and requires reporting of selected information
about operating segments in interim financial
statements issued to the public. It also
establishes standards for disclosures regarding
products and services, geographic areas and major
customers. SFAS 131 defines operating segments as
components of an enterprise about which separate
financial information is available that is
evaluated regularly by the chief operating
decision maker in deciding how to allocate
resources and in assessing performance.
Both of these new standards are effective for
financial statements for periods beginning after
December 15, 1997 and require comparative
information for earlier years to be restated. Due
to the recent issuance of these standards,
management has been unable to fully evaluate the
impact, if any, they may have on future financial
statement disclosures.
Reclassifications
Certain amounts in 1996 were reclassified to
conform to those used in 1997.
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
(which was recorded in fiscal 1996). The Company
paid $500,000 of the purchase price at the
closing, with the balance payable over 7 years
based on a percentage (ranging from 3% to 5%) of
net sales, as defined. Any payments in excess of
the $1,700,000 will be charged to the trademark
account. Through July 31, 1997, another $150,000
has been paid. The Company also purchased
approximately $500,000 of inventory bearing the
purchased tradenames as well as assumed matching
customer purchase orders against this inventory.
F-14
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
3. Inventories Inventories consist of the following:
July 31, 1997 1996
- --------------------------------------------------------------------------------
(in thousands)
Raw materials $3,036 $ 4,058
Work-in-process 1,219 1,226
Finished goods 4,110 2,446
- --------------------------------------------------------------------------------
$8,365 $ 7,730
================================================================================
4. Long-term Debt Long-term debt consists of the following:
and Credit
Arrangements
July 31, 1997 1996
- --------------------------------------------------------------------------------
(in thousands)
Term loan payable (a) $6,060 $ 6,210
Litigation settlement (b) 60 147
Other (including $651 and $84 due to
related parties) 695 324
- --------------------------------------------------------------------------------
6,815 6,681
Less: Current portion (355) (1,649)
- --------------------------------------------------------------------------------
$6,460 $ 5,032
================================================================================
The future minimum payments of long-term debt are as follows:
July 31,
- --------------------------------------------------------------------------------
(in thousands)
1998 $ 355
1999 1,509
2000 3,477
2001 1,459
2002 15
- --------------------------------------------------------------------------------
6,815
Interest through maturity 730
- --------------------------------------------------------------------------------
$7,545
================================================================================
F-15
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
(a) Term Loan
In fiscal 1994, the Company negotiated two
significant amendments to its term loan
agreement. The first amendment, 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 its $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, resulting in an
extraordinary gain of approximately $4,165,000
for the year ended July 31, 1994.
The interest on the debt, which offset the gain
recognized upon restructuring (in compliance with
SFAS No. 15, "Accounting by Debtors and Creditors
for Troubled Debt Restructurings"), was deferred
and is being recognized as a reduction of
interest expense through the maturity of the
debt. The remaining balance of deferred interest
at July 31, 1997 and 1996 was $730,000 and
$1,182,000, respectively.
The Company negotiated three additional
amendments dated October 15, 1996 and June 1 and
September 1, 1997. The amendments modified
payment terms, interest rates and terms of the
loan covenants.
The outstanding balance of the term loans is
approximately $6,060,000 and $6,210,000 at July
31, 1997 and 1996, respectively. The loans are
repayable in varying amounts through fiscal 2001.
Interest, which is payable monthly, accrued at
the rate of 1.5% above the one-year LIBOR (5.9%
at July 31, 1997 and 1996) for loans totaling
approximately $3,887,000 and $3,974,000 at July
31, 1997 and 1996, respectively, and accrued at
the rate of 1.5% above the prime rate (8.50% and
8.25% at July 31, 1997 and 1996, respectively)
for the balance of the debt (approximately
$2,173,000 and $2,236,000 at July 31, 1997 and
1996, respectively).
F-16
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
The 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. At July 31, 1997
and during the year then ended, the Company was
in violation of various financial covenants which
were waived by the lenders. The covenants were
modified for future years.
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, 1997.
F-17
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
(c) Revolving Line of Credit/Factor Agreement
In September 1995, the factor agreement entered
into during fiscal 1993 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.
In July 1997, the credit agreement was amended
whereby the Company now factors substantially all
accounts receivable, with recourse, with the same
lender. The Company pays a commission rate of
.45% of the gross amount of each invoice
evidencing a receivable. All collections by the
lender will reduce the outstanding principal
balance of the revolving line of credit. The
agreement also specifies annual minimum volume
levels, as defined. The term of the credit
agreement has been extended to August 31, 1999
and certain existing covenants including levels
of working capital, net worth and net income have
been modified. At July 31, 1997 and for the year
then ended, the Company was in violation of
certain financial covenants which were waived by
the lender. The covenants were modified for
future years.
The agreement calls for affiliate corporate
guarantees as well as certain shareholder
guarantees in the amount of $5,800,000 consisting
of cash and other collateral.
F-18
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
5. Subordinated Note In May 1989, the Company issued to a related
Payable 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%.
In November 1995, the Company entered into an
agreement for the exchange of the $1,000,000
subordinated note dated May 1989 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 $50,000 in June 1996 and 1997 to the
extent of "excess cash flow" (as defined), with
the remaining balance due on June 30, 1998.
During fiscal 1997, the Company did not have
excess cash flow and, under the terms of the
agreement, deferred payment of the $50,000.
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 was payable on June 30, 1998. The
maturity date was extended to June 30, 2000.
The subordinated promissory note is subject to
certain restricted payment covenants and is
subordinate to payment in full of all senior
debt.
6. Cumulative The Company's $9 Cumulative Preferred Series B
Redeemable Stock ("Series B Preferred Stock") has a
Preferred Stocks redemption value of $100 per share and is subject
to mandatory semi-annual redemption requirements
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. 35,000 shares were outstanding
as of July 31, 1997 and 1996.
F-19
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
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.
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. Redemptions for
1997 and 1996 were waived by the holder. 11,185
shares were outstanding as of July 31, 1997 and
1996.
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' Deficit 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.
The $10 Preferred Series G Stock (the "Series G
Preferred Stock") has a stated value of $100 per
share, is non-voting and may be redeemed by the
Company, subject to certain conditions.
F-20
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
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.
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.
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 or lump-sum
payments to participants. 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. For fiscal
1997 and 1996, the Company matched 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 $20,000 and
$77,000 for the years ended July 31, 1997 and
1996, 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 $854,000,
$968,000 and $1,029,000 for the years ended July
31, 1997, 1996 and 1995, respectively.
F-21
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
9. Related Party Certain of the Company's swimwear products are
Transactions manufactured on a contract basis by companies
owned by certain officers of the Company. Amounts
paid to such contractors approximated $3,616,000,
$3,965,000 and $2,888,000 for the years ended
July 31, 1997, 1996 and 1995, respectively.
Rent expense includes payments to an affiliate of
approximately $402,000, $227,000 and $214,000 for
the years ended July 31, 1997, 1996 and 1995,
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 assets are comprised of the following:
July 31, 1997 1996
-------------------------------------------------
(in thousands)
Inventory (Section 263A) $ 58 $ 44
Accumulated depreciation 465 356
Receivable reserve 615 211
Other accruals 23 23
Net operating loss 19,000 17,356
-------------------------------------------------
Gross deferred tax assets 20,161 17,990
Valuation allowance (20,161) (17,990)
-------------------------------------------------
Net deferred tax asset $ - $ -
-------------------------------------------------
The current provision for income taxes consists
of state income taxes. For the years ended July
31, 1997, 1996 and 1995, Federal income taxes
have not been provided for because of net
operating losses.
At July 31, 1997, the Company has the ability to
offset future taxable income aggregating
approximately $47,000,000 with tax loss
carryforwards which expire at various times from
2000 to 2012.
F-22
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated 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 under noncancellable
operating leases as of July 31, 1997 are as
follows:
-------------------------------------------------
(in thousands)
1998 $ 986
1999 965
2000 865
2001 402
2002 134
-------------------------------------------------
Total $3,352
=================================================
Rent expense amounted to approximately $985,000,
$839,000 and $645,000 for the years ended July
31, 1997, 1996 and 1995, respectively (see Note
9).
12. Incentive The Company has a management incentive
Compensation Plans compensation plan for certain key executives and
and Employment employees. The incentive compensation is based
Arrangements upon percentages of adjusted pre-tax earnings, as
defined, of one of the Company's divisions. For
the years ended July 31, 1997, 1996 and 1995,
such compensation amounted to approximately $-0-,
$155,000 and $364,000, respectively.
F-23
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
================================================================================
13. Restructuring and In connection with the financial difficulties
Other Special incurred by the Company in fiscal 1997, various
Charges restructuring and other special charges were
recorded and accrued as of July 31, 1997. These
charges consisted of the following:
-------------------------------------------------
Financial consultant fees $250,000
Severance pay for terminated employees 182,600
Professional and bank fees 175,000
Other 142,400
-------------------------------------------------
$750,000
=================================================
14. Fourth Quarter In the fourth quarter of fiscal 1997, the Company
Adjustments recorded certain material charges; including (i)
restructuring and other special charges of
$750,000; (ii) inventory reserves and write-downs
of $480,000; and (iii) receivable reserves of
$125,000. These charges totaled $1,355,000, or
$.07 per share.
15. Commitments, (a) The Company is a party to certain litigation
Contingencies and incurred in the normal course of business.
Other Comments While any litigation has an element of
uncertainty, the litigation pending against
the Company either (i) seeks immaterial
damage amounts, or (ii) in the opinion of
management and the Company's outside legal
counsel, will be resolved in a manner that
should not have a material adverse effect on
the Company's financial statements.
F-24
<PAGE>
Apparel America, Inc.
and Subsidiary
Notes to Consolidated 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 (with sales in excess of 10% of
total sales) approximated, on an individual
basis, 14%, 13% and 12% for the year ended
July 31, 1997. These same three customers
were also the major customers for 1996. On
an individual basis, they accounted for 14%,
12% and 11% for the year ended July 31,
1996. Sales to one major customer, who was
also a major customer in 1997 and 1996,
approximated 13% for the year ended July 31,
1995.
F-25
<PAGE>
Report of Independent Certified Public Accountants
Apparel America, Inc.
New Haven, Connecticut
The audits referred to in our report dated September 23, 1997 (which included an
explanatory paragraph regarding the Company's ability to continue as a going
concern), relating to the consolidated financial statements of Apparel America,
Inc. and subsidiary 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, 1997
S-1
<PAGE>
Apparel America, Inc.
and Subsidiary
Valuation and Qualifying Accounts
(thousands of dollars)
Schedule II
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- -------------------------------------- ------------ --------------------------- ----------------------------------
Additions Deductions
--------------------------- ----------------------------------
Uncollectible
Balance at Charged to accounts Transferred to
beginning costs and Charged to written off, net balance
Description of period expenses other accounts net of recoveries due from factor
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1997:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $584 $461 $ - $370 $ -
Due from factor - 225 - - -
- -----------------------------------------------------------------------------------------------------------------------------
$584 $686 $ - $370 $ -
- -----------------------------------------------------------------------------------------------------------------------------
Year ended July 31, 1996:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $302 $298 $ 124 $140 $ -
Due from factor 124 - (124) - -
- -----------------------------------------------------------------------------------------------------------------------------
$426 $298 $ - $140 $ -
- -----------------------------------------------------------------------------------------------------------------------------
Year ended July 31, 1995:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $147 $195 $ - $ 40 $ -
Due from factor 50 - - (74) -
- -----------------------------------------------------------------------------------------------------------------------------
$197 $195 $ - $(34) $ -
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Column A Column E
- -------------------------------------- ------------
Balance at
end of
Description period
- -----------------------------------------------------------
Year ended July 31, 1997:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $675
Due from factor 225
- -----------------------------------------------------------
$900
- -----------------------------------------------------------
Year ended July 31, 1996:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $584
Due from factor -
- -----------------------------------------------------------
$584
- -----------------------------------------------------------
Year ended July 31, 1995:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts:
Accounts receivable $302
Due from factor 124
- -----------------------------------------------------------
$426
- -----------------------------------------------------------
S-2
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
2.1 Joint Plan of Reorganization dated July 7, 1987 (filed as
Exhibit 2.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1988 and incorporated herein by
reference.)
2.2 Amended Joint Plan of Reorganization dated September 29, 1987
(filed as Exhibit 2.2 to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1988 and
incorporated herein by reference.)
3.1 Articles of Incorporation of Apparel America, Inc. (filed as
Exhibit 3(i) to the Company's Current Report on Form 8-K dated
January 26, 1989 and incorporated herein by reference.)
3.2 By-Laws of Apparel America, Inc. (filed as Exhibit 3(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1988 and incorporated herein by reference.)
4.1 Specimen Certificate of Common Stock of Apparel America, Inc.
(filed as Exhibit 4.1 to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1989 and
Incorporated herein by reference.)
4.2 Certificate of Designation, References and Rights of $12
Cumulative Preferred Stock of Apparel America, Inc. (filed as
Exhibit 4.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1989 and incorporated herein by
reference.)
4. 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.)
<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.)
<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.)
<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. (previously filed)
<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.)
<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.)
<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.)
<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.)
<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)
<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. (previously filed)
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. (previously filed)
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. (previously filed)
10.34 Fourth Amendment dated June 1, 1997 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)
<PAGE>
10.35 Fifth Amendment dated September 1, 1997 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. (previously filed)
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.)
<PAGE>
Exhibit 10.34
Fourth Amendment dated June 1, 1997 to the Fifth
Amended and Restated Credit Agreement.
<PAGE>
FOURTH AMENDMENT, dated as of June 1, 1997 (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, the Third Amendment dated October 15,
1996 and the Fourth Amendement dated June 1, 1997.
2. AMENDMENTS TO SECTION 2.2 OF THE CREDIT AGREEMENT.
(a) Subsection 2.2 (b)(i) of the Credit Agreement is amended to
substitute the amount "$49,005" in place of the amount "$171,840" appearing
after the date March 1997, and to substitute the amount "$616,916" for the
amount $494,081" appearing after the date June 2000.
(b) Subsection 2.2 (b)(ii) of the Credit Agreement is hereby amended
to substitute the amount "$37,860" in place of the amount "$132,759" appearing
after the date March 1997, and to substitute
<PAGE>
the amount "$677,657" for the amount "$582,758" appearing after the date June
2001.
(c) Subsection 2.2 (b)(iii) of the Credit Agreement is amended to
substitute the amount "$63,135" in place of the amount "$221,380" appearing
after the date March 1997, and to substitute the amount "$679,625" for the
amount "$521,380" appearing after the date June 2000.
3. AMENDMENTS TO SECTION 8.3 OF THE CREDIT AGREEMENT.
(a) Subsection 8.3 (a) of the Credit Agreement is amended by removing
the line "1997 Fiscal Year -- $2,500,000." The intent of this amendment is to
remove any requirement for a specific EBDIT for Fiscal Year 1997.
(b) Subsection 8.3 (b) of the Credit Agreement is hereby amended by
adding the following clause at the end of such Subsection 8.3 (b): "PROVIDED,
HOWEVER, notwithstanding the foregoing, Net Working Capital shall be no less
than $1,500,000 as of January 31, 1997, $3,000,000 as of April 30, 1997 and
there shall be no Net Working Capital requirement at all for the date July
31, 1997."
(c) 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 or Net Income for the respective three (3)
month periods ending October 31, 1996, January 31, 1997, April 30, 1997 and
July 31, 1997."
(d) 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 priciples (whether enforcement is sought by proceedings in equity
or at law).
<PAGE>
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.
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
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 & 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
with a copy to:
Howard Rittberg, Esq.
Levene, Gouldin & Thompson
450 Plaza Drive
Vestal, NY 13850
<PAGE>
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 Hills, 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>
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 10.35
Fifth Amendment dated September 1, 1997 to the Fifth
Amended and Restated Credit Agreement.
<PAGE>
FIFTH AMENDMENT, dated as of September 1, 1997 (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 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, the Third Amendment dated October 15, 1996, the
Fourth Amendment dated June 1, 1997 and the Fifth Amendment dated September 1,
1997.
2. AMENDMENTS TO SECTION 2.2 OF THE CREDIT AGREEMENT.
(a) Subsection 2.2 (b)(i) of the Credit Agreement is hereby amended to
(i) delete the dates June 30, 1997, March 31, 1998 and June 30, 1998, and the
corresponding payment amounts for said dates, from the payment schedule set
forth therein, and (ii) substitute the amount "$1,411,743" for the amount
"$616,916" appearing after the date June 30, 2000.
<PAGE>
(b) Subsection 2.2 (b)(ii) of the Credit Agreement is hereby amended to
(i) delete the dates June 30, 1997, March 31, 1998 and June 30, 1998, and the
corresponding payment amounts for said dates, from the payment schedule set
forth therein, and (ii) substitute the amount "$1,208,692" for the amount
"$677,657" appearing after the date June 30, 2001.
(c) Subsection 2.2 (b)(iii) of the Credit Agreement is amended to (i)
delete the dates June 30, 1997, March 31, 1998 and June 30, 1998, and the
corresponding payment amounts for said dates, from the payment schedule set
forth therein, and (ii) substitute the amount "$1,565,141" for the amount
"$679,625" appearing after the date June 30, 2000.
The intent of the foregoing amendments to Section 2.2 of the Credit
Agreement is to remove the requirement of any repayment of principal of the
Notes for June 30, 1997, March 31, 1998 and June 30, 1998 and to include the
amounts which would have been payable on such dates to the last payment due.
3. AMENDMENTS TO SECTION 2.3 OF THE CREDIT AGREEMENT.
(a) Subsection 2.3 (a)(i) 2.3 (a)(ii) and 2.3 (a)(iii) of the Credit
Agreement are amended to substitute the phrase "and one half percent (1 1/2%)"
at the end of each such subsection with the phrase "percent (1%)".
(b) a new Subsection (e) shall be added to Section 2.3, such Subsection
(e) to read in its entirety as follows: "(e) notwithstanding anything in
this Section 2.3 or the Notes to the contrary, interest on each of the CDA
Note, Binghamton Note and AI Note shall be paid only in respect of $1,000,000
of principal thereon for the period August 1, 1997 through January 31, 1999
and any interest in respect of principal in excess of $1,000,000 shall be
deferred and paid in a lump sum at June 30, 1999.
4. AMENDMENTS TO SECTION 8.3 OF THE CREDIT AGREEMENT.
(a) Subsection 8.3 (a) of the Credit Agreement is amended by deleting
the table therein in its entirety and substituting in lieu thereof the
following table:
Period Minimum Ebdit
------ -------------
1994 Fiscal Year $1,750,000
1995 Fiscal Year 2,250,000
1996 Fiscal Year 2,000,000
1998 Fiscal Year 1,850,000
1999 Fiscal Year 1,850,000
2000 Fiscal Year 1,850,000
2001 Fiscal Year 1,850,000
<PAGE>
(b) Subsection 8.3 (b) of the Credit Agreement is hereby amended by
substituting the number appearing in Subsection (i) to read "a deficit of not
greater that $5,050,000," substituting the number appearing in Subsection
(ii) to read "a deficit of not greater than $3,550,000," substituting the
number appearing in (iii) to read "a deficit of not greater than $1,100,000"
and substituting the number appearing in (iv) to read "a deficit of not
greater than $3,600,000."
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).
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-Finance
President
<PAGE>
with a copy to:
Shustak Jalil & 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:
---------------------------
Name: John B. Westcott
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
Telecopy No.: By: /s/ Milton Koffman
(607) 797-7103 ---------------------------
Attn: Milton Koffman Name: Milton Koffman
President Title: President
Address: CONNECTICUT DEVELOPMENT
999 West Street AUTHORITY, AS BANK
Rocky Hill, CT 06067
Telecopy No.:
(860) 258-7866 By:
------------------------------
Name: Patti A. Champagne
Title: Assistant Vice President
with a copy to:
William G. Rock, Esq.
Shipman & Goodwin
One American Row
Hartford, CT 06103
<PAGE>
with a copy to:
Shustak Jalil & 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:
---------------------------
Name: John B. Westcott
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
Telecopy No.: By:
(607) 797-7103 ---------------------------
Attn: Milton Koffman Name: Milton Koffman
President Title: President
Address: CONNECTICUT DEVELOPMENT
999 West Street AUTHORITY, AS BANK
Rocky Hill, CT 06067
Telecopy No.:
(860) 258-7866 By: /s/ Patti A. Champagne
------------------------------
Name: Patti A. Champagne
Title: Assistant Vice President
with a copy to:
William G. Rock, Esq.
Shipman & Goodwin
One American Row
Hartford, CT 06103
<PAGE>
with a copy to:
Shustak Jalil & 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
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
999 West Street AUTHORITY, AS BANK
Rocky Hill, CT 06067
Telecopy No.:
(860) 258-7866 By:
------------------------------
Name: Patti A. Champagne
Title: Assistant Vice President
with a copy to:
William G. Rock, Esq.
Shipman & Goodwin
One American Row
Hartford, CT 06103
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE AUDITED CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1997 AND THE AUDITED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 238
<SECURITIES> 0
<RECEIVABLES> 6,453
<ALLOWANCES> 900
<INVENTORY> 8,365
<CURRENT-ASSETS> 14,875
<PP&E> 8,241
<DEPRECIATION> 6,214
<TOTAL-ASSETS> 22,722
<CURRENT-LIABILITIES> 19,261
<BONDS> 9,965
4,610
0
<COMMON> 989
<OTHER-SE> (12,103)
<TOTAL-LIABILITY-AND-EQUITY> 22,722
<SALES> 47,743
<TOTAL-REVENUES> 47,743
<CGS> 40,335
<TOTAL-COSTS> 40,335
<OTHER-EXPENSES> 11,332
<LOSS-PROVISION> 730
<INTEREST-EXPENSE> 1,514
<INCOME-PRETAX> (6,168)
<INCOME-TAX> 36
<INCOME-CONTINUING> (6,204)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,204)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
