UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 1, 1996
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 1-8509
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NANTUCKET INDUSTRIES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-0962699
- -------- ----------
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
105 Madison Avenue, New York, New York 10016
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212)889-5656
-------------
(Registrant's telephone number, including area code)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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 twelve 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 ninety days. X YES NO
----- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of July 2, 1996, the
Registrant had outstanding 2,988,796 shares of common stock not including 3,052
shares classified as Treasury Stock.
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------
QUARTERLY REPORT
----------------
QUARTER ENDED JUNE 1, 1996
--------------------------
I N D E X
---------
PAGE
----
Part I.- FINANCIAL INFORMATION
----------------------
Consolidated balance sheets 3
Consolidated statements of operations 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6 - 8
Management's discussion and analysis of
financial condition and results of operations 9 - 10
Part II.- OTHER INFORMATION 11
-----------------
Signature 12
2
<PAGE>
NANTUCKET INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 1, March 2,
1996 1996
--------------- ------------
(unaudited) (1)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $15,085 $15,085
Accounts receivable, less allowance for
doubtful accounts of $70,000 and $40,000,
respectively 4,081,638 4,417,033
Inventories (Note 2) 9,207,688 10,156,639
Other current assets 805,225 729,145
--------------- ---------------
Total current assets 14,109,636 15,317,902
PROPERTY, PLANT AND EQUIPMENT - NET 3,358,903 3,498,825
OTHER ASSETS,NET 35,806 38,413
--------------- ---------------
$17,504,345 $18,855,140
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 6) $1,170,000 $1,275,000
Accounts payable 1,297,384 1,721,852
Accrued salaries and employee benefits 511,406 383,595
Accrued unusual charge (Note 5) 465,000 465,000
Accrued expenses and other liabilities 382,584 392,789
Accrued royalties 230,402 249,792
Income taxes payable 1,909 2,934
--------------- ----------------
Total current liabilities 4,058,685 4,490,962
LONG-TERM DEBT (Note 6) 8,672,664 8,428,782
ACCRUED UNUSUAL CHARGE (Note 5) 576,878 678,879
--------------- ----------------
13,308,227 13,598,623
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 4)
Preferred stock, $.10 par value; 500,000 shares authorized,
of which 5,000 shares have been designated as non-voting
convertible and are issued and outstanding 500 500
Common stock, $.10 par value; authorized
6,000,000 shares; issued 2,991,848 299,185 299,185
Additional paid-in capital 11,556,386 11,556,386
Accumulated deficit (7,640,016) (6,579,617)
--------------- ----------------
4,216,055 5,276,454
Less 3,052 shares at June 1, 1996 and 3,052 at March 2, 1996
of common stock held in treasury, at cost 19,937 19,937
--------------- ----------------
4,196,118 5,256,517
--------------- ----------------
$17,504,345 $18,855,140
=============== ================
</TABLE>
(1) Derived from audited financial statements
The accompanying notes are an integral part of these statements.
3
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Weeks Ended
----------------------------
June 1, May 27,
1996 1995
------------- ------------
Net sales $6,687,913 $10,492,736
Cost of sales 5,711,140 7,886,142
------------ ------------
Gross profit 976,773 2,606,594
Selling, general and administrative
expenses 1,765,483 2,019,026
------------ ------------
Operating (loss) profit (788,710) 587,568
Interest expense 271,689 331,326
------------ ------------
Net (loss) income (1,060,399) 256,242
============ ============
Net (loss) income per share ($0.36) $0.09
============ ============
Weighted average common shares outstanding 2,988,796 2,981,296
=========== ============
The accompanying notes are an integral part of these statements.
4
<PAGE>
Nantucket Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------
June 1, May 27,
1996 1995
--------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income ($1,060,399) $256,241
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operating activities
Depreciation and amortization 76,218 91,898
Provision for doubtful accounts 30,000 30,000
Provision for obsolete and slow moving inventory 235,000 60,000
Decrease (increase) in assets
Accounts receivable 365,484 (732,755)
Inventories 713,951 197,801
Other current assets (76,080) (38,219)
(Decrease) increase in liabilities
Accounts payable (424,467) 185,515
Accrued expenses and other liabilities 98,216 (311,591)
Income taxes payable (1,026) -
Accrued unusual charge (102,001) (98,788)
--------------- -------------
Net cash used in operating activities (145,104) (359,898)
--------------- -------------
Cash flows from investing activities
Removals (additions) to property, plant and equipment 3,615 (44,799)
Decrease in other assets 2,607 31,850
--------------- -------------
Net cash provided by (used in) investing activities 6,222 (12,949)
--------------- -------------
Cash flows from financing activities
Payments of short-term debt (160,000) -
Borrowings under line of credit agreement, net 298,882 372,647
--------------- -------------
Net cash provided by financing activities 138,882 372,647
--------------- -------------
NET DECREASE IN CASH 0 ($200)
Cash at beginning of period 15,085 32,049
--------------- -------------
Cash at end of period $15,085 $31,849
=============== =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period:
Interest $165,884 $302,911
=============== =============
Income taxes - -
=============== =============
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
NANTUCKET INDUSTRIES, INC.
--------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THIRTEEN WEEKS ENDED JUNE 1, 1996 AND MAY 27, 1995
--------------------------------------------------
(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of June 1, 1996 and the consolidated
statements of operations and statements of cash flows for the thirteen
weeks ended June 1, 1996 and May 27, 1995 have been prepared by the
Company without audit. In the opinion of management, all adjustments
necessary for a fair presentation of the financial position of the Company
and its subsidiaries at June 1, 1996 and the results of their operations
and cash flows for the thirteen weeks ended June 1, 1996 and May 27, 1995
have been made on a consistent basis.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
Inventories are summarized as follows:
June 1, May 27,
1996 1995
-------------- --------------
Raw materials $ 1,252,006 $ 1,812,761
Work in process 3,993,808 5,449,009
Finished goods 3,961,874 3,464,625
------------ ------------
$ 9,207,688 $ 10,726,395
------------- -------------
6
<PAGE>
NANTUCKET INDUSTRIES, INC.
--------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THIRTEEN WEEKS ENDED JUNE 1, 1996 AND MAY 27, 1995
--------------------------------------------------
(continued)
(unaudited)
3. INCOME TAXES
At June 1, 1996 the Company had a net deferred tax asset in excess of
$5,500,000 which is fully reserved until it can be utilized to offset
deferred tax liabilities or realized against taxable income. The Company
had a net operating loss carryforward for book and tax purposes of
approximately $12,000,000. Accordingly, no provision for income taxes has
been reflected in the accompanying financial statements. Certain tax
regulations relating to the change in ownership may limit the Company's
ability to utilize it's net operating loss caryforward if the ownership
change, as computed under such regulations, exceeds 50%. Through June, 1996
the change in ownership was approximately 40%.
4. STOCKHOLDERS' EQUITY
On March 22, 1994, the Company sold to its Management Group 5,000 shares of
non-voting convertible preferred stock for $1,000,000. These shares are
convertible into 200,000 shares of common stock at the rate of $5.00 per
share. These shares provide for cumulative dividends at a floating rate
equal to the prime rate and approximate $ 180,000 at June 1, 1996. Such
dividends are convertible into common stock at the rate of $5.00 per share.
These preferred shares are redeemable, at the option of the Company, on or
after February 28, 1999 and have a liquidation preference of $200 per
share.
In connection with the Company's refinancing on March 22, 1994, the Company
entered into a $2,000,000 Term Loan Agreement with Chemical Bank. Pursuant
to the agreement, the Company issued to Chemical Bank 10,000 treasury
common shares, 7,500 in the fiscal year ended March 2, 1996 and 2,500 in
the fiscal year ended February 25, 1995, related to its decision to defer
making mandatory prepayments.
5. UNUSUAL CHARGE
In March, 1994, the Company terminated the employment contracts of its
Chairman and Vice Chairman. In accordance with the underlying agreement,
they will be paid an aggregate of approximately $400,000 per year in
severance, as well as certain other benefits, through February 28, 1999.
The present value of these payments, $1,915,000, was accrued at February
26, 1994. Through June 1, 1996, $872,000 of this accrual has been paid;
$770,000 through March 2, 1996 and $102,000 in the current fiscal year
through June 1, 1996
7
<PAGE>
6. CREDIT AGREEMENT AMENDMENT
As of May 31, 1996, the Company amended its Loan and Security Agreement
with Congress Financial Corporation dated March 24, 1994. This amendment
provided (a) $ 251,000 in additional equipment term loan financing, (b)
extension of the repayment period for all outstanding equipment term loans,
(c) supplemental revolving loan availability from March 1st through June
30th of each year and (d) the extension of the agreement through March 20,
1998. Renewal date to March 20, 1998.
7. Private Placement
In April, 1996 the Company signed a letter of intent for a $3.5 Million
private placement consisting of 250,000 shares of common stock and $
2,625,000 of 12.5% convertible subordinated debentures due August 31, 1996.
The debentures would be secured by a second mortgage on the Company's
manufacturing and distribution facility in Georgia and are convertible into
467,167 shares of common stock in specified amounts after specified dates
at prices ranging from $5.10 to $6.00. On June 25, 1996 the Company
discontinued negotiations and commenced discussions with a new investor
group. Upon completion of this transaction, the net proceeds will be used
to prepay the balance payable to Chemical Bank. Accordingly, the entire
balance is included in current liabilities. The remaining net proceeds will
be used to reduce the outstanding balance with Congress.
8
<PAGE>
NANTUCKET INDUSTRIES, INC.
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Sales
Net sales for the three months ended June 1, 1996 decreased 36% from prior year
levels to $6,688,000. This decline reflects the planned inventory reductions by
the Company's major customer in anticipation of the second fiscal quarter
introduction of Brittania by Levi's with initial shipments of significant orders
expected at the end of July, 1996. Sales of GUESS? products increased 34% over
prior year levels as retailers made available space for introductions of the
new GUESS? Essentials line which began selling at retail in June, 1996.
Gross Margin
Gross profit margins decreased from prior year levels of 25% to 15%. This
decline is a result of increased manufacturing variances associated with
additional processing costs of imported garments coupled with the impact of
close-out sales in the GUESS? division during the first quarter. Losses
associated with these sales were reserved for in the fourth quarter of the prior
fiscal year.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased 12% to $1,765,000
compared to $2,019,000 for the first quarter of the prior year. The decrease of
$254,000 is primarily the result of a reduction in variable selling costs
related to the changes in net sales. Selling, general and administrative
expenses increased to 26% of sales of the prior year's level of 19% reflecting
the fixed components of these expenses.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
- -------------------------------
In March, 1994 the Company was successful in refinancing its credit agreements
with (i) a three year $15,000,000 revolving credit facility, including a
$3,000,000 letter of credit facility, with Congress Financial, (ii) a $2,000,000
Term Loan Agreement with Chemical Bank and (iii) an additional $1,500,000 Term
Loan with Congress replacing the Industrial Revenue Bond financing of the
Cartersville, Georgia manufacturing plant. Additionally, the $1,000,000
investment in the Company by the Management Group and the sale of 490,000 shares
of common treasury stock to GUESS?, Inc. and certain of its affiliates increased
the Company's liquidity and capital resources. The net proceeds of $2.9 million
from the sale of treasury shares was used to prepay $500,000 of bank debt and
the balance provided additional working capital resources.
Under the terms of the $2,000,000 Term Loan Agreement with Chemical Bank,
scheduled installments of $500,000 each were due on December 15, 1995 and March
15, 1996. As of December 15, 1995 the Company agreed to an amendment providing
for payments of $100,000 each on December 31, 1995 and January 31, 1996, with
the remaining $800,000 to be paid in 15 equal installments which commenced March
31, 1996.
The Company believes that the credit facility provides adequate financing
flexibility to fund its operations at current levels. The company is seeking
additional funding to finance its expected growth.
Working capital decreased $828,000 from year-end levels to $9,998,000. This
decrease is primarily due to a $949,000 decline in inventory levels resulting
from close-out sales. A decrease in accounts receivable was offset by a
decrease in accounts payable.
The Company believes that the moderate rate of inflation over the past few years
has not had significant impact on sales or profitability.
10
<PAGE>
PART II
--------
Item 1. Legal Proceedings
- --------------------------
None
Item 2. Changes in Securities
- ------------------------------
None
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 5. Other Information
- --------------------------
As of May 31, 1996, the Company amended its Loan and Security Agreement
with Congress Financial Corporation dated March 24, 1994. This amendment
provided (a) $ 251,000 in additional equipment term loan financing, (b)
extension of the repayment period for all outstanding equipment term loans,
(c) supplemental revolving loan availability from March 1st through June
30th of each year and (d) the extension of the agreement through March 20,
1998. Renewal date to March 20, 1998.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(c) Exhibits
(10)(ii)(1) Amendment dated May 31, 1996 to the Loan and Filed Herewith
Security Agreement with Congress Financial Corporation
dated March 24, 1994.
(27) Financial Data Schedule for 3 months period ending
June 1, 1996.
(b) Reports on Form 10K None
11
<PAGE>
SIGNATURE
---------
Pursuant to the requirements 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.
NANTUCKET INDUSTRIES, INC.
(Registrant)
By: /s/ Ronald S. Hoffman
----------------------
(Chief Accounting Officer)
Vice President - Finance
July 12, 1996
12
Exhibit 10(ii)1
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
NANTUCKET INDUSTRIES, INC.
105 Madison Avenue
New York, New York 10016
May 31, 1996
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Gentlemen:
Congress Financial Corporation ("Lender") and Nantucket Industries, Inc.
("Borrower") have entered into certain financing arrangements pursuant to which
Lender may make loans and advances and provide other financial accommodations to
Borrower as set forth in the Loan and Security Agreement, dated March 21, 1994,
between Lender and Borrower (as amended hereby and as the same may hereafter be
further amended, modified, supplemented, extended, renewed, restated or
replaced, the "Loan Agreement," and together with all agreements, documents and
instruments at any time executed and/or delivered in connection therewith or
related thereto, collectively, the "Financing Agreements").
Borrower has requested that Lender (a) make an additional advance to
Borrower in the principal amount of $236,167 and agree to amend and restate the
terms of Term Loan A (as hereinafter defined), (b) make an additional advance to
Borrower in the principal amount of $15,000 and agree to amend and restate the
terms of a Purchase Money Term Loan made by Lender to Borrower on July 22, 1994,
(c) make supplemental revolving loans to Borrower from March 1 through June 30
during each calendar year, (d) increase the advance rate from forty (40%)
percent to fifty (50%) with respect to the Value of Eligible Inventory
consisting of unpackaged finished goods, (e) increase the amount of the sublimit
of Revolving Loans with respect to Eligible Inventory from $7,000,000 to
$7,500,000, and (f) extend the Renewal Date for one (1) year. Lender is willing
to agree to the foregoing, subject to the terms and conditions contained herein.
In consideration of the foregoing, the respective agreements and covenants
contained herein, and other good and valuable consideration, the adequacy and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
1. Definitions.
-----------
(a) Additional Definitions. As used herein, the following terms
----------------------
shall have the respective meanings given to them below and the Loan Agreement
shall be deemed and is hereby amended to include, in addition and not in
limitation, each of the following definitions:
(i) "Amended Purchase Money Note One" shall mean the Amended
-------------------------------
and Restated Purchase Money Term Promissory Note, dated of even date herewith,
made by Borrower payable to Lender in the original principal amount of $157,500,
as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
(ii) "First Amended Term Note A" shall mean the First Amended
-------------------------
and Restated Term Promissory Note A, dated of even date herewith, made by
Borrower payable to Lender in the original principal amount of $442,500, as the
same now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(iii) "Purchase Money Loan One" shall mean the Purchase Money
-----------------------
Term Loan made by Lender to Borrower evidenced by the Purchase Money Term Note
One.
(iv) "Purchase Money Note One" shall mean the Purchase Money
-----------------------
Term Promissory Note, dated July 22, 1994, by Borrower payable to Lender in the
original principal amount of $225,000, as in effect immediately prior to the
effective date hereof.
(v) "Term Note A" shall mean the Term Promissory Note, dated
-----------
as of March 21, 1994, made by Borrower payable to Lender in the original
principal amount of $650,000, as in effect immediately prior to the effective
date hereof.
(vi) "Supplemental Loans" shall mean the loans hereafter made
------------------
by Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 6(a) hereof.
(vii) "Supplemental Loan Period" shall mean, as to any
------------------------
applicable calendar year, the period commencing on March 1 of such calendar year
and ending on June 30 of the same such calendar year, beginning with the
calendar year 1996 and each calendar year thereafter during the effectiveness of
this Agreement and the other Financing Agreements.
- 2 -
<PAGE>
(b) Amendments to Definitions.
-------------------------
(i) All references to the term "Loans" herein and in the Loan
Agreement and the other Financing Agreements shall be deemed and each such
reference is hereby amended to include the Supplemental Loans as defined herein
and the Purchase Money Term Loans.
(ii) All references to the term "Obligations" herein and in the
Loan Agreement and the other Financing Agreements shall be deemed and each such
reference is hereby amended to include the Supplemental Loans as defined herein
and the Purchase Money Term Loans.
(iii) All references to the term "Purchase Money Term Loans"
herein and in the Loan Agreement and the other Financing Agreements shall be
deemed and each such reference is hereby amended to include, without limitation,
the outstanding Obligations owed to Lender by Borrower consisting of the
indebtedness evidenced by the Amended Purchase Money Note One.
(iv) All references to the term "Term Loan A" herein and in the
Loan Agreement and the other Financing Agreements shall be deemed and each such
reference is hereby amended to mean the outstanding Obligations owed to Lender
by Borrower consisting of the indebtedness evidenced by the First Amended Term
Note A.
(v) All references to the term "Prime Rate" herein and in the
Loan Agreement and the other Financing Agreements shall be deemed and each such
reference is hereby amended to mean the rate from time to time publicly
announced by Core States Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
(c) Interpretations. For purposes of this Amendment, unless
---------------
otherwise defined herein, all terms used herein, including, but not limited to,
those terms used and/or defined above, shall have the respective meanings
assigned to such terms in the Loan Agreement.
2. Term Loan A.
-----------
(a) Borrower hereby acknowledges, confirms and agrees that as of May
31, 1996, Borrower is indebted to Lender for the Obligations in respect of Term
Loan A in the principal amount of $206,333, plus accrued fees and interest
thereon. On the date hereof, subject to the terms and conditions contained
herein, Lender is making an additional advance to Borrower in the amount of
$236,167. Such advance shall, together with the amount outstanding in respect
of Term Loan A immediately prior thereto,
- 3 -
<PAGE>
constitute Term Loan A, which shall be in the original principal amount of
$442,500.
(b) The terms of the indebtedness of Borrower to Lender arising
pursuant to Term Loan A, including the additional advance by Lender to Borrower
described in Section 2(a) hereof, are hereby amended and restated as set forth
in the First Amended Term Note A. The terms of Term Loan A (including the
additional advance described in Section 2(a) hereof) shall be as set forth in
the First Amended Term Note A and the existing indebtedness arising pursuant to
Term Loan A, together with the additional advance by Lender to Borrower
described in Section 2(a) hereof, shall be evidenced thereby and shall together
constitute Term Loan A as such term is used herein and in the Loan Agreement and
the other Financing Agreements. Term Loan A shall be (i) evidenced by the First
Amended Term Note A executed and delivered by Borrower to Lender concurrently
herewith, (ii) repaid, together with interest and other amounts due thereunder,
in accordance with the terms and provisions of the First Amended Term Note A,
the Loan Agreement and the other Financing Agreements, and (iii) secured by all
of the Collateral. Borrower may not reborrow any principal amounts repaid in
respect of Term Loan A.
(c) The amendment and restatement contained herein and in the First
Amended Term Note A, shall not, in any manner, be construed to constitute
payment of, or impair, limit, cancel or extinguish, or constitute a novation in
respect of, any of the Obligations evidenced by or arising under the Financing
Agreements, and the liens and security interests securing such Obligations shall
not in any manner be impaired, limited, terminated, waived or released.
3. Purchase Money Loan One.
-----------------------
(a) Borrower hereby acknowledges, confirms and agrees that as of May
31, 1996, Borrower is indebted to Lender for the Obligations in respect of
Purchase Money Loan One in the principal amount of $142,500, plus accrued fees
and interest thereon. On the date hereof, subject to the terms and conditions
contained herein, Lender is making an additional advance to Borrower in the
amount of $15,000. Such advance shall, together with the amount outstanding in
respect of Purchase Money Loan One immediately prior thereto, constitute
Purchase Money Loan One which shall be in the original principal amount of
$157,500.
(b) The terms of the indebtedness of Borrower to Lender arising
pursuant to Purchase Money Loan One, including the additional advance by Lender
to Borrower described in Section
- 4 -
<PAGE>
3(a) hereof, are hereby amended and restated as set forth in the Amended
Purchase Money Note One. The terms of Purchase Money Loan One (including the
additional advance described in Section 3(a) hereof) shall be as set forth in
the Amended Purchase Money Note One and the existing indebtedness arising
pursuant to Purchase Money Loan One, together with the additional advance by
Lender to Borrower described in Section 3(a) hereof, shall be evidenced thereby
and shall together constitute Purchase Money Loan One as such term is used
herein and in the Loan Agreement and the other Financing Agreements. Purchase
Money Loan One shall be (i) evidenced by the Amended Purchase Money Note One
executed and delivered by Borrower to Lender concurrently herewith, (ii) repaid,
together with interest and other amounts due thereunder, in accordance with the
terms and provisions of the Amended Purchase Money Note No. One, the Loan
Agreement and the other Financing Agreements, and (iii) secured by all of the
Collateral. Borrower may not reborrow any principal amounts repaid in respect
of Purchase Money Loan One.
(c) The amendment and restatement contained herein and in the Amended
Purchase Money Note One shall not, in any manner, be construed to constitute
payment of, or impair, limit, cancel or extinguish, or constitute a novation in
respect of, any of the Obligations evidenced by or arising under the Financing
Agreements, and the liens and security interests securing such Obligations shall
not in any manner be impaired, limited, terminated, waived or released.
4. Acknowledgment by Guarantor. Guarantor hereby acknowledges, confirms
---------------------------
and agrees that the Guarantee, dated March 21, 1994, by Guarantor in favor of
Lender (the "Guarantee"), guaranteeing the payment and performance of all
Obligations of Borrower is in full force and effect as of the date hereof, and
the "Guaranteed Obligations" (as such term is defined in the Guarantee) shall
extend to and cover Term Loan A and Purchase Money Loan One as the terms thereof
are amended and restated as set forth in Sections 2 and 3 hereof, respectively.
The Guaranteed Obligations are unconditionally owed to Lender, without offset,
defense or counterclaim of any kind, nature or description whatsoever and the
Guarantee in favor of Lender shall continue to be in full force and effect from
and after the date hereof.
5. Revolving Loans. Section 2.1(a)(ii) of the Loan Agreement is hereby
---------------
deleted in its entirety and replaced with the following:
"(ii) the lesser of: (A) the sum of (1) sixty (60%) percent of
the Value of Eligible Inventory consisting of packaged finished goods
and greige goods (including legwear) plus (2) fifty (50%) percent of
----
the Value of Eligible Inventory consisting of raw materials, dyed
piece goods and unlabelled waist bands, yarn and fabric plus (3) fifty
----
(50%) percent of the Value of Eligible Inventory consisting of
unpackaged
- 5 -
<PAGE>
finished goods or (B) the amount equal to $7,500,000, less"
----
6. Supplemental Loans.
------------------
(a) In addition to the Revolving Loans that Lender may make to
Borrower pursuant to Section 2.1(a) of the Loan Agreement, upon the request of
Borrower made at any time during the Supplemental Loan Period, and subject to
and upon the terms and conditions contained herein and in the Loan Agreement and
the other Financing Agreements, Lender agrees, in its good faith discretion, to
make Supplemental Loans to Borrower from time to time during the Supplemental
Loan Period in amounts requested by Borrower that would otherwise be available
to Borrower under Sections 2.1(a)(ii)(A)(1) and (3) of the Loan Agreement of up
to ten (10%) percent of the Value of Eligible Inventory consisting of (i)
packaged finished goods and (ii) unpackaged finished goods, respectively, as
calculated by Lender and subject to the sublimit set forth in Section
2.1(a)(ii)(B) of the Loan Agreement and Lender's right to establish Availability
Reserves.
(b) Except in Lender's sole discretion, Borrower shall not have any
right to request, and Lender shall not make, any Supplemental Loans at any time
other than during the Supplemental Loan Period. The Supplemental Loans shall be
secured by all the Collateral. Notwithstanding anything to the contrary
contained herein or in the Loan Agreement or the other Financing Agreements, all
Supplemental Loans shall be payable ON DEMAND. In any event, unless sooner
demanded by Lender, all outstanding and unpaid Obligations arising pursuant to
the Supplemental Loans during any applicable Supplemental Loan Period
(including, without limitation, principal, interest, fees, costs, expenses and
other charges in respect thereof payable by Borrower to Lender), shall
automatically, without notice or demand, be absolutely and unconditionally due
and payable and Borrower shall pay to Lender in immediately available funds all
such Obligations on June 30 of each Supplemental Loan Period. Interest shall
accrue and be due, until and including the next business day, if the amount so
paid by Borrower to the Blocked Account is received no later than 11:00 a.m.,
New York City time.
7. Letter of Credit Accommodations. Section 2.2(c) of the Loan Agreement
-------------------------------
is hereby deleted in its entirety and replaced with the following:
"(c) No Letter of Credit Accommodations shall be available unless
on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to
the Maximum Credit and any Availability Reserves) are equal to or
greater than: (i) if the proposed Letter of Credit Accommodations is
for the purpose of purchasing
- 6 -
<PAGE>
Eligible Inventory, the sum of (A) the percentage equal to one hundred
(100%) percent minus the applicable percentage set forth in Section
2.1(a)(ii)(A) hereof with respect to the category of Eligible Inventory
being so purchased, plus (B) freight, taxes, duty and other amounts which
Lender estimates must be paid in connection with such Inventory upon
arrival and for delivery to one of Borrower's locations for Eligible
Inventory within the United States of America and (ii) if the proposed
Letter of Credit Accommodation is for any other purpose, an amount equal to
one hundred (100%) percent of the face amount thereof and all other
commitments and obligations made or incurred by Lender with respect
thereto. Effective on the issuance of each Letter of Credit Accommodation,
the amount of Revolving Loans which might otherwise be available to
Borrower shall be reduced by the applicable amount set forth in Section
2.2(c)(i) or Section 2.2(c)(ii) hereof."
8. Term.
----
(a) The first sentence of Section 12.1(a) of the Loan Agreement is
hereby deleted in its entirety and replaced with the following sentence:
"This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on March 20, 1998
(the "Renewal Date"), and from year to year thereafter, unless sooner
terminated pursuant to the terms hereof."
(b) Section 12.1(e)(iii) is hereby deleted in its entirety and
replaced with the following:
"(iii) eighty-three March 22, 1996
hundredths (.83%) to and
percent of the Maximum including
Credit March 20, 1998."
9. Additional Representations and Warranties. Each of Borrower and
-----------------------------------------
Guarantor represents, warrants and covenants with and to Lender as follows,
which representations, warranties and covenants are continuing and shall survive
the execution and delivery hereof, and the truth and accuracy of, or compliance
with each, together with the representations, warranties and covenants in the
other Financing Agreements, being a continuing condition of the making of Loans
by Lender to Borrower:
(a) The failure of Borrower to comply with the covenants, conditions
and agreements contained herein or in any
- 7 -
<PAGE>
other agreement, document or instrument at any time executed and/or delivered by
Borrower with, to or in favor of Lender shall constitute an Event of Default
under the Financing Agreements.
(b) No Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default exists or has
occurred as of the date of this Amendment (after giving effect to the amendments
to the Financing Agreements made by this Amendment).
(c) Each of this Amendment, the First Amended Term Note A and the
Amended Purchase Money Term Note One has been duly executed and delivered by
Borrower and/or Guarantor, as the case may be, and is in full force and effect
as of the date hereof and the agreements and obligations of Borrower and
Guarantor contained herein constitute legal, valid and binding obligations of
Borrower and Guarantor enforceable against Borrower and Guarantor in accordance
with their respective terms.
10. Conditions to Effectiveness of Amendment. The effectiveness of the
----------------------------------------
other provisions of this Amendment shall be subject to the satisfaction of each
of the following additional conditions precedent:
(a) Lender shall have received, in form and substance satisfactory to
Lender, (i) an executed original or executed original counterparts of this
Amendment, as the case may be, (ii) an executed original of the First Amended
Term Note A, and (iii) an executed original of the Amended Purchase Money Term
Note One;
(b) all requisite corporate action and proceedings in connection with
this Amendment shall be in form and substance satisfactory to Lender, and Lender
shall have received all information and copies of all documents, including,
without limitations, records of requisite corporate action and proceedings which
Lender may have reasonably requested in connection therewith, such documents
where requested by Lender or its counsel to be certified by appropriate
corporate officers or governmental authorities; and
(c) no Event of Default shall exist or have occurred and no event
shall have occurred or exist which with notice or passage of time or both would
constitute an Event of Default.
11. Effect of this Amendment. Except as modified pursuant hereto, no
------------------------
other changes or modifications to the Financing Arrangements are intended or
implied and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this
- 8 -
<PAGE>
Amendment shall control. The Loan Agreement and this Amendment shall be read
and construed as one agreement.
12. Further Assurances. The parties hereto shall execute and deliver such
------------------
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Amendment.
13. Governing Law. The validity, interpretation and enforcement of this
-------------
Amendment and any dispute arising out of the relationship between the parties
hereto in connection with this Amendment, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
14. Binding Effect. This Amendment shall be binding upon and inure to the
--------------
benefit of each of the parties hereto and their respective successors and
assigns.
15. Counterparts. This Amendment may be executed in any number of
------------
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
Please sign the enclosed counterpart of this Amendment in the space
provided below whereupon this Amendment as so accepted by Lender, shall become a
binding agreement between Borrower and Lender.
Very truly yours,
NANTUCKET INDUSTRIES, INC.
By: /s/ Steve Sawberg
--------------------------
Title: Chairman
-----------------------
ACKNOWLEDGED:
NANTUCKET MILLS, INC.
By: /s/ Steve Sawberg
---------------------------
Title: Chairman
------------------------
AGREED:
CONGRESS FINANCIAL CORPORATION
By /s/ Daniel Marisca
---------------------------
Title: Assistant V.P.
------------------------
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE STATEMENTS DATED JUNE 1,
1996 AS FILED IN FORM 10-Q FOR THE QUARTERLY PERIOD THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-2-1996
<PERIOD-END> JUN-1-1996
<CASH> 15,085
<SECURITIES> 5,335
<RECEIVABLES> 4,151,638
<ALLOWANCES> 70,000
<INVENTORY> 9,207,688
<CURRENT-ASSETS> 14,109,636
<PP&E> 7,378,648
<DEPRECIATION> 4,019,745
<TOTAL-ASSETS> 17,504,345
<CURRENT-LIABILITIES> 4,058,685
<BONDS> 0
0
500
<COMMON> 299,185
<OTHER-SE> 3,896,433
<TOTAL-LIABILITY-AND-EQUITY> 17,504,345
<SALES> 6,687,913
<TOTAL-REVENUES> 6,687,913
<CGS> 5,711,140
<TOTAL-COSTS> 5,711,140
<OTHER-EXPENSES> 1,765,483
<LOSS-PROVISION> 235,000
<INTEREST-EXPENSE> 271,689
<INCOME-PRETAX> (1,060,399)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,060,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,060,399)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
