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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No. 0-14674
November 30, 1995
ANDOVER TOGS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 13-5677957
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(State or other jurisdic- (IRS Employer
tion of incorporation or Identification Number)
organization)
1333 Broadway, New York, New York 10018
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 244-0700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, $.10 par value
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 [ ] No [X]
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 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. [ ]
The aggregate market value at August 8, 1997 of shares of the
Registrant's Common Stock, $.10 par value (based upon the mean between the bid
and asked price of such stock as reflected in the over-the-counter market on
such date), held by non-affiliates of the Registrant was approximately $765,865.
Solely for the purposes of this calculation, shares held by directors and
officers of the Registrant have been excluded. Such exclusion should not be
deemed a determination or an admission by the Registrant that such individuals
are, in fact, affiliates of the Registrant.
Indicate by checkmark 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 [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At August 8, 1997,
there were outstanding 4,470,815 shares of the Registrant's Common Stock, $.10
par value.
Documents Incorporated by Reference: None
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ANDOVER TOGS, INC.
INDEX TO FORM 10-K
ITEM NUMBER PAGE
- ----------- ----
PART I
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 7
Item 3. Legal Proceedings................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.............. 8
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.............................. 9
Item 6. Selected Financial Data..........................................11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................12
Item 7A. Quantitative and Qualitative Disclosure About Market Risk........16
Item 8. Financial Statements and Supplementary Data......................16
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure......................16
PART III
Item 10. Directors and Executive Officers of the Registrant...............17
Item 11. Executive Compensation...........................................20
Item 12. Security Ownership of Certain Beneficial Owners and Management...24
Item 13. Certain Relationships and Related Transactions...................28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..29
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PART I
ITEM 1. BUSINESS.
Proceedings in Bankruptcy
In the year ended November 30, 1995, the Company sustained a loss of
$4,279,000. The loss caused the Company to cease to be in compliance with many
of the financial covenants in its various credit agreements, resulting in
defaults under those agreements. Negotiations with the Company's lenders to
obtain waivers in connection with such defaults were unsuccessful. Negotiations
with such lenders and other prospective lenders to obtain more permanent
financing facilities were also unsuccessful. As a result of the ensuing severe
liquidity crisis, on March 19, 1996, the Company filed for protection under
Chapter 11, Title 11 of the United States Code ("Bankruptcy Code"). The
Company's shares of Common Stock were removed from listing on the NASDAQ
National Market and now trade in the over-the-counter market in what are
commonly referred to as the "pink sheets."
The deterioration of the Company's business occurred over a period of
years and resulted from a number of factors, principally the following:
The Company's customer base deteriorated as a result of an extremely
weak retail environment, a consolidation among retailers and severe
financial instability in the retail community.
The Company experienced continuing erosion of margins due to pressure
from customers and competitors. Competition from imports had a severe
impact on the Company's commodity or base products.
With excess domestic manufacturing capacity, the Company accepted some
low margin business in order to keep its manufacturing facilities busy
and maintain market share.
In February 1995, the Company acquired certain assets of Dobie
Industries, Inc. ("Dobie"), a manufacturer of childrens and ladies
apparel. Substantial difficulties were encountered in implementing the
acquisition. The Company phased out its ladies apparel division and was
not successful in expanding its business with Dobie's former customers.
A loss of $3,195,000 in the fourth quarter of fiscal 1995 included sales
allowances and markdowns attributable to the Dobie business and an
$832,000 write-off of cost in excess of net assets acquired from Dobie.
The filing for protection under the Bankruptcy Code itself exacerbated
the Company's problems by reducing customer confidence.
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The Company obtained debtor-in-possession financing and conducted
operations as a debtor-in-possession from March 19, 1996 to May 12, 1997 when it
emerged from bankruptcy. During that period, the Company reorganized its
business in a number of significant respects, including the following:
An approximately 200,000 square foot leased facility in Scottsboro,
Alabama used for finishing, warehousing, distribution and office space
has been closed. A 65,300 square foot leased facility in Springdale,
North Carolina, previously used for sewing, finishing, warehouse and
distribution, has also been closed. A 15,000 square foot owned facility
in Stevenson, Alabama used for sewing has been closed and is being held
for sale. Prior to the bankruptcy proceedings, in early 1996, the
Company had closed a sewing facility located in Pisgah, Alabama. Many of
the operations previously conducted at Scottsboro, Springdale and
Stevenson have been consolidated at the Company's remaining facilities
in Pisgah, Alabama or New York City, and many of the operations
conducted in those facilities are or will be contracted out to
unaffiliated manufacturers. (See "Item 2. Properties," for a fuller
description of the foregoing facilities).
The Company moved its executive offices and showrooms from a 34,500
square foot space located at One Penn Plaza, leased at an annual cost
ranging from $766,000 to $932,200 to a 15,700 square foot space at 1333
Broadway, leased at an annual cost ranging from $224,000 to $267,000.
Historically, the Company's products were manufactured in girls' sizes
infant through 14 and boys' sizes infant through 20. The Company
discontinued its big boys and import division leaving it with girls'
sizes infant through 14 and boys' sizes infant through toddler. In
addition, historically, products were primarily manufactured in the
Company's domestic facilities and in the Company's facilities in the
Dominican Republic. In addition, some items were imported or
manufactured by outside contractors. During the bankruptcy proceedings,
the Company's import division was discontinued and greater reliance is
being placed on the Company's facilities in the Dominican Republic and
on outside contractors. In fiscal 1997, the Company commenced the
design, manufacture and sale of girls' nightshirts. The Company has also
entered the business of designing and marketing big boys' sportswear and
entered the business of manufacturing and marketing girls' slips and
marketing girls' underwear.
Prior to the bankruptcy filing, the Company had 1155 employees. The
Company currently has approximately 420 employees.
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Senior management has been reorganized. William L. Cohen continues as
Chairman and Chief Executive Officer and has had his duties expanded to
include sales and merchandising administration. Alan Kanis continues as
Chief Financial Officer. Stephen L. Fenyves, Senior Vice President,
previously in charge of administration, has had his duties expanded to
include administration, manufacturing and sourcing. Finally, Harold
Drachman, formerly Vice President, Sales, left the Company as of July 1,
1996.
For the year ended November 30, 1996, the Company had net sales of
$43,057,300, compared with $80,552,300 in the fiscal year ended November 30,
1995, and a loss of $9,811,900 compared to a loss of $4,278,600 in the prior
year. Included in the loss for the fiscal year ended November 30, 1996 were
restructuring costs of approximately $6,375,000 consisting of professional fees
of $2,448,000, the write off of property and equipment relating to facility
closings and moving of $1,908,000, accrual of the lease rejection claim for the
office space at One Penn Plaza of $1,000,000 and $1,019,000 representing
severance pay, termination of employment agreements and various other claims.
Also included in such loss were interest expense of $992,000, which included
financing and facility fees of $385,000.
In February 1997, property, plant, equipment having a book value of
approximately $2,261,000 and restricted cash of $360,000 relating to the
Scottsboro, Alabama facility and the Industrial Revenue Bond issued in
connection with the construction of that facility were exchanged for the release
of claims relating to such Bond and facility in the amount of $3,055,000. The
resulting gain of $434,000 was credited to restructuring costs in February 1997.
On April 10, 1997, the U.S. Bankruptcy Court confirmed the Company's
Joint Plan of Reorganization and Disclosure Statement ("Plan"). The Plan became
effective on May 12, 1997 (the "Effective Date") on which date the Company
emerged from bankruptcy. On that date, the Company entered into a new two year
financing agreement with CIT Group/Commercial Services, Inc. for a credit
facility of up to $10,500,000 of which $3,000,000 is available for letters of
credit (the "CIT Facility"). The CIT Facility is secured by all of the Company's
assets other than its real estate.
On the Effective Date, allowed and disputed general unsecured claims
("Class 4 Claims") totalled approximately $5,636,000. Each holder of an Allowed
Class 4 Claim has received or will receive (i) a pro-rata share of $786,000
being paid in cash by the Company and (ii) a beneficial interest in a note
("Class 4 Note") in principal amount equal to the amount by which the sum of all
Allowed Class 4 Claims exceeds $786,000. The Class 4 Note is payable quarterly,
with interest at the rate of 6% per annum on the unpaid balance, commencing on
June 30, 1997 based on a ten-year amortization schedule with the balance payable
on the fifth anniversary of the Effective Date. The Class 4 Note also requires
prepayments annually commencing in March 1998 in amounts aggregating 50% of the
Company's excess cash flow (as defined) for the preceding fiscal year. The Class
4 Note is secured by a second lien on the same assets which secure the CIT
Facility. The payee under
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the Class 4 Note is M.J. Sherman & Associates (the "Collateral Trustee") which
acts as such payee and as trustee for the collateral securing the Class 4 Note
pursuant to a Note and Collateral Trust Agreement dated May 12, 1997 between the
Company and its subsidiaries and the Collateral Trustee. Each holder of an
allowed Class 4 Claim has received or will receive a Certificate of Beneficial
Interest in Class 4 Note ("Certificate of Beneficial Interest") evidencing such
holders' beneficial interest in the Class 4 Note to the extent of such holder's
ratable interest therein.
On May 12, 1997, the Class 4 Note was issued in the principal amount of
$3,316,088.15. On that date, there were also approximately $1,782,800 of
disputed claims. The principal amount of the Class 4 Note will be increased as
disputed claims become allowed claims. The most significant disputed Class 4
Claim relates to a lease rejection claim (and related pre-petition rental
claim), in the aggregate amount of approximately $1,552,000, asserted by the
owner of the Company's former office space at One Penn Plaza. This claim is
currently under litigation in the U.S. Bankruptcy Court. The Company has
included in liabilities subject to compromise, approximately $1,519,500 as a
reserve for all disputed claims.
General
The Company was formed in 1986 under the laws of the State of Delaware.
The Company was previously incorporated in New York in 1949. The Company and its
subsidiaries are referred to collectively herein as the "Company".
Products and Product Design
The Company designs, manufacturers and sells popular-priced children's
active sportswear, including separate tops, dresses, slack sets, short sets,
three-piece sets, warm-up sets, pants, jeans, skirts, coordinates and related
separates. Such products are manufactured in girls' sizes infant through 14 and
boys' sizes infant through toddler. The Company also designs, manufactures and
sells girls' nightshirts and slips and markets and sells imported girls'
underwear.
The majority of the Company's products are everyday garments required in
the wardrobe of the age group serviced. The garments are sold as non-branded
merchandise, under store labels.
The Company's childrens' products are designed and marketed for two
principal selling seasons: Spring/Summer and Fall/Holiday. Retail prices for
items in the Company's 1997 Spring/Summer collection of children's sportswear
generally range from $4 to $20 and range from $6 to $25 for items in the
Company's Fall/Holiday Collection.
The Company's product lines of sportswear for each season typically
consist of a variety of clothing items sold as separates as well as in
coordinated sets. Each seasonal
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offering of separates contain items designed to enable customers to assemble
coordinated outfits consisting of separate items within a product line. The
Company's products are designed by an in-house staff which studies such
indicators as prior years' product performance and current fashions as
represented in other apparel markets. Designers meet frequently with suppliers
and customers to assess market reaction to the Company's product lines, to
accommodate individual design requirements and to anticipate future retail
demand.
Sales
The Company's principal customers during the 1995 and 1996 fiscal years
were Wal-Mart Stores, Inc., K-Mart Corp., and Hills Department Stores. Sales
during fiscal 1995 and fiscal 1996 were made to approximately 150 and 100
customers, respectively, although the Company's 10 largest customers accounted
for approximately 90% of the Company's sales in each of such years. Wal-Mart
Stores, Inc., the Company's largest customer, accounted for approximately 30%
and 36%, respectively, of the Company's 1995 and 1996 sales, K-Mart Corp.
approximately 29% in each such year and Hills Department Stores approximately
10% and 13%, respectively. Wal-Mart Stores, Inc. currently accounts for
approximately 87% of the Company's booked orders. Accordingly, the Company is
dependent upon the continued support of this customer, and it is essential that
the Company expands its customer base in order to reduce its reliance on
Wal-Mart Stores, Inc. At various times during the year the Company has
substantial credit exposure to its major customers.
At November 30, 1995, the Company's products were sold through a direct
employee sales force of 15 persons. The Company currently has a direct sales
force of four persons. In addition, the Company retains four commission sales
representatives.
Backlog
At July 3, 1997, the amount of the Company's booked orders believed to
be firm and expected to be filled during the current fiscal year was
approximately $8,737,000. This compares with approximately $12,429,000 of such
orders at July 5, 1996. The decrease in backlog from July 5, 1996 to July 3,
1997 reflects elimination of the big boys' division, and a decline in sales in
the Company's infant and girls' business as well as elimination of the import
division. The Company anticipates that annual sales for fiscal 1997 will be
substantially less than 1996 sales.
Shipments are made against customer delivery schedules, generally from
three to seven months after booking. The Company's customers have been reducing
the lead time between the time when an order is firm and its scheduled delivery
time. This has forced the Company in some instances to order piece goods based
upon less than firm orders and increased the risk and extent of markdowns. More
than 90% of the Company's garments are made to fill orders.
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Production
Products accounting for approximately 36% and 29%, respectively, of the
Company's net sales in fiscal 1995 and 1996 were manufactured in the Company's
domestic facilities, and approximately 24% and 40%, respectively, in the
Company's facility located in the Dominican Republic. The balance of the
Company's sales was derived from imported goods and outside contractors. As a
result of the closing of the import division, closing of the Company's
facilities in Scottsboro, Springdale and Stevenson, the consolidation of
operations in Pisgah and New York City and the reorganization of the Company's
manufacturing operations, there will be greater reliance placed on the Company's
facilities in the Dominican Republic and on contractors.
The Company's products are made from a variety of natural and synthetic
fabrics and blends such as cotton, poly-cottons and acrylics, in such forms as
knits, fleeces, corduroy and twills purchased from unaffiliated suppliers. The
Company does not have any long-term, formal arrangements with any of its
suppliers of raw materials. The fabric and accessories market in which the
Company purchases its raw materials is composed of a substantial number of
suppliers with similar products, and is characterized by a high degree of
competition. The Company has experienced little difficulty in satisfying its
requirements for raw materials, considers its sources of supply to be adequate
and believes that it would be able to obtain sufficient raw materials of
comparable quality should the products of any one of its suppliers become
unavailable.
Competition
The apparel industry, including children's active sportswear, is
fragmented and highly competitive. The Company competes with both domestic and
foreign manufacturers on the basis of quality, reliability and price. In
addition, the Company's customers have steadily increased the products they
import directly. Because of the bankruptcy proceedings, some of the Company's
customers lost confidence in the Company and turned to the Company's
competitors. The Company is seeking to control costs and improve its competitive
position by conducting the bulk of its manufacturing in the Dominican Republic.
Employees
In order to reduce costs, the Company has reduced the workforce by more
than 60% since November 30, 1994. At November 30, 1996, the Company employed
approximately 550 persons, of whom approximately 500 persons were engaged in
manufacturing, and the balance were engaged in managerial, sales and
administrative functions. The Company currently employs approximately 420
persons. Reflecting its reduced sales volume, the Company is continuously
evaluating its staffing requirements.
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ITEM 2. PROPERTIES.
The following table sets forth in summary fashion the location of each
of the Company's principal production facilities, its principal use, approximate
floor space and the lease expiration date where leased.
<TABLE>
<CAPTION>
Approximate Year of
Floor Space Lease
Location Description (sq. ft.) Expiration(1)
- --------- ----------- ----------- ------------
<S> <C> <C> <C>
New York,
New York Executive offices,
showrooms 15,700 2001(2)
Pisgah,
Alabama Cutting and silk-screen
printing 120,000 --
Finishing and distribution
center 80,000
Warehouse 10,000 --
Warehouse 15,000 --
Stevenson,
Alabama (3) 15,000 --
Springdale,
North
Carolina (4) 65,300 1997
La Romana,
Dominican
Republic Manufacturing plant 40,000 1999(5)
</TABLE>
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(1) Facility is owned if no lease expiration date is set forth.
(2) The Company has an option to terminate the lease effective December 31,
1997.
(3) Previously a manufacturing facility, the Stevenson plant has been closed
and is being held for sale.
(4) Previously a manufacturing facility, the Springdale plant has been
closed. The Company has vacated the premises, and its lease expired on
July 31, 1997.
(5) The lease provides for an option to construct an additional section of
20,000 square feet of space.
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The 1333 Broadway space is utilized for design, costing and procurement
functions in addition to housing the Company's executive offices and showrooms.
The Company believes that the space will be suitable and adequate for these
needs for the foreseeable future.
The Pisgah, Alabama facility consists of four separate buildings on
approximately 22 acres of property. In addition to functions already conducted
at Pisgah, some of which are being moved to New York or are being outsourced,
many of the Company's operations previously conducted at the Stevenson,
Scottsboro and Springdale facilities have been consolidated into the Pisgah
facility. The facility is relatively old with high maintenance costs. Its
location requires additional ground transportation costs from ports of entry for
products manufactured in the Dominican Republic and import goods. Expansion of
services at the facility is limited by the availability of labor. The Company
intends in the future to analyze alternative locations to serve as warehousing
and distribution centers in place of Pisgah in order to reduce transportation
costs and manufacturing times. At some time in the further future, the Company
may analyze alternative facilities in place of Pisgah for the provision of
manufacturing services.
The Company believes that its Dominican Republic facility is suitable
and adequate for its needs at this time. Expansion of the facility may become
necessary in the future and for that purpose, the Company has an option to
construct an additional 20,000 feet.
ITEM 3. LEGAL PROCEEDINGS.
On March 19, 1996 the Company, together with its wholly owned
subsidiaries Springdale Fashions, Inc., Tortoni Manufacturing Corp., and
Stonehenge Financial Corp. filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York. The Company and such subsidiaries operated their
respective businesses as debtors-in-possession pursuant to the Bankruptcy Code
until May 12, 1997 when they emerged from bankruptcy pursuant to the Plan (See
"Item 1. Business -- Proceedings in Bankruptcy").
The Company is litigating in the U.S. Bankruptcy Court various claims
asserted against it in the bankruptcy proceedings, principally a lease rejection
claim (and related pre-petition rental claim) in the total amount of
approximately $1,552,000 relating to the Company's former executive offices and
showroom at One Penn Plaza in New York City. The Company believes that the
amount allowed for such lease and rental claims as a result of the litigation
will be less than the $1,552,000 claimed. The amount so allowed will be treated
as an allowed Class 4 Claim in the manner described under "Item 1. Business --
Proceedings in Bankruptcy."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
Until May 1, 1996, the Company's Common Stock, $.10 par value, was
traded in the over-the-counter market on the NASDAQ National Market (ticker
symbol: ATOG). The following table sets forth, for the fiscal years ended
November 30, 1994 and 1995 and thereafter until May 1, 1996, the quarterly high
and low bid prices for the Common Stock, as reported by Nasdaq.
<TABLE>
<CAPTION>
Bid Prices
Fiscal Year Ended -------------------
November 30, 1994 High Low
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<S> <C> <C>
First Quarter $2.500 $2.000
Second Quarter 2.500 1.750
Third Quarter 1.812 1.250
Fourth Quarter 2.500 1.375
<CAPTION>
Fiscal Year Ended
November 30, 1995
-----------------
First Quarter $3.375 $1.250
Second Quarter 2.750 2.125
Third Quarter 2.250 1.625
Fourth Quarter 2.250 1.375
<CAPTION>
Fiscal Year Ended
November 30, 1996
-----------------
First Quarter $1.625 $1.375
Second Quarter
(through May 1, 1996) $1.375 $0.500
</TABLE>
On May 2, 1996, the shares of the Company's Common Stock were delisted
from the NASDAQ National Market and began trading in the over-the-counter market
in what are commonly referred to as the "pink sheets." The following table sets
forth the high and low bid prices for the Common Stock as reported in the pink
sheets, according to National Quotation Bureau, LLC and IDD Information Services
Tradeline on-line information services, by quarters for the period from May 2,
1996 to August 8, 1997.
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<TABLE>
<CAPTION>
Bid Prices
----------
Fiscal Year Ended November 30, 1996 High Low
----------------------------------- ---- ---
<S> <C> <C> <C>
Second Quarter (from May 2, 1996) $0.625 $0.500
Third Quarter -- --
Fourth Quarter $0.625 $0.125
<CAPTION>
Fiscal Year Ended November 30, 1997
-----------------------------------
First Quarter $0.375 $0.375
Second Quarter $0.375 $0.375
Third Quarter (through August 8, 1997) $0.625 $0.375
</TABLE>
All over-the-counter market quotations reflect inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Number of Stockholders
On July 8, 1997, there were approximately 133 holders of record of the
Company's Common Stock. A substantial number of shares of the Company's Common
Stock is held of record by brokers and depositories. Accordingly, the Company
believes that the actual number of holders of the Company's Common Stock may be
substantially higher.
Dividends
The Company has not paid cash dividends on its Common Stock for the past
five years. The CIT Facility prohibits the declaration or payment of dividends
of any kind on the Company's Common Stock.
Recent Sales of Unregistered Securities
On May 12, 1997, the Company issued the Class 4 Note to the Collateral
Trustee in the initial principal amount of $3,316,088.15, subject to adjustment.
A like principal amount of Certificates of Beneficial Interest have been issued
to 139 holders of allowed Class 4 Claims pursuant to the Plan (See "Item 1.
Business -- Proceedings in Bankruptcy"). The Class 4 Note and Certificates of
Beneficial Interest are exempt from the registration requirements of the
Securities Act of 1933, as amended, by reason of the provisions of Section 1145
of Chapter 11 of the Bankruptcy Code.
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ITEM 6. SELECTED FINANCIAL DATA.
The following information has been derived from the audited Consolidated
Financial Statements of the Company included elsewhere herein and in other
filings of the Company on Form 10-K and should be read in conjunction with the
audited Consolidated Financial Statements included herein and in other filings
of the Company on Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended November 30,
------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(in thousands, except per share data)
Income Statement Data
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 43,057 $ 80,552 $ 73,767 $ 89,289 $ 96,323 $ 92,089
Cost of goods sold 37,363 70,582 60,138 72,298 75,181 70,586
Gross profit 5,694 9,970 13,629 16,991 21,142 21,503
Selling, general and
administrative expenses 8,129 13,619 12,481 15,106 16,812 16,935
Write-off of cost in excess
of net assets acquired -- 832(4) -- -- -- --
Loss on sale of subsidiary -- -- -- -- -- 268(1)
Restructuring costs 6,375(5) -- -- -- -- --
Operating (loss) income (8,810) (4,481) 1,148 1,885 4,330 4,300
Interest expense, net 992 1,435 1,006 1,455 1,803 2,138
(Loss) income before
income tax provision
(benefit) (9,802) (5,916) 142 430 2,527 2,162
Income tax provision
(benefit) 10 (1,637) 17 169 1,052 960
Net (loss) income ($9,812) ($4,279) $125 $261 $1,475 $1,202(1)
Net (loss) income
per common share ($2.19) ($.96) $.03 $.06 $.34(2) $.27(2)
Weighted average common
shares outstanding 4,471 4,435 4,358 4,372 4,402 4,421(2)
Balance Sheet Data
Working capital 6,523 10,161 16,086 15,920 16,729(3) 16,324(3)
Total assets 17,689 33,981 36,880 35,276 44,445(3) 47,013(3)
Long-term debt,
excluding current portion 4,527 4,002 5,238 6,531 8,028 9,191
Stockholders' equity 5,160 14,972 18,955 18,831 18,794 17,278
</TABLE>
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(1) Effective April 30, 1991, the Company sold its 80% interest to the
minority shareholder.
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(2) Restated to reflect the 1.25-for-1 stock split effective in 1993.
(3) Restated to reflect current portion of deferred income taxes.
(4) Write-off of cost in excess of net assets acquired related to the Dobie
acquisition.
(5) Costs relating to proceedings in Chapter 11.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Bankruptcy
On March 19, 1996, the Company filed for bankruptcy under Chapter 11 of
the Bankruptcy Code. On May 12, 1997, the Company emerged from Chapter 11. See
"Item 1. Business -- Proceedings in Bankruptcy." During the bankruptcy, the
Company continued to operate as a debtor-in-possession.
Results of Operations
The following table sets forth, for the periods indicated, certain items
from the Company's Statements of Operations expressed as a percentage of sales:
<TABLE>
<CAPTION>
Fiscal Year Ended November 30,
------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold .......................... 86.8 87.6 81.5 81.0
----- ----- ----- -----
Gross profit ................................ 13.2 12.4 18.5 19.0
Selling, general and
administrative expenses ................... 18.9 16.9 16.9 16.9
Restructuring costs ......................... 14.8 -- -- --
Write-off of cost in excess of
assets acquired ........................... -- 1.0 -- --
----- ----- ----- -----
Operating (loss) income ..................... (20.5) (5.5) 1.6 2.1
Interest expense, net ....................... 2.3 1.8 1.4 1.6
----- ----- ----- -----
(Loss) income before
income tax provision (benefit) ............ (22.8) (7.3) .2 .5
Income tax provision (benefit) .............. -- (2.0) -- .2
----- ----- ----- -----
Net (loss) income ........................... (22.8%) (5.3%) .2% .3%
===== ===== ===== =====
</TABLE>
12
<PAGE>
<PAGE>
1995 VS. 1994
Sales for the 1995 fiscal year were $80,552,300 as compared to
$73,766,700 in fiscal 1994, an increase of $6,785,600 at 9.2%. The increase was
attributable to the shipments of orders acquired from Dobie as well as an
increase in imports. The remaining areas decreased as a result of generally
depressed conditions in the retail apparel industry and continued price
competition.
The Company's gross profit as a percentage of net sales decreased to
12.4% from 18.5% in 1994. Pricing pressures were intense, and the Company was
unable to pass through cost increases to its customers. The Company accepted
business at lower margins in order to maintain market share. Margins continued
to be adversely affected due to competition. The Company suffered difficulties
in implementing the Dobie acquisition relating to production. The Company found
it necessary to phase out Dobie's ladies division and was not successful in
expanding its own business with Dobie's former customers. The Company sustained
large sales and markdown allowances.
Selling, general and administrative expenses increased $1,138,600 to
$13,619,300 in 1995 from $12,480,700 in 1994. As a percentage of net sales, they
remained constant at 16.9%. The increase was primarily attributable to the Dobie
acquisition, including certain transition expenses.
Write-off of cost in excess of net assets acquired totalling $832,400
pertains to the acquisition of certain Dobie assets.
The increase in interest expense of $429,000 is a reflection of higher
short term borrowing levels due to increased inventory levels and higher
interest rates, which were offset in part by the reduction of long term debt.
1994 VS. 1993
Sales for the 1994 fiscal year were $73,767,000 as compared to
$89,289,000 in fiscal 1993, a decrease of 17.4%. The decrease was as a result of
generally depressed conditions in the retail apparel industry and continued
price competition. The Company experienced increased competition by vertical
companies in certain of its traditional product areas. 1993 sales included
approximately $1,800,000 for the ladies division, which was completely phased
out by the second quarter of fiscal 1993.
The Company's gross profit as a percentage of net sales decreased to
18.5% from 19.0% in 1993. The Company reduced its direct labor operations during
the weak Spring '94 season and therefore margins were hurt by higher
manufacturing and training costs in the third quarter associated with the hiring
of personnel needed to meet its demands. Due to intense pricing pressures, the
Company was unable to pass through cost increases to customers.
13
<PAGE>
<PAGE>
Selling, general and administrative expenses decreased but remained
constant as a percentage of net sales.
Liquidity
On May 12, 1997, the Company emerged from Chapter 11 of the Bankruptcy
Code and entered into the CIT Facility. The CIT Facility provides for a
$10,500,000 revolving credit line of which $3,000,000 is available for letters
of credit. Advances under the revolver bear interest at prime plus .85%. The
advances are based on 85% of eligible accounts receivable plus 50% of eligible
inventory and are collateralized by all of the Company's assets other than its
real estate. Under the CIT Facility, the Company is prohibited, among other
restrictions, from pledging assets, creating additional indebtedness or paying
dividends. In addition, the Company is required to comply with certain financial
covenants, including minimum levels of EBITDA, working capital, tangible net
worth and limits on capital expenditures.
As indicated under "Item 1. Business -- Proceedings in Bankruptcy", the
Company has $5,636,000 of allowed and disputed Class 4 Claims. Approximately
$1,782,800 of such claims are being disputed. Under the Plan, Allowed Class 4
Claims receive $786,000 in cash with the balance payable in five years on a ten
year amortization schedule.
The Company believes that cash generated from operations and available
borrowings will be sufficient to meet working capital needs for the remainder of
the current fiscal year.
New Accounting Standards
During the fiscal year ended November 30, 1996, the Company adopted SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The effect of the adoption of SFAS No. 121 on the
Company's Consolidated Financial Statements in fiscal 1996 was not material.
The Company also adopted SFAS No. 123 "Accounting for Stock-Based
Compensation". The new standard defines a fair value method of accounting for
stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the vesting period. Alternatively, SFAS No. 123
allows entities to continue to apply the provisions of APB No. 25 and provide
pro forma net income (loss) and pro forma net income (loss) per share
disclosures for employee stock option grants. The Company has elected to adopt
the disclosure only provision of SFAS No. 123 and will continue to apply APB No.
25 to account for stock options. There were no employee stock options granted in
fiscal 1996. See "Item 11. -- Executive Compensation."
14
<PAGE>
<PAGE>
Current Uncertainties
The Company anticipates a substantial decrease in volume for fiscal
1997. While the Company's overhead has been reduced in anticipation of a lower
sales volume, the Company continues to incur restructuring costs in 1997
relating to the bankruptcy and losses from operations. The Company, therefore,
anticipates that it will report a loss for fiscal 1997. In addition, as
indicated under "Item 1. Business -- Sales", Wal-Mart Stores, Inc. currently
accounts for approximately 87% of the Company's orders. Accordingly, resumption
of stable and profitable operations will require the Company to both increase
its total sales and expand its customer base.
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking
statements that involve risks and uncertainties. Discussion containing such
forward-looking statements may be found in the materials set forth under
"Business" and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations". The Company's actual results could differ materially
from those anticipated in the forward-looking statements.
15
<PAGE>
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The information required by this item was previously reported on
Registrant's Current Report, Form 8-K, dated March 7, 1997.
16
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors.
The following table sets forth the names and ages and principal
occupations of each of the Company's directors and the year in which each was
first elected director.
<TABLE>
<CAPTION>
Director Principal Director
Name and Age Occupation (1) Since
- ------------ -------------- ---------
<S> <C> <C>
George S. Blumenthal (53) Chairman of the Board and 1991
Treasurer of OCOM
Corporation and NTL
Incorporated and the
Chairman of the Board, CEO
and Treasurer of CoreComm
Incorporated (2)
Peter A. Cohen (50) Managing Director of Ramius 1981
Capital Corporation (3)(4)(5)
William L. Cohen (55) Chairman of the Board, 1979
President and Chief Executive
Officer (4)
Donald D. Shack (68) Attorney, director and 1986
shareholder of law firm of
Shack & Siegel, P.C., general
counsel to the Company (6)
Monte Wolfson (71) President of Monte Wolfson 1994
Associates, Inc., a retail and
marketing consultant (7)
</TABLE>
- ---------------
(1) Unless otherwise indicated, the directors' principal occupations have
been their respective principal occupations for at least five years.
(2) Mr. Blumenthal was President of Blumenthal Securities, Inc., a New York
Stock Exchange member firm for in excess of five years prior to November
15, 1992. Mr. Blumenthal was the Chairman and Treasurer of Cellular
Communications International, Inc. until April 1994. He was the Chairman
and Treasurer of Cellular Communications, Inc. until August 1996, when
such company merged into AirTouch
17
<PAGE>
<PAGE>
Communications, Inc. He is a director of CoreComm Incorporated (f/k/a
Cellular Communications of Puerto Rico, Inc.), OCOM Corporation and NTL
Incorporated (f/k/a International CableTel Incorporated).
(3) Prior to January 1990, Mr. Cohen was employed in various senior
executive capacities by Shearson Lehman Hutton Inc., an investment
banking firm, including as its Chief Operating Officer from 1979 to 1984
and as its Chairman and Chief Executive Officer from 1984 to January
1990. From May 1991 through December 1992 Mr. Cohen was President of
Andrew Lauren & Co., Inc., an investment consulting firm. From December
1992 through May 1994, Mr. Cohen was the Chairman of Republic New York
Securities Corp. and Vice Chairman of Republic New York Corp. From
August 1994 until July 1997 he was a partner in Palladin Partners, a
private investment management firm. Since August 1994, Mr. Cohen has
been Managing Director of Ramius Capital Corporation, a private
investment firm. He is also a director of Presidential Life Corporation,
`21' International Holdings, Inc., GRC International, Inc. and Olivetti
SpA.
(4) Messrs. William L. Cohen and Peter A. Cohen are siblings.
(5) Peter A. Cohen renders financial and management consulting services to
the Company. Until March 19, 1996, he was paid a fee at the annual rate
of $75,000 plus certain benefits. Effective March 19, 1996 his
consulting fee was eliminated. Mr. Cohen received $18,750 in consulting
fees during fiscal 1996. He has continued to render services without
charge.
(6) Mr. Shack has served as Secretary of the Company since 1986. Mr. Shack
is a director and shareholder of the law firm of Shack & Siegel, P.C.
which has served as general counsel to the Company since April 1993.
Prior to April 1993, Mr. Shack was a member of Whitman & Ransom which
served as general counsel to the Company from January 1990 through March
1993. Prior to January 1990, Mr. Shack was a member of the law firm of
Golenbock and Barell which served as general counsel to the Company from
1986 through 1989. Mr. Shack is a director of Ark Restaurants Corp.,
International Citrus Corporation and Just Toys, Inc.
(7) Mr. Wolfson has been a United States Government advisor on the retail
textile industry for over 25 years. From 1975 until his retirement in
1986, Mr. Wolfson was employed as President of Netco, Inc., the New York
subsidiary of Zayre Group, an apparel retailer. Prior thereto he served
as Chairman and CEO of Diana Stores, Corp., an apparel retailer. Mr.
Wolfson is a director of Kennebunk Inc. and Techknits, Inc., misses
apparel manufacturers and a consultant to various apparel companies.
Each director holds office until the next annual meeting of
stockholders and until his successor is elected and qualifies.
18
<PAGE>
<PAGE>
(b) Identification of Executive Officers.
The following table sets forth the names and ages of executive officers
of the Company and all offices held by each person during the fiscal years ended
November 30, 1995 and November 30, 1996.
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- --------------------------
<S> <C> <C>
William L. Cohen 55 Chairman of the Board, President
and Chief Executive Officer
Stephen Fenyves 52 Senior Vice President
Administration and Operations
Harold Drachman 70 Vice President - Sales
Alan Kanis 47 Treasurer and Chief Financial
and Chief Accounting Officer
Stanley F. Schmoller 58 Vice President - Manufacturing
Donald D. Shack 68 Secretary
</TABLE>
William L. Cohen has been principally employed in senior managerial
positions with the Company since 1965, as its Vice President-Administration from
1970 to 1983 and as its President and Chief Executive Officer since 1983. Mr.
Cohen was elected to the office of Chairman of the Board of Directors in 1987.
Mr. Drachman was employed by the Company since 1970. In November 1987,
Mr. Drachman was elected Vice President - Sales. Mr. Drachman's association with
the Company terminated on July 1, 1996.
Mr. Fenyves has been employed by the Company since 1969 in various
executive capacities, including Vice President-Administration from 1983 to 1988,
Senior Vice-President-Administration, from 1988 to 1996 and in his present
capacity since 1996.
Mr. Kanis joined the Company as Treasurer and Chief Financial and Chief
Accounting Officer effective September 1, 1990. Prior to his employment by the
Company, Mr. Kanis had been Vice President-Finance of Shelburne Shirt Co. Inc.
for over five years.
Mr. Schmoller has been employed by the Company in various production
capacities since 1958 and in his present capacity for in excess of 16 years.
Mr. Shack has served as Secretary to the Company since 1986. See
"Identification of Directors" above.
19
<PAGE>
<PAGE>
Each executive officer holds office at the pleasure of the Board of
Directors or until his successor has been duly elected and qualifies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such reporting persons are required by regulation to furnish the company with
copies of all Section 16(a) reports that they file.
Based solely on its review of the copies of such reports received by it,
or written representations from certain reporting persons that no Form 5 was
required for those persons, the Company believes that, during the period from
December 1, 1995 through November 30, 1996, all filing requirements applicable
to its officers, directors and greater than 10 percent beneficial owners were
complied with, except that each of Messrs. Blumenthal, Shack and Wolfson filed
one late report on Form 5, in each case relating to one transaction.
ITEM 11. EXECUTIVE COMPENSATION.
The Summary Compensation Table below sets forth all compensation paid or
accrued to the chief executive officer and the next four most highly compensated
persons who were executive officers or who performed services equivalent to that
of executive officers for services rendered to the Company and its subsidiaries
during the last four fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
NAME & PRINCIPAL POSITION YEAR SALARY(a) OPTIONS AWARDED
- ------------------------- ---- -------- ---------------
<S> <C> <C> <C> <C>
William L. Cohen, 1996 $433,077(b) -- --
Chairman of the Board, President 1995 500,000 -- 20,000
and Chief Executive Officer 1994 500,000 -- (b) --
1993 500,000 $ 22,705 --
Stephen Fenyves, 1996 $175,000 -- --
Senior Vice President - 1995 179,609 $ 30,000 10,000
Administration and Operations 1994 168,846 40,000 --
1993 159,039 40,000 --
Alan Kanis, 1996 $166,000 -- --
Treasurer and Chief Financial and 1995 169,680 35,000 15,000
Chief Accounting Officer 1994 163,269 35,000 --
1993 150,000 15,000 --
</TABLE>
20
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Stanley F. Schmoller, 1996 $132,807 -- --
Vice President - Manufacturing 1995 138,540 $25,000 10,000
1994 131,200 25,000 --
1993 130,739 50,000 --
Harold Drachman, 1996 $150,384(c) -- --
Vice President - Sales 1995 150,000 -- 4,000
1994 150,000 -- --
1993 150,000 20,000 --
</TABLE>
- ----------------
(a) Does not include car allowances, medical, disability, life insurance
and other benefits which are, in the aggregate, below reportable thresholds.
(b) Pursuant to the employment agreement between the Company and Mr.
Cohen, more fully described below, Mr. Cohen was entitled to receive a bonus in
an amount equal to 5% of the Company's pretax income up to $3,000,000 and 6% of
the Company's pretax income in excess of $3,000,000. For fiscal year 1994, Mr.
Cohen waived his right to receive such bonus payment. Pursuant to such
employment agreement, Mr. Cohen was entitled to be paid a base salary of
$500,000. Effective March 19, 1996, Mr. Cohen voluntarily reduced his base
salary by 20% to $400,000. Effective December 1, 1996, Mr. Cohen further
voluntarily reduced his base salary to $200,000.
(c) Includes salary of $75,384 and severance pay of $75,000. Mr.
Drachman left the Company effective July 1, 1996.
The following table sets forth certain information with respect to
options to purchase the Company's Common Stock granted in fiscal year 1995 under
the Company's Non-Qualified Stock Option Plan for the persons named in the
Summary Compensation Table above. No options were granted to such persons in the
fiscal year ended November 30, 1996.
OPTION GRANTS IN FISCAL YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE AT
PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS GRANTED EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION OPTION TERM (A)
NAME GRANTED (#) 1995 ($/SHARE) DATE 5% ($) 10% ($)
------ ----------- ------ --------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
William L. Cohen 20,000 14.4% 1.875 2/9/00 $10,361 $22,894
Harold Drachman 4,000 2.9% 1.875 2/9/00 2,072 4,579
Steven Fenyves 10,000 7.2% 1.875 2/9/00 5,180 11,447
Alan Kanis 15,000 10.8% 1.875 2/9/00 7,770 17,171
Stanley F. Schmoller 10,000 7.2% 1.875 2/9/00 5,180 11,447
</TABLE>
- --------------
(a) Based on the closing price of the Company's common stock on February 10,
1995. The options have been out-of-the-money since the end of fiscal
1995.
21
<PAGE>
<PAGE>
The following table details the total number of securities underlying
unexercised options held at the end of the fiscal year ended November 30, 1995,
separately identifying the exercisable and unexercisable options of the persons
named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED
NOVEMBER 30, 1995 AND FY-END OPTION VALUES
Shares Number of Unexercised Options
Acquired Value at November 30, 1995
Name on Exercise Realized Exercisable Unexercisable
------ ----------- -------- -------------------------
<S> <C> <C> <C> <C>
William L. Cohen -- -- 34,375 20,000
Harold Drachman -- -- 13,750 4,000
Stephen Fenyves -- -- 24,750 10,000
Alan Kanis -- -- 5,500 15,000
Stanley F. Schmoller -- -- 26,812 10,000
</TABLE>
The following table details the total number of securities underlying
unexercised options held at the end of the fiscal year ended November 30, 1996,
separately identifying the exercisable and unexercisable options of the persons
named in the summary compensation table above.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED
NOVEMBER 30, 1996 AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Unexercised Options
Acquired Value at November 30, 1996
Name on Exercise Realized Exercisable Unexercisable
---- ----------- -------- -------------------------
<S> <C> <C> <C> <C>
William L. Cohen -- -- 5,000 15,000
Harold Drachman -- -- -- --
Stephen Fenyves -- -- 2,500 7,500
Alan Kanis -- -- 3,750 11,250
Stanley F. Schmoller -- -- 2,500 7,500
</TABLE>
Stock Options
At the Annual Meeting of the Company's stockholders on June 13, 1995,
the stockholders ratified a new 1995 Stock Option Plan (the "1995 Plan"), which
replaced the Company's two existing plans, an Incentive Stock Option Plan ("ISO
Plan") and a Non- Qualified Stock Option Plan ("NQ Plan"), which plans were
terminated, although 106,500 options granted under the NQ Plan remain
outstanding, 59,500 of which are currently exercisable. The 1995 Plan permits
the grant of both non-qualified and incentive stock options. The 1995 Plan makes
available for issuance to its participants, options to purchase up to an
aggregate of 225,000 shares of Common Stock. 15,000 of such options have been
granted to date, of which 1,875 are exercisable.
22
<PAGE>
<PAGE>
Prior to the adoption of the 1995 Plan, under the ISO Plan, key
employees were eligible for options to purchase shares of Common Stock of the
Company. An aggregate of 103,125 shares of Common Stock was reserved for
issuance under the ISO Plan. No options were ever granted under the ISO Plan.
Officers, directors, employees and independent sales representatives were
eligible for option grants to purchase shares of Common Stock under the NQ Plan.
There were no in-the-money options at November 30, 1995 or November 30, 1996.
Director Compensation
During each of the Company's past two fiscal years, a fee of $10,000 was
paid to each of Messrs. Blumenthal and Wolfson in consideration of their acting
as directors of the Company, except that in fiscal 1996, Mr. Blumenthal received
$7,500. Due to the Bankruptcy proceedings, Mr. Blumenthal's remaining $2,500
will be paid to him over a five year period as an unsecured creditor.
The NQ Plan provided, and the 1995 Plan provides, for the annual grant
of options to purchase 2,500 shares of Common Stock to members of the Company's
Stock Option Committee (the "Committee") and outside directors who are not
members of the Committee. During fiscal 1995 and 1996, Messrs. Blumenthal, Shack
and Wolfson were each granted such options under the NQ Plan and the 1995 Plan,
respectively. These options are exercisable with respect to 25% of the shares
covered thereby commencing one year from the date of grant and as to an
additional 25% of the shares covered by the option upon each of the three
succeeding anniversary dates of the date of grant.
Employment Agreement
William L. Cohen was employed under an agreement which expired in June
1996. The agreement provided for a base salary of $500,000 per annum, or such
greater amount from time to time determined by the Board of Directors of the
Company, and incentive compensation in an amount equal to 5% of the Company's
pretax income up to $3,000,000 and 6% of the Company's pretax income in excess
of $3,000,000. Compensation at the above rate was also payable under the
agreement for one year if Mr. Cohen became "Disabled" (as defined in the
agreement) and at one-half such rate for a further one-year period, but in no
event was such compensation payable in respect of any period subsequent to the
stated expiration date of the agreement. The agreement further provided for the
payment of a benefit over a five-year period to Mr. Cohen's beneficiary, in the
event of his death while employed, in the amount of one year's compensation
based upon the average compensation paid over the three most recently concluded
fiscal years of the Company, less any amounts paid to Mr. Cohen while Disabled.
The Company maintained life insurance on Mr. Cohen for an amount in excess of
this obligation. Effective March 19, 1996, Mr. Cohen voluntarily reduced his
base salary by 20% to $400,000, and effective December 1, 1996, Mr. Cohen
further reduced his base salary to $200,000.
23
<PAGE>
<PAGE>
Other Officer Compensation Arrangements
The Company maintains a $4,000,000 split dollar life insurance policy on
Mr. Cohen. Annual premiums for the policy are approximately $122,600. The
Company currently pays approximately $115,900 of the premiums, and the William
L. Cohen Irrevocable Life Insurance Trust (the "Trust") pays the balance. Upon
Mr. Cohen's death, the Corporation will receive an amount approximately equal to
all premium payments made by it, and the Trust will receive the balance of the
$4,000,000 death benefit. The trustees of the Trust have assigned the policy to
the Corporation to secure such payment. In addition, the Company may borrow
against the policy.
The Company and Mr. Stephen Fenyves are parties to an agreement pursuant
to which the Company has agreed to pay Mr. Fenyves a retirement benefit in the
form of salary continuation for 15 years after his retirement in annual amounts
ranging from $27,500 to $55,000 per year depending upon the age between 55 and
65 at which Mr. Fenyves retires. In the event of his death prior to attaining
age 65, but while he is employed by the Company, the Company will pay a death
benefit of $55,000 per year until Mr. Fenyves would have attained age 65 but in
any event for a minimum of 10 years. The Company currently maintains insurance
coverage to fund the death obligation.
During the bankruptcy, the Company established an enhanced severance
program to induce officers and key employees to remain with the Company. Stephen
Fenyves, Alan Kanis, Stanley Schmoller and certain other employees were included
in this program. The program entitles the individuals to up to six months of
additional severance if they are terminated without cause during the 12 or 18
month period that commenced on January 16, 1997.
Compensation Committee Interlocks and Insider Participation
The Company does not have a compensation committee. Compensation
decisions are made by the Board of Directors. The members of the Board include
William L. Cohen, Peter A. Cohen and Donald D. Shack. William L. Cohen is
Chairman of the Board and President of the Company. Peter A. Cohen is his
brother. Mr. Shack is Secretary of the Company and a shareholder and director of
the law firm of Shack & Siegel, P.C., the Company's general counsel.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Beneficial Owners of More Than Five Percent of Common Stock.
The following table sets forth certain information at July 31, 1997 with
respect to the beneficial owners of more than five percent of the Company's
Common Stock.
24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
------------------- -------------------- --------
<S> <C> <C>
William L. Cohen (1) 1,395,697 (2)(3)(4) 31.1%
c/o Andover Togs, Inc.
1333 Broadway
New York, New York 10118
Peter A. Cohen (1) 1,304,407 (2)(3) 29.2%
c/o Andover Togs, Inc.
1333 Broadway
New York, New York 10118
Carolyn Cohen Zelikovic (1) 436,142 (5) 9.8%
c/o Andover Togs, Inc.
1333 Broadway
New York, New York 10118
Herbert Rosenstock, 230,787 (6) 5.2%
Stanley Rosenstock and
General Sportswear Co., Inc.
23 Market Street
Ellenville, New York 12428
</TABLE>
(1) William L. Cohen, Peter A. Cohen and Carolyn Cohen Zelikovic (the
"Principal Stockholders") are parties to a stockholders agreement which
provides, among other things, that (i) the shares owned by the Principal
Stockholders are to be voted as jointly determined by William L. Cohen
and Peter A. Cohen; (ii) William L. Cohen and Peter A. Cohen are to have
a joint and several right of first refusal with respect to the
disposition of shares owned by Carolyn Cohen Zelikovic; (iii) William L.
Cohen and Peter A. Cohen each are to have a right of first refusal with
respect to disposition of the shares owned by the other; (iv) upon the
death of Carolyn Cohen Zelikovic, William L. Cohen and Peter A. Cohen
are to have the joint and several right to purchase the shares held by
her at her death; and (v) upon the death of William L. Cohen, Peter A.
Cohen is to have the right, and upon the death of Peter A. Cohen,
William L. Cohen is to have the right, to purchase the shares held by
the other at his death. The purchase of shares held by a deceased
Principal Stockholder, as set forth above, is to be mandatory to the
extent of the proceeds of insurance policies on the life of the deceased
Principal Stockholder held by the other Principal Stockholders.
(2) Under the stockholders agreement referred to above, each of William L.
Cohen and Peter A. Cohen exercises shared voting and sole dispositive
power with respect to the shares owned by him. The shares indicated as
being owned by each do not include (i) shares
25
<PAGE>
<PAGE>
owned by the other, or (ii) shares owned by Carolyn Cohen Zelikovic,
although the Messrs. Cohen exercise shared voting power with respect to
all such shares.
(3) Does not include 41,250 shares held by a charitable foundation. Messrs.
William L. and Peter A. Cohen are two of the five directors of such
foundation and exercise shared voting power with respect to such shares.
(4) Includes 10,000 shares of Common Stock which Mr. Cohen has the right to
acquire upon exercise of a currently exercisable stock option granted
under the Company's Non-Qualified Stock Option Plan.
(5) Carolyn Cohen Zelikovic exercises sole dispositive power with respect to
the shares owned by her.
(6) Based upon information provided to the Company by the Rosenstocks and
General Sportswear Co., Inc. on February 20, 1996.
Beneficial Ownership of Common Stock by Directors and Executive Officers.
The following table sets forth certain information at July 31, 1997 with
respect to Common Stock beneficially owned by all directors, the chief executive
officer, the other persons named in the Summary Compensation Table above and all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
---------------- -------------------- ---------
<S> <C> <C>
George S. Blumenthal, Director 60,285(1)(2) 1.3%
Peter A. Cohen, Director 1,304,407(3) 29.2%
William L. Cohen, Director, 1,395,697(3) 31.1%
Chairman of the Board, President
and Chief Executive Officer
Harold Drachman, Vice - --
President - Sales
Steven Fenyves, Senior Vice 10,500(4) -- (5)
President - Manufacturing
Alan Kanis, Treasurer and 7,500(6) -- (5)
Chief Financial and Chief
Accounting Officer
</TABLE>
26
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Stanley F. Schmoller, Vice 13,250(7) -- (5)
President - Manufacturing
Donald D. Shack, Director and 62,650(2)(8) 1.4%
Secretary
Monte Wolfson, Director 1,875(9) -- (5)
All directors and executive officers 3,292,306(10) 72.9%
as a group (9 persons)
</TABLE>
- ---------------
(1) Includes 44,110 shares beneficially owned by Mr. Blumenthal as
co-trustee and income beneficiary under a trust created under the will
of Clara Blumenthal.
(2) Includes 8,750 shares of Common Stock which may be acquired upon the
exercise of currently exercisable stock options.
(3) See "Securities Ownership of Certain Beneficial Owners and
Management-Beneficial Owners of More Than Five Percent of Common Stock"
above for information in respect of shares of Common Stock beneficially
owned by Mr. Cohen.
(4) Includes 5,000 shares of Common Stock which Mr. Fenyves has the right to
acquire upon the exercise of currently exercisable stock options.
(5) Less than one percent.
(6) Includes 7,500 shares of Common Stock which Mr. Kanis has the right to
acquire upon the exercise of currently exercisable stock options.
(7) Includes 5,000 shares of Common Stock which Mr. Schmoller has the right
to acquire upon the exercise of currently exercisable stock options.
(8) Shares owned by Skylark Partners, a partnership of which Mr. Shack is a
member.
(9) Includes 1,875 shares of Common Stock which Mr. Wolfson has the right to
acquire upon the exercise of currently exercisable stock options.
(10) Includes (i) 436,142 shares owned by Carolyn Cohen Zelikovic, (ii)
27,500 shares of Common Stock which certain executive officers have the
right to acquire upon the exercise of currently exercisable stock
options and (iii) 19,375 shares of Common Stock which certain directors
may acquire upon the exercise of currently exercisable stock options.
27
<PAGE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Peter A. Cohen renders financial and management consulting services to
the Company. Until March 19, 1996, he was paid a fee at the rate of $75,000 plus
certain benefits. Effective March 19, 1996 his consulting fee was eliminated. In
fiscal 1996, Mr. Cohen received $18,750 in consulting fees. He has continued to
render services without charge. Mr. Cohen is William Cohen's brother.
The firm of Shack & Siegel, P.C. of which Donald D. Shack is a director
and shareholder, has served as general counsel to the Company since January 1,
1990. Prior thereto, the firms of Whitman & Ransom and Golenbock and Barell,
both of which Mr. Shack was a member, served as general counsel.
On April 9, 1992 the Board of Directors approved a five year consulting
arrangement with Florence Cohen, widow of Sidney B. Cohen the founder of the
Company, expiring in April 1997 which provided for a fee of $60,000 per year.
This arrangement was terminated, effective March 19, 1996.
28
<PAGE>
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- ------- ---------------------------------------------------------------
<S> <C> <C>
(a) (1) Financial Statements. The following consolidated financial statements of
Andover Togs, Inc. and its subsidiaries are included herein.
Independent Auditors' Report F-1
Consolidated Balance Sheets -
As at November 30, 1995 and 1994 F-2
Consolidated Statements of Operations -
Years ended November 30, 1995, 1994
and 1993 F-3
Consolidated Statements of Stockholders'
Equity - Years ended November 30,
1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows -
Years ended November 30, 1995, 1994
and 1993 F-5
Notes To Consolidated Financial Statements F-7
(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-17
(3) Exhibits:
3(a) Certificate of Incorporation of the Company, incorporated by reference to
Exhibit 3(a) to Registration Statement on Form S-1 (SEC File No. 33-5363) of
the Company (the "Form S-1").
3(b) Certificate of Merger of Andover Togs, Inc., a New York
corporation, into and with Andover Togs, Inc., a Delaware
corporation, incorporated by reference to Exhibit 3(b) to the
Form S-1.
3(c) Certificate of Amendment of Certificate of Incorporation, filed
June 1, 1987, incorporated by reference to Exhibit 3(a) to the
Company's quarterly report on Form 10-Q dated May 31, 1994 (the
"May 1994 10-Q").
</TABLE>
29
<PAGE>
<PAGE>
3(d) By-laws of the Company, as amended through November 12, 1986,
incorporated by reference to Exhibit 3(b) to the May 1994 10-Q.
4(a) Specimen of certificate for shares of Common Stock of the
Company, incorporated by reference to Exhibit 4(a) to the Form
S-1.
4(b) The Company's Non-Qualified Stock Option Plan, as amended May 21,
1987 and April 9, 1992, incorporated by reference to Exhibit 4(a)
to the Amendment to the Registration Statement on Form S-8 (SEC
File No. 33-33963), as filed with the Securities and Exchange
Commission on November 2, 1992.
4(c) Common Stock Purchase Warrant, dated February 27, 1995, issued to
Dobie Industries, Inc., incorporated by reference to Exhibit 4(d)
to the Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1994 (the "1994 10-K").
4(d) Registration Rights Agreement, dated February 27, 1995, by and
between the Company and Dobie Industries, Inc., incorporated by
reference to Exhibit 4(e) to the 1994 10-K.
4(e) The Company's 1995 Stock Option Plan, incorporated by reference
to Exhibit 4(f) to the Company's quarterly report on Form 10-Q
dated May 31, 1995 (the "May 1995 10-Q").
4(f) Debtors' Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code dated January 30, 1997, incorporated by reference
to Exhibit 16 to the Company's current report on Form 8-K dated
April 10, 1997.
10(a) English translation of Lease between Zona Franca Romana, S.A.
and Tortoni Manufacturing Corp., incorporated by reference to
Exhibit 10(h) to the May 1994 10-Q.
10(b) Form of Indemnity Agreement between the Company and its officers
and directors, incorporated by reference to Exhibit 10(j) to the
May 1994 10-Q.
10(c) Lease Agreement dated November 10, 1993 among Mary H. Wimbish,
William M. Johnson, Jr. and wife, Ida L. Johnson and First Union
National Bank of North Carolina, Trustee under LW&T of Robert J.
Wimbish and Springdale Fashions, Inc., incorporated by reference
to Exhibit 10(n) to the May 1994 10-Q.
10(d) Amendment to Lease Agreement dated June 1, 1994 among Mary H.
Wimbish, William M. Johnson, Jr. and wife, Ida L. Johnson and
First Union National Bank of North Carolina, Trustee under LW&T
of Robert J. Wimbish and
30
<PAGE>
<PAGE>
Springdale Fashions, Inc., incorporated by reference to Exhibit
10(o) to the May 1994 10-Q.
10(e) Insurance Agreement dated as of September 1, 1994 by and among
the Company, William L. Cohen and Peter A. Cohen and Stanley I.
Schachter, as trustees of the William L. Cohen Irrevocable Life
Insurance Trust Agreement, dated January 31, 1984, incorporated
by reference to Exhibit 10(a) to the Company's quarterly report
on Form 10-Q dated February 28, 1997.
10(f) Post-Petition Revolving Credit and Security Agreement among
Chemical Bank and Fleet Bank, N.A. as lenders, Fleet Bank, N.A.
as agent and the Company dated May 28, 1996 incorporated by
reference to Exhibit 10 to the Company's current report on Form
8-K dated May 28, 1996 (the "May 1996 8-K").
10(g) Replacement DIP Financing and Security Agreement between the CIT
Group/Commercial Services, Inc. and the Company dated as of
September 19, 1996 incorporated by reference to Exhibit 99(a) to
the Company's current report on Form 8-K dated September 19, 1996
(the "September 1996 8-K").
10(h) Amended and Restated Financing Security Agreement dated as of May
12, 1997 between the Registrant and CIT incorporated by reference
to Exhibit 99(a) to the Company's current report on Form 8-K
dated May 12, 1997 (the "May 1997 8-K").
10(i) Amended and Restated Subsidiary Security Agreement dated as of
May 12, 1997 made by Springdale, Tortoni and Stonehenge in favor
of CIT incorporated by reference to Exhibit 99(b) to the May 1997
8-K.
10(j) Amended and Restated Guaranty dated as of May 12, 1997 by
Springdale in favor of CIT incorporated by reference to Exhibit
99(c) to the May 1997 8-K.
10(k) Amended and Restated Guaranty dated as of May 12, 1997 by Tortoni
in favor of CIT incorporated by reference to Exhibit 99(d) to the
May 1997 8-K.
10(l) Amended and Restated Guaranty dated as of May 12, 1997 by
Stonehenge in favor of CIT incorporated by reference to Exhibit
99(e) to the May 1997 8-K.
10(m) Amended and Restated Security Agreement and Mortgage for
Trademarks and Patents dated as of May 12, 1997 between the
Registrant and CIT incorporated by reference to Exhibit 99(f) to
the May 1997 8-K.
10(n) Amended and Restated Security Agreement and Mortgage for
Trademarks and Patents dated as of May 12, 1997 between Tortoni
and CIT incorporated by reference to Exhibit 99(g) to the May
1997 8-K.
31
<PAGE>
<PAGE>
10(o) Amended and Restated Security Agreement and Mortgage for
Trademarks and Patents dated as of May 12, 1997 between
Springdale and CIT incorporated by reference to Exhibit 99(h) to
the May 1997 8-K.
10(p) Amended and Restated Security Agreement and Mortgage for
Trademarks and Patents dated as of May 12, 1997 between
Stonehenge and CIT incorporated by reference to Exhibit 99(i) to
the May 1997 8-K.
10(q) Intercreditor Agreement dated as of May 12, 1997 between CIT and
M.J. Sherman and Associates (the "Collateral Trustee")
incorporated by reference to Exhibit 99(j) to the May 1997 8-K.
10(r) Class 4 Note dated as May 12, 1997 made by the Registrant in
favor of the Collateral Trustee incorporated by reference to
Exhibit 99(k) to the May 1997 8-K.
10(s) Note and Collateral Trust Agreement dated as of May 12, 1997
between the Registrant, Springdale, Tortoni and Stonehenge and
the Collateral Trustee incorporated by reference to Exhibit 99(l)
to the May 1997 8-K.
10(t) Class 4 Security Agreement dated as of May 12, 1997 by the
Registrant, Springdale, Tortoni and Stonehenge in favor of the
Collateral Trustee incorporated by reference to Exhibit 99(m) to
the May 1997 8-K.
10(u) Guaranty dated as of May 12, 1997 by Springdale in favor of the
Collateral Trustee incorporated by reference to Exhibit 99(n) to
the May 1997 8-K.
10(v) Guaranty dated as of May 12, 1997 by Stonehenge in favor of the
Collateral Trustee incorporated by reference to Exhibit 99(o) to
the May 1997 8-K.
10(w) Guaranty dated as of May 12, 1997 by Tortoni in favor of the
Collateral Trustee incorporated by reference to Exhibit 99(p) to
the May 1997 8-K.
10(x) Class 4 Security Agreement and Mortgage for Trademarks and
Patents dated as of May 12, 1997 between Springdale and the
Collateral Trustee incorporated by reference to Exhibit 99(q) to
the May 1997 8-K.
10(y) Class 4 Security Agreement and Mortgage for Trademarks and
Patents dated as of May 12, 1997 between the Registrant and the
Collateral Trustee incorporated by reference to Exhibit 99(r) to
the May 1997 8-K.
10(z) Class 4 Security Agreement and Mortgage for Trademarks and
Patents dated as of May 12, 1997 between Stonehenge and the
Collateral Trustee incorporated by reference to Exhibit 99(s) to
the May 1997 8-K.
32
<PAGE>
<PAGE>
10(aa) Class 4 Security Agreement and Mortgage for Trademarks and
Patents dated as of May 12, 1997 between Tortoni and the
Collateral Trustee incorporated by reference to Exhibit 99(t) to
the May 1997 8-K.
21.1 List of subsidiaries of the Company, incorporated by reference
to Exhibit 21 to the May 1994 10-Q.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
99(a) Secured Financing Order dated May 21, 1996 Approving
Debtor-In-Possession Financing Facility approved by the United
States Bankruptcy Court for the Southern District of New York,
incorporated by reference to Exhibit 99(a) to the May 1996 8-K.
99(b) Order dated September 9, 1996 Approving Debtor-In-Possession
Financing Facility approved by the United States Bankruptcy Court
for the Southern District of New York incorporated by reference
to Exhibit 99(b) to the September 1996 8-K.
- ----------
(b) Reports on Form 8-K:
A report on Form 8-K dated March 19, 1996 was filed by the Registrant to
report that the Registrant filed a petition with the United States Bankruptcy
Court for the Southern District of New York for an arrangement pursuant to
Chapter 11 of the United States Bankruptcy Code.
A report on Form 8-K dated May 28, 1996 was filed by the Registrant to
report that the Registrant had entered into certain debtor-in-possession
financing arrangements through December 31, 1996.
A report on Form 8-K dated September 19, 1996 was filed by the
Registrant to report that the Registrant had entered into a two-year revolving
credit facility to replace the financing arrangements scheduled to terminate in
December 1996.
A report on Form 8-K dated January 31, 1997 was filed by the Registrant
to report that the Registrant had filed a Joint Plan of Reorganization (the
"Plan").
A report on Form 8-K dated March 7, 1997 was filed by the Registrant to
report a change in independent accountants.
33
<PAGE>
<PAGE>
A report on Form 8-K dated April 10, 1997 was filed by the Registrant to
report the bankruptcy court had entered an order confirming the Plan.
A report on Form 8-K dated May 12, 1997 was filed by the Registrant to
report the closing of the Company's financing facility.
34
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Andover Togs, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Andover Togs,
Inc. and subsidiaries as of November 30, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended November 30, 1995. Our audit also
included the financial statement schedule listed in the index at item 14(a)2.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule 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, such financial statements and financial statement schedule
present fairly, in all material respects, the financial position of Andover
Togs, Inc. and subsidiaries at November 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended November 30, 1995 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 9, 1996
(March 29, 1996 as to Note 5(a)
May 3, 1996 as to Note 4
December 19, 1996 as to Note 5(c)
February 4, 1997 as to Note 5(b)
May 12, 1997 as to Note 13)
F-1
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash $ 862,500 $ 583,900
Accounts receivable, net of allowance
for doubtful accounts of $310,000 in 1995
and $43,200 in 1994 (Note 4) 9,696,200 12,658,700
Inventories (Note 2) 13,290,800 13,971,800
Refundable income taxes 919,700 --
Deferred income taxes (Note 7) -- 248,100
Other current assets 257,700 224,300
---------- ----------
Total current assets 25,026,900 27,686,800
PROPERTY, PLANT AND EQUIPMENT -
Net (Notes 3, 4 and 5) 8,229,100 8,554,400
RESTRICTED FUNDS (Note 5) 360,000 360,000
OTHER ASSETS 365,200 279,100
----------- -----------
TOTAL ASSETS $33,981,200 $36,880,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - banks (Note 4) $ 6,200,000 $ 2,400,000
Accounts payable 4,612,300 4,632,100
Accrued expenses and other current liabilities
(Note 6) 2,034,100 3,049,000
Current portion of long-term debt and obliga-
tions under capital leases (Note 5) 2,019,300 1,519,800
---------- ----------
Total current liabilities 14,865,700 11,600,900
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES (Note 5) -- 5,237,700
OTHER LIABILITIES 142,300 61,000
DEFERRED INCOME TAXES (Note 7) -- 1,025,500
LIABILITIES SUBJECT TO COMPROMISE (Note 13) 4,001,600 --
----------- -----------
19,009,600 17,925,100
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 9, 10 and 12):
Common stock, $.10 par value per share
authorized 7,500,000 shares; issued
4,655,490 in 1995 and 4,542,990 in 1994 465,500 454,300
Additional paid-in capital 11,154,200 10,870,400
Retained earnings 3,992,300 8,270,900
Less treasury shares, at cost (184,675 shares
in 1995 and 1994) (640,400) (640,400)
------------ ------------
14,971,600 18,955,200
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,981,200 $36,880,300
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 80,552,300 $ 73,766,700 $ 89,289,300
COST OF GOODS SOLD 70,581,500 60,137,900 72,298,600
------------ ------------ ------------
GROSS PROFIT 9,970,800 13,628,800 16,990,700
SELLING GENERAL AND
ADMINISTRATIVE EXPENSES 13,619,300 12,480,700 15,105,700
WRITE-OFF OF COST IN EXCESS
OF NET ASSETS ACQUIRED
(Note 12) 832,400 -- --
------------ ------------ ------------
OPERATING (LOSS) INCOME (4,480,900) 1,148,100 1,885,000
INTEREST EXPENSE 1,435,300 1,006,300 1,455,500
------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME
TAX (Benefit) PROVISION (5,916,200) 141,800 429,500
INCOME TAX (BENEFIT)
PROVISION (Note 7) (1,637,600) 17,300 168,900
------------ ------------ ------------
NET (LOSS) INCOME $ (4,278,600) $ 124,500 $ 260,600
============ ============ ============
NET (LOSS) INCOME PER SHARE $ (.96) $ .03 $ .06
============ ============ ============
WEIGHTED AVERAGE SHARES 4,435,400 4,358,300 4,372,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
-------------------- Paid-in Retained -------------------
Shares Amount Capital Earnings Shares Amount Total
------ ------ ---------- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 30, 1992 4,542,990 $ 454,300 $ 10,870,400 $ 7,885,800 119,425 $ (416,100) $ 18,794,400
Purchase of treasury stock -- -- -- -- 65,250 (224,300) (224,300)
Net income -- -- -- 260,600 -- -- 260,600
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1993 4,542,990 454,300 10,870,400 8,146,400 184,675 (640,400) 18,830,700
Net income -- -- -- 124,500 -- -- 124,500
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1994 4,542,990 454,300 10,870,400 8,270,900 184,675 (640,400) 18,955,200
Issuance of Stock in
connection with Acquisition
(Note 12) 112,500 11,200 283,800 -- -- -- 295,000
Net loss -- -- -- (4,278,600) -- -- (4,278,600)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1995 4,655,490 $ 465,500 $ 11,154,200 $ 3,992,300 184,675 $ (640,400) $ 14,971,600
============ ============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net (loss) income $(4,278,600) $ 124,500 $ 260,600
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,318,600 1,365,000 1,422,900
Write-off of cost in excess of
net assets acquired 832,000 -- --
Deferred income taxes (777,400) (79,100) 76,000
Changes in operating assets and
liabilities net of acquisition:
Accounts receivable 2,962,500 (1,985,200) 3,348,200
Inventories 3,982,000 (2,759,300) 5,324,100
Refundable income taxes (919,700) -- --
Other assets (119,500) 552,600 670,600
Accounts payable 52,300 655,800 (824,400)
Accrued expenses and
other liabilities (259,700) (171,800) (683,500)
----------- ----------- -----------
Net cash provided by (used
in) operating activities 2,792,500 (2,297,500) 9,594,500
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of business (3,938,000) -- --
Capital expenditures - net (893,300) (365,700) (481,600)
----------- ----------- -----------
Net cash used in investing
activities (4,831,300) (365,700) (481,600)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net changes in notes payable - bank 3,800,000 2,400,000 (5,900,000)
Increase in long-term borrowings -- 250,000 --
Repayments of long-term debt (1,482,600) (1,497,500) (1,686,200)
Purchase of treasury stock -- -- (224,300)
----------- ----------- -----------
Net cash provided by (used
in) financing activities 2,317,400 1,152,500 (7,810,500)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 278,600 (1,510,700) 1,302,400
CASH, BEGINNING OF YEAR 583,900 2,094,600 792,200
----------- ----------- -----------
CASH, END OF YEAR $ 862,500 $ 583,900 $ 2,094,600
=========== =========== ===========
</TABLE>
(Continued)
F-5
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,406,500 $ 907,800 $1,452,600
========== ========== ==========
Income taxes $ 176,400 $ 104,800 $ 70,800
========== ========== ==========
The following liabilities which were
outstanding at November 30, 1995 and
still outstanding on March 19, 1996
have been reclassified to "liabilities
subject to compromise":
Accounts payable $ 72,100
Accrued expenses and other current
liabilities 673,900
Long term debt and obligations under
capital leases 3,255,600
----------
$4,001,600
==========
SCHEDULE OF NON CASH INVESTING ACTIVITIES:
Acquisition of business:
Fair value of assets acquired $4,233,000
Common stock issued 295,000
----------
Total cash paid $3,938,000
==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Andover Togs, Inc. (the "Company") is engaged in the design,
manufacture, import and sale of active sportswear primarily for infants,
toddlers, and children, principally to national retail stores.
The Company is headquartered in New York with manufacturing facilities
located in Alabama, North Carolina and the Dominican Republic.
Basis of Presentation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Springdale
Fashions, Inc., Tortoni Manufacturing Corporation, and Stonehenge
Financial Corporation. All material intercompany profits, transactions
and balances have been eliminated.
Fair Value of Financial Instruments - For financial instruments including
cash, accounts receivable and payable, accruals and notes payable-banks
it was assumed that the carrying amount approximated fair value because
of their short maturity. The carrying amount of long-term debt, which
bears interest at floating rates, also approximates fair value.
Concentration of Credit Risk- Financial instruments that potentially
subject the Company to concentration of credit risk consist primarily of
trade receivables. The Company extends credit to its customers based upon
an evaluation of the customer's financial condition and credit history
and generally does not require collateral. The Company has historically
incurred minimal trade losses. In years prior to 1995, the Company
maintained credit insurance on a portion of its receivable balances. At
November 30, 1995 and 1994, approximately 69% and 74%, respectively, of
the Company's net accounts receivable balances were due from three
national retail customers. Sales to these three entities comprised
approximately 30%, 29%, and 10%, respectively, of net sales for the year
ended November 30, 1995, and approximately 36%, 29%, and 10%,
respectively, of net sales for the year ended November 30, 1994.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect 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.
Inventories - Inventories are stated at the lower of cost or market. Cost
is determined on a first-in, first-out basis.
Net (loss) income per share - Net (loss) income per share is computed by
dividing net (loss) income by the weighted average number of shares
outstanding during the period. For fiscal 1995, outstanding stock options
are not included in the calculation as the effect would have been
anti-dilutive. For fiscal 1994 and 1993 outstanding stock options are not
included in the calculation as their effect was not significant.
F-7
<PAGE>
<PAGE>
Long-Lived Assets - In March 1995, the Financial Accounting Standards
Board issued Statement Number 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement is effective for fiscal years beginning after December 15,
1995. The Company does not expect the effect on its consolidated
financial condition from the adoption of this statement to be material.
Property, Plant and Equipment - Property, plant and equipment is stated
at cost less accumulated depreciation and amortization. Depreciation and
amortization are provided by the straight-line method over the following
estimated useful lives:
Years
------
Buildings 30 - 31.5
Machinery and equipment 3 - 10
Leasehold improvements Lesser of useful life
or lease term
Revenue Recognition - Revenue is recognized at the time the merchandise
is shipped.
Income Taxes - Effective December 1, 1993, the Company adopted SFAS 109,
"Accounting for Income Taxes". SFAS 109 establishes financial accounting
and reporting standards for the effects of income taxes that result from
activities during the current and preceding years. SFAS 109 requires an
asset and liability approach for financial reporting for income taxes.
It also requires the Company to adjust deferred tax balances in the
period of enactment for the effect of enacted changes in tax rates and
to provide a valuation allowance against such deferred tax assets that
are not more likely than not to be realized.
Prior to the adoption of SFAS 109, income tax expense was determined
using the deferred method. Deferred tax expense was based on items of
income and expenses that were reported in different years in the
financial statements and tax returns and were measured at the tax rate
in effect in the year the difference originate. As permitted by SFAS
109, the Company has elected not to restate the financial statements of
any prior years. There was no effect of adopting this change.
Stock Options and Warrants - In October 1995, the financial Accounting
Standards Board issued Statement of Financial Standards No. 123,
"Accounting for Stock-based Compensation," which requires adoption of
the disclosure provisions no later than fiscal years beginning after
December 15, 1995 and adoption of the measurement and recognition
provisions for non-employee transactions no later than December 15,
1995. The new standard defines a fair value method, of accounting for
stock options and other equity instruments. Under the fair value method
compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually
the vesting period.
Pursuant to the new standard, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee
stock- based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Option
No. 25, "Accounting for Stock Issued to Employees," but would be
required to disclose in a note to the financial statements pro forma net
income and pro forma earnings per share as if the company had applied
the new method of accounting. The new standard also requires increased
disclosures for stock-based compensation arrangements regardless of the
method chosen to measure and recognize compensation for employee
stock-based arrangements.
F-8
<PAGE>
<PAGE>
The accounting requirements of the new method are effective for all
transactions entered into during the fiscal year of adoption. The
company has not yet determined if it will elect to change to the fair
value method, nor has it determined the effect the new standard will
have on net income and earnings per share should it elect to make such a
change.
2. INVENTORIES
<TABLE>
<CAPTION>
November 30,
--------------------------------
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 2,995,000 $ 3,458,100
Work-in-process 3,252,800 4,596,800
Finished goods 7,043,000 5,916,900
----------- -----------
$13,290,800 $13,971,800
=========== ===========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
November 30,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Land $ 14,100 $ 14,100
Buildings 6,272,400 6,264,100
Leasehold improvements 2,595,300 2,113,800
Machinery and equipment 11,615,800 11,153,500
----------- -----------
20,497,600 19,545,500
Less accumulated depreciation
and amortization 12,268,500 10,991,100
----------- -----------
$ 8,229,100 $ 8,554,400
=========== ===========
</TABLE>
4. NOTES PAYABLE - BANKS
Effective May 31, 1995, the Company renewed its credit agreement which
provided for a $22,216,000 line of credit and a $7,400,000 letter of
credit facility, subject to maximum aggregate borrowings of $26,000,000.
Related loans bore interest at prime (8 3/4% at November 30, 1995) plus
1/2%. The Company was expected to maintain a 5% compensating balance on
outstanding loans and has pledged its accounts receivable and imported
inventories under letters of credit and certain personal property and
equipment as collateral. The outstanding balance as of November 30,
1995, plus additional borrowings through March 19, 1996, were repaid on
May 3, 1996.
The maximum amounts outstanding during the years ended November 30,
1995, 1994 and 1993 were approximately $13,900,000, $10,200,000 and
$15,700,000, respectively. Average short-term borrowings during the
years ended November 30, 1995, 1994 and 1993 were approximately
$7,308,000, $2,689,000 and $8,842,000 respectively, and the weighted
average interest rates thereon were approximately 9.3%, 7.9%, and 6.5%,
respectively.
The average amount outstanding was determined by the average of
month-end balances. The weighted average interest rate was determined by
dividing interest expense on short-term debt by the average amount
outstanding during the year.
F-9
<PAGE>
<PAGE>
5. LONG-TERM DEBT, OBLIGATIONS UNDER CAPITAL LEASES AND LIABILITIES SUBJECT
TO COMPROMISE.
<TABLE>
<CAPTION>
November 30,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Term note - bank (a) $ 1,750,000 $ 2,750,000
Obligation under capital lease (b) 3,055,000 3,255,000
Obligation under capital lease (c) 239,100 430,400
Other 230,800 322,100
----------- -----------
5,274,900 6,757,500
Less current portion (2,019,300) (1,519,800)
Liabilities subject
to compromise (3,255,600) --
----------- -----------
$ -- $ 5,237,700
=========== ===========
</TABLE>
(a) Effective May 31, 1994, the Company and its lenders amended its
revolving credit facility which contained revised financial covenants
and extended the maturity date of the term loan to be paid in quarterly
installments through August 31, 1997. The term note was paid on March
29, 1996.
(b) During 1989, a municipality issued an Industrial Revenue Bond in the
principal amount of $3,600,000, the proceeds of which were used to
finance the construction of a 200,000 square foot manufacturing and
distribution facility in Scottsboro, Alabama. This transaction has been
accounted for as a capital lease. The bond was payable in annual
installments of varying amounts through 2004. Interest was payable
semiannually at 9-7/8% per annum. The bonds were collateralized by the
building, equipment and restricted cash with a net carrying value of
$2,620,700 at November 30, 1996. On February 4, 1997, these assets were
exchanged in connection with the release of claims relating to this
facility.
(c) During 1985, a municipality issued an Industrial Revenue Bond for
$2,200,000 for the construction of a distribution center. This
transaction has been accounted for as a capital lease. The bond was
payable in quarterly installments of approximately $47,800 through
December 1996, plus interest at 72% of prime. The bond was
collateralized by building and equipment with a net carrying value of
$909,000 at November 30, 1995. This indebtedness was satisfied on
December 19, 1996.
At November 30, 1995, original repayments terms for the principal portion
of long-term debt and obligations under capital leases were as follows:
Year Amount
---- ------
1996 $ 1,547,100
1997 1,137,800
1998 270,000
1999 295,000
2000 330,000
Thereafter 1,695,000
-----------
$ 5,274,900
===========
The foregoing debt agreements contained cross defaults and restrictive
covenants on the payment of dividends and require the Company to maintain,
F-10
<PAGE>
<PAGE>
among other things, minimum levels of net income, net worth and working
capital.
At November 30, 1995, the Company was not in compliance with many of the
covenants of the revolving credit facility and term loans as well as the
Industrial Revenue Bonds, thereby causing defaults under those agreements.
The Company has been unsuccessful in obtaining waivers from these lenders
(Note 13).
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
November 30,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Accrued payroll $ 842,700 $ 733,100
Other 1,191,400 2,315,900
---------- ----------
$2,034,100 $3,049,000
========== ==========
</TABLE>
7. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ (868,600) $ (38,200) $ 41,000
State and local 8,400 134,600 51,900
----------- ----------- -----------
Total Current (860,200) 96,400 92,900
Deferred (777,400) (79,100) 76,000
----------- ----------- -----------
$(1,637,600) $ 17,300 $ 168,900
=========== =========== ===========
</TABLE>
The benefit provision for income taxes differs from amounts computed at
statutory rates as follows:
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at
statutory rates $(2,011,500) $ 48,200 $ 146,000
Increase (decrease)resulting
from:
Valuation allowance 352,500 -- --
State and local taxes,
net of Federal income
tax benefit 30,100 88,700 34,100
Reversal of prior years'
under (over) provision 8,000 (92,200) (48,000)
Effect of adoption of
SFAS No.109 -- (46,500) --
Other (16,700) 19,100 36,800
----------- ----------- -----------
$(1,637,600) $ 17,300 $ 168,900
=========== =========== ===========
</TABLE>
The tax effects of significant items comprising the Company's net deferred taxes
as of November 30, 1995 and 1994 are as follows:
F-11
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
November 30, November 30,
1995 1994
------------ -------------
<S> <C> <C>
Deferred tax liabilities:
Difference between book and tax,
basis of property $ 870,100 $ 1,048,500
----------- -----------
Deferred tax assets:
Expenses capitalized into inventory $ 157,000 $ 159,700
Expenses not currently deductible 46,300 72,000
Reserves not currently deductible 118,400 16,400
Recapture of alternative minimum tax 63,300 --
Net operating loss 893,300 --
Other 54,400 23,000
----------- -----------
$ 1,332,700 $ 271,100
----------- -----------
Net deferred tax asset (liability) $ 462,600 $ (777,400)
Less valuation allowance (462,600) --
----------- -----------
Net deferred tax asset (liability) -- (777,400)
=========== ===========
</TABLE>
At November 30, 1995, the Company has a federal net operating loss carryforward
for income tax purposes of approximately $2,288,000, which will expire in 2010.
8. COMMITMENTS AND CONTINGENCIES
a. Effective March 1, 1994, the Company renegotiated the lease for
its executive office and showroom located in New York. The new
lease expires on April 30, 2004, and provides for minimum annual
rental payments ranging from approximately $766,000 to $932,000.
The Company leases various warehousing, manufacturing and office
facilities and equipment under operating leases. Future minimum
rental payments under these leases as of November 30, 1995 are
as follows:
Year Amount
---- ------
1996 $ 989,600
1997 1,043,600
1998 1,008,000
1999 978,500
2000 853,800
Thereafter 3,266,500
----------
$8,140,000
==========
Rental expense was $839,000, $1,350,000 and $1,361,000 for the
years ended November 30, 1996, 1995, and 1994, respectively. See
Note 13 with respect to the rejection of the New York lease.
b. At November 30, 1995, the Company was contingently liable for
open letters of credit of approximately $4,687,000.
c. The Company had an employment agreement with its President
through June 1996 that provided for compensation of $500,000 per
year or such greater amount from time to time determined by the
Board of Directors plus a bonus in an amount equal to 5% of
pre-tax income up to $3,000,000 and 6% pre-tax income in excess
of $3,000,000. For the year ended November 30, 1994, the
President waived his bonus. Compensation is also payable in the
event of disability for a defined period and the employment
agreement has provisions for a death benefit of approximately
one year's compensation to be paid to a beneficiary, if the
individual is employed by the Company at time of death. The
Company maintains life insurance on this individual for an
amount in excess of this obligation.
F-12
<PAGE>
<PAGE>
d. In 1995, 1994, and 1993 a shareholder related to the President
rendered financial and management consulting services to the
Company for $75,000 in fees plus certain benefits.
e. An individual related to the President had a five-year
consulting arrangement, expiring April 1997, which provided for
fees of $60,000 per year.
9. COMMON STOCK
Certain related stockholders have entered into a stockholders' agreement
which provides that substantially all of their stock be voted jointly by
two of these stockholders, grants rights of first refusal regarding
sales of stock by another related stockholder, and requires the
mandatory purchase of certain shares by them upon death.
10. STOCK OPTION PLAN
The Company adopted a new non-qualified and incentive stock option plan
in May 1995 (the "1995 Plan"), which provided for options to be granted
for the purchase of up to 225,000 shares of common stock at prices not
less than 80% for the non-qualified options and 100% for the incentive
options of the fair market value of the common stock at the date of the
grant. Options granted under the incentive stock options are intended to
qualify under Section 422 of the Internal Revenue Code. As of November
30, 1995, no stock options have been granted under this plan.
Prior to May 1995, the Company maintained a non-qualified stock option
plan (the "old plan"), which provided for options to be granted for the
purchase of up to 593,750 shares of common stock at prices not less than
85% of the fair market value of the common stock at the date of grant.
The options are not exercisable until one year after grant and are
exercisable at a rate of 25% per year thereafter. No further options may
be granted under the plan.
The Company also maintained an Incentive Stock Option Plan (the "ISOP")
which provided for the issuance of options for the purchase of an
aggregate of 103,125 shares of common stock. Option grants under the
ISOP were intended to qualify under Section 422 of the Internal Revenue
Code. No options were granted under this plan.
A summary of activities for the stock options granted under the old Plan
is as follows:
<TABLE>
<CAPTION>
Number
of
Shares Price per Share
------ ----------------
<S> <C> <C>
Options outstanding,
November 30, 1992 316,300 $2.088 - $5.816
Granted 40,000 $3.125 - $3.25
Cancelled (19,200) $2.36 - $4.40
--------
Options outstanding,
November 30, 1993 337,100 $2.088 - $5.816
Granted 10,000 $2.125
Cancelled (102,100) $2.36 - $4.64
--------
Options outstanding,
November 30, 1994 245,000 $2.088 - $5.816
Granted 146,500 $1.875 - $2.50
Cancelled (28,600) $2.125 - $4.40
--------
</TABLE>
F-13
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Options outstanding,
November 30, 1995 362,900 $1.875 - $5.816
======= ====== ======
Exercisable at November 30, 1995 179,900
=======
</TABLE>
There were 225,000 shares reserved for future grant at November 30,
1995.
The options expire beginning January 1996 through April 2002.
11. DEFINED CONTRIBUTION PLAN
The Company maintains a plan subject to Section 401(k) of the Internal
Revenue Code. All full-time employees who complete at least one year
service and have attained the age of 20-1/2 are eligible to participate.
The Company may, at its sole discretion, make certain matching
contributions to this plan. The Company made no contributions in 1995,
1994 and 1993.
12. ACQUISITION
On February 27, 1995, the Company acquired the inventory, tradenames and
customer orders of Dobie Industries, Inc., a manufacturer of children's
and women's apparel. The purchase price was approximately $3,900,000 in
cash, including acquisition fees, 112,500 shares of the Company's common
stock and a warrant to purchase 50,000 additional shares of stock at
$2.50 per share. Under certain conditions the Company may be required to
repurchase 100,000 shares at $5.00 per share in five years.
Additionally, the agreement also provides for maximum contingent
payments of $4,000,000 over the next five years based on the Company's
consolidated future operations. The acquisition was accounted for as a
purchase and gave rise to $832,000 of cost in excess of net assets
acquired. Substantial difficulties were encountered in implementing the
acquisition. The Company phased out the ladies apparel division and was
not successful in expanding its business with Dobie's former customers.
In November 1995, based on an evaluation of Dobie's projected future
operations, management wrote-off the cost in excess of net assets
acquired.
13. SUBSEQUENT EVENTS
During the year ended November 30, 1995, the Company incurred losses of
$4,278,600 and was unable to comply with certain covenants of its
existing debt agreements. Negotiations with the Company's lenders to
obtain waivers in connection with such defaults were unsuccessful.
Negotiations with such lenders and other prospective lenders to obtain
more permanent financing were also unsuccessful. As a result of the
ensuing severe liquidity crisis, on March 19, 1996, the Company filed
for protection under Chapter 11 of the United States Bankruptcy Code.
Subsequent to March 19, 1996, the Company obtained debtor-in- possession
financing with its existing lenders to expire in December 1996. On
September 19, 1996, the Company obtained debtor-in-possession financing
("DIP Facility") which expires in September 1998 and has therefore been
able to continue operations as a debtor-in-possession. This facility
replaced the credit facility which was due to expire in December 1996.
The DIP Facility provided for a $15,000,000 revolving credit line of
which $5,650,000 is available for letters of credit. Advances under the
revolver bore interest at prime plus 1%. The advances were based on 85%
of eligible accounts receivable plus 50% of eligible inventory and were
collateralized by substantially all of the Company's assets. The debt
agreement contained restrictive covenants relating to the pledging of
assets, borrowed funds, additional indebtedness, sale of assets, mergers
and payment of dividends. In addition, the Company was required to
comply with certain financial covenants.
F-14
<PAGE>
<PAGE>
The Company took the following actions, among others, to reorganize the
Company's business and enable it to emerge from bankruptcy.
An approximately 200,000 square foot leased facility in Scottsboro,
Alabama used for finishing, warehousing, distribution and office space
has been closed. A 65,300 square foot leased facility in Springdale,
North Carolina, used for sewing, finishing, warehouse and distribution
was closed. A 15,000 square foot owned facility in Stevenson, Alabama
used for sewing has been closed and is being held for sale. Many of the
operations previously conducted at Scottsboro, Springdale and Stevenson
have been consolidated at the Company's remaining facilities in Pisgah,
Alabama or New York City and many of the operations previously conducted
in those facilities and in Pisgah are or will be subcontracted out to
unaffiliated manufacturers.
The Company moved its executive offices and showrooms from the 34,500
square foot space located at One Penn Plaza, New York, New York, leased
at an annual cost ranging from $766,000 to $932,000 to a 15,700 square
foot space at 1333 Broadway, New York, New York, leased at an annual
cost ranging from $224,000 to $267,000. As a result of this move the
Company wrote off approximately $615,000 of leasehold improvements. The
new lease expires in 2001.
Historically, the Company's products were manufactured in girls; sizes
infant through 14 and boys' sizes infant through 20. The Company
discontinued its big boys division leaving it with girl sizes infant
through 14 and boys sizes infant through toddler. Approximately six
personnel previously employed by the Company whose focus was exclusively
on the import business have been terminated.
Subsequent to the bankruptcy filing, the Company significantly reduced
its workforce.
The Company is endeavoring to sell its non-core assets, consisting
primarily of manufacturing equipment and discontinued manufacturing
facilities.
Senior management has been reorganized, William L. Cohen continues as
Chairman and Chief Executive Officer and Alan Kanis as Chief Financial
Officer, Stephen L. Fenyves, Senior Vice President, previously in charge
of Administration, has had his duties expanded to include
administration, manufacturing and sourcing.
Management continues to challenge its existing overhead structure and is
working with outside consultants to implement additional overhead
reductions and operating efficiencies.
Pre-petition liabilities are subject to being paid or compromised under
a plan of reorganization to be voted upon by all impaired classes of
creditors and approved by the Bankruptcy Court. Pre-petition liabilities
as of November 30, 1995 outstanding prior to the March 19, 1996 filing
are $4,001,600.
On February 28, 1997, the Company filed its Plan of Reorganization under
Chapter 11 of the Bankruptcy Code. The Plan, among other things,
classifies the claims in categories for payment. The priority and
convenience class claims (under $2,000) are to be paid immediately. The
general unsecured claims are to be paid 100% of their claim with
interest at 6% per annum, payable in quarterly installments of principal
and interest commencing on June 30, 1997 based on a ten-year
amortization schedule with the balance payable on the fifth anniversary.
The Company has also received a commitment for exit financing.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts that might
be necessary should the Company be unable to continue as a going
concern. The
F-15
<PAGE>
<PAGE>
following liabilities outstanding as of November 30, 1995 and still
outstanding on March 19, 1996 have been reclassified to "Liabilities
Subject To Compromise" in the accompanying consolidated balance sheet as
of November 30, 1995.
Accounts payable $ 72,100
Accrued expenses and other
current liabilities (Note 6) 673,900
Long-term debt and obligations
under capital leases (Note 5) 3,255,600
----------
$4,001,600
==========
Due to the filing for protection under Chapter 11 of the Bankruptcy
Court, the Company incurred expenses relating to the hiring of
professionals, and facility closing costs for the year ended November
30, 1996 as follows:
Professional fees $2,447,700
Write off of property and
equipment relating to
facility closings 1,542,300
Moving expenses 365,600
Severance pay 274,900
Lease rejection claim 1,000,000
Employment agreement claims 458,300
Various other 286,100
----------
$6,374,900
==========
On May 12, 1997, the Company emerged from Chapter 11 and entered into a
new financing agreement with CIT/Group Commercial Services, Inc. for a
two year $10.5 million revolving credit facility. This facility replaces
the DIP financing facilities discussed above.
14. QUARTERLY DATA (UNAUDITED)
Selected quarterly operating data is as follows (in thousands of
dollars, except per share amounts):
<TABLE>
<CAPTION>
Net
Net Gross (Loss) Per Share
Quarter Ended Sales Profit Income Information
------------- ----- ------ ------ -----------
1995
----
<S> <C> <C> <C> <C>
February $15,016 $2,738 $(367) $(.08)
May 18,751 3,602 (231) (.05)
August 24,616 3,308 (486) (.11)
November 22,169 323 (3,195) (.72)
-------- -------- -------- --------
$80,552 $9,971 $(4,279) $(.96)
======== ======== ======== ========
1994
----
February $11,227 $2,100 $(772) $(.18)
May 15,724 3,587 15 --
August 18,988 2,681 (393) (.09)
November 27,828 5,261 1,275 .30
-------- -------- -------- --------
$73,767 $13,629 $ 125 $.03
======== ======== ======== ========
</TABLE>
F-16
<PAGE>
<PAGE>
Schedule II
ANDOVER TOGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
-------------------------
(1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts Deductions at End
of Period Expenses Describe Describe of Period
--------- --------- ------------- ---------- ----------
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C> <C>
Year ended
November 30, 1995 $ 43,200 $ 266,800 $ $ $310,000
========= ========== ======== ========= ========
Year ended
November 30, 1994 $ 72,400 $ $ $ 29,200(A) $ 43,200
========= ========== ======== ========= ========
Year ended
November 30, 1993 $ 115,000 $ $ $ 42,600(A) $ 72,400
========= ========== ======== ========= ========
</TABLE>
(A) Write-off of uncollectible accounts.
F-17
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 15, 1997
ANDOVER TOGS, INC.
By: /s/ William L. Cohen
----------------------
William L. Cohen, Chairman
of the Board, President and
Chief Executive Officer
By: /s/ Alan Kanis
------------------------
Alan Kanis, Treasurer, Chief Financial
and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ George S. Blumenthal Director August 15, 1997
- ----------------------------------
George S. Blumenthal
/s/ Peter A. Cohen Director August 15, 1997
- ----------------------------------
Peter A. Cohen
/s/ William L. Cohen Director, Chairman of the August 15, 1997
- ---------------------------------- Board President and
William L. Cohen Chief Executive Officer
/s/ Donald D. Shack Director and Secretary August 15, 1997
- ----------------------------------
Donald D. Shack
/s/ Monte Wolfson Director August 15, 1997
- ----------------------------------
Monte Wolfson
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
<PAGE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement No.
33-33963 of Andover Togs, Inc. on Form S-8 relating to 250,000 shares of $.10
par value Common Stock issuable under the Incentive Stock Option Plan and
Non-Qualified Stock Option Plan, of our report dated February 9, 1995 (March 29,
1996 as to Note 5(a), May 3, 1996 as to Note 4, December 19, 1996 as to Note
5(c), February 4, 1997 as to Note 5(b) and May 12, 1997 as to Note 13) appearing
in the Annual Report on Form 10-K of Andover Togs, Inc. and subsidiaries for
the year ended November 30, 1995, and to the reference to us under the heading
"Experts" in the Prospectus, which is part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
New York, New York
August 15, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-1-1994
<PERIOD-END> NOV-30-1995
<CASH> 862,500
<SECURITIES> 0
<RECEIVABLES> 10,006,200
<ALLOWANCES> 310,000
<INVENTORY> 13,290,800
<CURRENT-ASSETS> 25,026,900
<PP&E> 20,497,600
<DEPRECIATION> 12,268,500
<TOTAL-ASSETS> 33,981,200
<CURRENT-LIABILITIES> 14,865,700
<BONDS> 0
0
0
<COMMON> 465,500
<OTHER-SE> 11,154,200
<TOTAL-LIABILITY-AND-EQUITY> 33,981,200
<SALES> 80,552,300
<TOTAL-REVENUES> 80,552,300
<CGS> 70,581,500
<TOTAL-COSTS> 70,581,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,435,300
<INCOME-PRETAX> (5,916,200)
<INCOME-TAX> (1,637,600)
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