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UNITED STATES
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
For the fiscal year ended DECEMBER 31, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9635
BISCAYNE APPAREL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0200397
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(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
1373 BROAD STREET, CLIFTON, NEW JERSEY 07013
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including Area Code) (201) 473-3240
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock American Stock Exchange
$0.01 par value per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X} No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) 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 number of shares outstanding of the registrant's common stock, as
of February 28, 1997, was as follows:
COMMON STOCK, PAR VALUE $.01 10,741,819
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(Title of each class) (Number of shares)
The aggregate market value of common stock held by non-affiliates of
the registrant at February 28, 1997 was $8,257,823, based on a $1.16 average of
the high and low sales prices for the common stock on the American Stock
Exchange on such date. For purposes of this computation, all executive officers,
directors and beneficial owners of 5% or more of the registrant's common stock
have been deemed to be affiliates. Such determination should not be deemed to be
an admission that such persons are, in fact, affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference from the Company's definitive proxy statement (to be filed pursuant
to Regulation 14A).
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Biscayne Apparel, Inc. (the "Company" or "BAI") is an apparel
manufacturer dedicated to designing, manufacturing, and marketing high quality
products on a worldwide basis. Biscayne Apparel International, Inc. ("BAII") and
M&L International, Inc. ("M&L") are wholly-owned subsidiaries of the Company.
BAII operates through two divisions, Andy Johns Fashions International ("Andy
Johns") and Varon, and its wholly-owned subsidiaries, Mackintosh of New England
Co. ("Mackintosh"), Mackintosh (UK) Limited and Amy Industries De Honduras, S.A.
de C.V., which was organized in 1995. M&L's wholly-owned subsidiaries are Unidex
Garments (Philippines), Inc. ("Unidex"), Watersports Garment Manufacturing, Inc.
("Watersports"), Teri Outerwear Manufacturing, Inc. ("Teri"), GES Sportswear
Manufacturing Corp. ("GES") and M&L International (H.K.) Limited. As of March 1,
1996, Unidex, Watersports, Teri and GES ceased operations due to operating
losses caused by labor cost increases and production inefficiencies.
Andy Johns is a designer and distributor of women's and children's
outerwear; Varon is a designer and manufacturer of girl's and boy's underwear
and girl's daywear; Mackintosh is a designer and manufacturer of women's wool
coats and active outerwear; and M&L is a designer, manufacturer and distributor
of infants', toddlers' and children's outerwear, sportswear, and swimwear.
Unless the context indicates otherwise, the "Company" includes Biscayne
Apparel, Inc., its subsidiaries and their respective divisions. All information
relates to continuing operations of the Company.
The Company operates in a single industry segment: women's and
children's apparel. For the year ended December 31, 1996, three customers
represented approximately 34% of total sales. These customers, Target and
Mervyn, divisions of Dayton Hudson Corporation ("Target" and "Mervyn"), Wal-Mart
Stores, Inc. ("Wal-Mart") and Sears, Roebuck and Co. ("Sears"), represented
14%, 10%, and 10% of total sales, respectively. For the year ended December 31,
1995, Target accounted for approximately 11% of total sales. Approximately 34%
of the Company's total sales for the year ended December 31, 1994 were derived
from two major customers. These customers, Wal-Mart and Target, represented 19%
and 15% of total sales, respectively, in 1994.
RESTRUCTURING PLAN
During 1996, the Company developed a restructuring plan which, as
described below, outlined the following objectives to be accomplished during
1996 and 1997: (i) simplify the organizational
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structure with a corresponding decrease in salaried headcount, (ii) implement a
cost reduction program targeting both fixed and variable costs throughout the
Company, (iii) reconfigure women's outerwear design, merchandising, production
and sales organization to better service its customer base at a lower cost (iv)
identify the sale or closure of non-strategic assets and manufacturing
facilities, and (v) implement an asset management program directed at reducing
inventories, accounts receivable, outstanding indebtedness, and interest
expense.
The restructuring plan developed by the Company during 1996 focused on
achieving the following objectives:
SIMPLIFYING THE ORGANIZATIONAL STRUCTURE AND REDUCING SALARIED
HEADCOUNT. During 1996 the Company's organizational structure was analyzed and
simplified, resulting in the termination of a number of senior and middle
managers, primarily within its women's outerwear business. This action resulted
in an annualized reduction in salaried personnel costs of approximately
$1,750,000 million by December 31, 1996, compared to salaried personnel costs on
an annual basis for the Company prior to the restructuring, excluding one-time
severance and other personnel-related costs associated with the restructuring.
IMPLEMENTATION OF COST REDUCTION PROGRAM TARGETING BOTH FIXED AND
VARIABLE COSTS. Throughout 1996 the Company analyzed selling, general and
administrative expense items for further control and/or reduction. In the fourth
quarter of 1996 the Company terminated its contract with a warehouse and
distribution facilitator in Kentucky and moved such functions to a warehouse and
distribution facilitator in the state of Washington, at a significantly reduced
cost. During 1996 the Company began implementing co-operative sourcing among its
outerwear product groups, utilizing a network of existing overseas satellite
offices and staff. These actions, when combined with other aspects of the
restructuring plan, have resulted in higher gross margins and lower selling,
general and administrative costs in 1996.
THE RECONFIGURATION OF THE WOMEN'S OUTERWEAR DESIGN, MERCHANDISING,
PRODUCTION AND SALES ORGANIZATION TO BETTER SERVICE ITS CUSTOMER BASE AT A LOWER
COST. During late 1995 and early 1996, the Company redesigned its women's
outerwear lines with a new product development team, which continued to change
throughout 1996. During this same timeframe, the Company improved its 1996
women's outerwear sales and marketing effort with the addition of new and proven
personnel. The results were a 16% increase in Andy Johns and Mackintosh's
combined sales in 1996. Additionally, foreign production agents, used to assist
with women's outerwear production, were replaced with Company personnel, thereby
reducing costs and improving controls.
THE IDENTIFICATION AND SALE OR CLOSURE OF NON-STRATEGIC ASSETS AND
MANUFACTURING FACILITIES. During the first quarter of 1996 the Company sold its
20% interest in Hartwell Sports, Inc. for
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$1,750,000, which generated a 1996 gain of $123,000. Proceeds were used to
reduce debt. Also, during the first quarter of 1996, the Company closed its
manufacturing facilities in the Philippines due to operating losses caused by
labor increases and production inefficiencies. This production was successfully
outsourced to low cost foreign manufacturing facilities. During the third and
fourth quarters of 1996, the Company closed several domestic production and
warehousing facilities, and successfully moved these to its new manufacturing
facility in Honduras.
THE IMPLEMENTATION OF AN ASSET MANAGEMENT PROGRAM TO REDUCE WORKING
CAPITAL AND DEBT. The Company successfully reduced accounts receivable from
$18,271,000 at December 31, 1995 to $14,374,000 at December 31, 1996;
inventories from $25,890,000 at December 31, 1995 to $14,554,000 at December 31,
1996 and debt from $31,794,000 at December 31, 1995 to $14,167,000 at December
31, 1996.
Products and Customers: Andy Johns, Mackintosh's and M&L's principal
products and customers are:
/bullet/ WOMEN'S AND CHILDREN'S OUTERWEAR: Andy Johns/registered/, a
designer and distributor of women's and children's outerwear,
was founded in 1975. Andy Johns provides functional and
affordable women's and children's outerwear. To that end, it
offers a line known as "active outerwear", which caters to
the active woman. These products are made for daily use, with
several styles doubling as exercise gear.
Andy Johns produces a broad product line, appealing to a
customer base of all age groups. Andy Johns is less driven by
near-term styles and fads than its competitors, preferring to
market outerwear that is contemporary in design and
responsive to customer preferences, yet has a consistency to
its appeal.
Also, unlike many others in the outerwear industry that
market almost exclusively fall lines, Andy Johns also
produces a spring line. This provides continuing visibility
and helps reduce the seasonality of its business.
To expand its product lines, Andy Johns Kids/registered/ was
begun in mid-1987, and sells outerwear targeted for children
in the 2 to 14 age range. Andy Johns also markets its active
outerwear under the KAOS/registered/ and KAOTIC/trademark/
labels. In 1995 Andy Johns introduced its Lee
Lipton/trademark/ brand of outerwear, which initially had
been offered on an exclusive basis to one customer. Andy
Johns, Andy Johns Kids, KAOS, KAOTIC, and Lee Lipton share
showroom space in New York.
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Andy Johns imports the majority of its inventory, primarily
from Asian manufacturers. Although not foreseen, should
import quotas be substantially tightened, Andy Johns may need
to import products from alternate overseas sources, or to
engage in increased domestic production, which could increase
costs.
In 1991, the Company established Mackintosh/trademark/ to
acquire the operations, through an asset purchase, of New
England Mackintosh Co., Inc. ("Old Mackintosh"). Old
Mackintosh was a well-known domestic manufacturer of fine
women's wool coats. Mackintosh markets spring and fall lines.
Mackintosh also markets its active outerwear under the All
Outdoors/registered/ label. The Company also established
Mackintosh (UK) Limited to distribute Mackintosh products
into the European markets, primarily the United Kingdom. Such
sales were not significant.
During 1994 Mackintosh introduced a new imported active
outerwear line. Pricing pressure from imported wool products
has prompted Mackintosh to seek offshore production for a
portion of its wool line, which it began in 1995 and expanded
in 1996. Mackintosh primarily markets its products through a
New York showroom.
In November 1994, the Company acquired M&L International,
Inc. M&L, which was founded in 1919, is one of the largest
U.S. based manufacturers of children's outerwear. M&L markets
its outerwear products under the Weather Tamer/registered/
brand name, which it owns, and the OshKosh B'Gosh/registered/
and Bon Jour/registered/ brand names, which it licenses. M&L
also produces children's sportswear and swimwear products,
which are marketed under its Eclipse/regsitered/ brand name.
M&L markets spring and fall lines. M&L has showrooms in
Chicago, New York, and Atlanta, and has manufacturing and
sourcing operations in Hong Kong, Bangladesh, and Sri Lanka.
M&L's extensive overseas sourcing and quality assurance
operations, coupled with a proven network of manufacturers,
allow it to offer a fashionable quality product at
competitive prices to its customers, while sustaining
attractive profit margins. Although not foreseen, should
import quotas be substantially tightened, M&L may need to
import products from alternative overseas sources, or to
engage in increased domestic production, which could increase
costs.
For the three years ended December 31, 1996, 1995, and 1994,
Andy Johns', Mackintosh's and M&L's combined net sales
represented 79%, 76%, and 72% respectively, of the Company's
total net sales. M&L's net sales are included from November
30, 1994, the date of acquisition.
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/bullet/ CHILDREN'S UNDERWEAR AND DAYWEAR: Varon has been operating for
approximately 70 years as a manufacturer of girls' underwear
and daywear and sells primarily to chain stores, mass
merchandisers, and discounters.
In addition to its thermal underwear line, Varon introduced an
interlock cotton long underwear line. The majority of Varon's
underwear and interlock underwear line is 100% cotton, while
its thermal underwear line is 65% cotton/35% polyester. Varon
also manufactures 50/50 poly/cotton underwear for selected
accounts. Varon's underwear line has been expanded to include
girls' daywear sets and boys' underwear in thermal, cotton
interlock and jersey fabrics. Varon markets its products
through a New York showroom and its Florida based
administrative offices.
For the three years ended December 31, 1996, 1995 and 1994,
Varon's net sales represented 21%, 24% and 28%, respectively,
of total net sales.
MARKETING AND DISTRIBUTION: The Company markets and sells the majority
of its products directly to retailers with a portion sold through sales
representatives to retail specialty stores.
Andy Johns' finished goods and Mackintosh's imported inventory are
warehoused in Washington. Mackintosh manufactures and warehouses inventories in
Massachusetts, Varon manufactures and warehouses its goods in Georgia and
Florida, and M&L warehouses its finished goods in Washington.
SUPPLIERS: The Company purchases the raw materials required in
connection with its operations from a variety of sources. The Company believes
that it has satisfactory relationships with its suppliers, most of which have
been suppliers to Biscayne for many years.
BACKLOG: The dollar amounts of backlog orders as of December 31, 1996
and 1995 were $15,941,000 and $17,712,000, respectively. The dollar amounts of
backlog orders as of March 14, 1997 and March 15, 1996, were $63,470,000 and
$52,148,000, respectively.
COMPETITION
The women's and children's outerwear business is highly competitive.
The principal areas of competition in this industry are product quality, style
and price. Andy Johns and M&L's products are primarily sold to department
stores, specialty stores and mass merchandisers. Market entry is difficult,
although many major garment manufacturers produce active outerwear.
Historically, however, the majority of these companies tend not to remain in
this market very long, principally due to slow turnover and seasonality. Andy
Johns and M&L allocate their resources to produce contemporary and timely
merchandise, rather than trying to become a fashion
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leader, which could result in loss of sales.
Mackintosh's principal area of competition in the women's wool business
is also product quality, style, and price. Mackintosh's products are sold to
department and specialty stores. Entry into the market is difficult since
successful companies need long established brand name recognition and, because
of the limited season, the business is capital intensive. Mackintosh's products
are primarily classic in style, and are generally not subject to trends.
The girl's and boy's underwear and girl's daywear apparel markets are
highly competitive. Varon competes primarily in what is referred to as the
"downstairs" portion of the market through sales to mass merchandisers, chain
stores and discounters. Quality of product and style, packaging, timely
delivery, and price are the principal areas of competition in this industry. The
Company believes the quality of Varon's products equals or exceeds that of the
similar higher priced products of its competition. Varon's concentration on new
product development, quality, and timely delivery has resulted in a broadening
of its customer base.
TRADEMARKS
The Company has registered the Andy Johns/registered/,
KAOS/registered/, Weather Tamer/registered/ and Eclipse/registered/ trademarks
with the United States Patent and Trademark Office. In the opinion of
management, the Company's trademark position is protected in all its business
markets. Additionally, M&L markets its outerwear under the OshKosh
B'Gosh/registered/ and Bon Jour/registered/ brand names, which it licenses.
SEASONALITY
Sales of women's and children's outerwear are seasonal. Historically,
Andy Johns, Mackintosh, M&L, and Varon have significantly higher revenues in the
third and fourth quarters than in the first and second quarters. Therefore, the
results of any interim period are not necessarily indicative of the results for
a full year. Additionally, there is a risk inherently related to the outerwear
industry, resulting from dependence on consumer reactions to weather patterns,
which have had a material effect on the Company's sales and profitability.
ENVIRONMENTAL REGULATION
The Company is subject to certain federal, state and local
environmental laws and regulations. Compliance with environmental laws and
regulations has not had a material effect on the Company's capital expenditures,
earnings or competitive position in the past, and is not expected to have a
material effect on the Company's future operations.
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EMPLOYEES
As of December 31, 1996, the Company employed approximately 930
persons. None of the Company's employees are represented by a labor union. The
Company considers its relations with employees to be satisfactory.
ITEM 2. PROPERTIES
The following table describes, as of December 31, 1996, the operating
facilities owned or leased by the Company containing an aggregate of
approximately 508,300 square feet. Management believes that all of the Company's
facilities are adequate for their respective purposes.
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<TABLE>
<CAPTION>
ANNUAL
LEASE
APPROXIMATE LOCATION SQUARE FEET RENTAL EXPIRATION DATE PRINCIPAL USE
- -------------------- ----------- ------- --------------- --------------------------------
<S> <C> <C> <C> <C>
Arlington, GA 100,000 (1) (1) Manufacturing facility for Varon
Atlanta, GA 500 $ 10,000 December 1997 Showroom for M&L
Chicago, IL 27,100 $303,000 December 1997 and Administrative office and
April 2002 retail outlet for M&L
Clifton, NJ 8,600 $118,000 July 1998 Administrative offices
Hong Kong 8,000 $130,000 February 1998 Administrative office for
for M&L
Miami, FL 40,200 $145,000 December 1997 Administrative office and
distribution facility for Varon
New Bedford, MA 48,700 $102,000 December 1997 Manufacturing and administration
facilities for Mackintosh
New York, NY 33,500 $575,000 May 1998, Showrooms
December 2003
and July 2005
Colombo, Sri Lanka 5,500 $ 3,000 June 1997 Administrative office
for M&L
San Pedro Sula, Honduras 45,000 $239,000 July 2000 Manufacturing facility for
Varon
Auburn, WA 191,200 $654,000 April 2002 Warehousing facilities for
M&L
<FN>
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(1) Owned by the Company.
The Company owns substantially all of its machines, equipment and office fixtures, which are well maintained and
satisfactory for the purposes intended.
</FN>
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation. No
litigation in which the Company is presently involved is material to its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common stock is traded on the American Stock Exchange.
The following table sets forth the range of high and low sales prices of the
Common stock, as reported by the American Stock Exchange, for each quarterly
period during the past two fiscal years:
MARKET PRICES
HIGH LOW
------ -------
1996
----
First Quarter $1 $ 1/2
Second Quarter 1 3/16 5/8
Third Quarter 1 5/8
Fourth Quarter 1 1/8 5/8
1995
----
First Quarter $2 1/2 $ 1 3/4
Second Quarter 2 1/8 1 1/2
Third Quarter 1 13/16 1 3/16
Fourth Quarter 1 3/8 3/4
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The Company had 1,346 holders of record of Common stock as of February
28, 1997.
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DIVIDENDS
The Company did not pay cash dividends on its common equity during the
fiscal years ended 1996, 1995 and 1994. The Company is restricted from making
any cash dividend payments under its credit agreements with various commercial
banks.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below of the Company and its
subsidiaries, as of and for each of the five years in the period ended December
31, 1996, are derived from the audited Consolidated Financial Statements of the
Company and should be read in conjunction with such Consolidated Financial
Statements and related notes, thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
report.
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<TABLE>
<CAPTION>
BISCAYNE APPAREL,INC.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AT AND FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Financial Data
Net sales .................................. $105,425 $100,294 $72,350 $65,258 $57,906
Operating income (loss) .................... (6,182) (5,261) 4,960 4,053 1,737
Earnings (loss) from continuing operations,
less applicable income taxes ............. (8,724) (6,127) 2,048 3,687 (34)
Cumulative effect of change in
accounting for income taxes .............. -- -- -- 208 --
Extraordinary items ........................ -- -- -- -- 104
Net earnings (loss) ........................ (8,724) (6,127) 2,048 3,895 70
Working capital ............................ $ 19,540 $ 19,559 $23,167 $16,148 $12,045
Total assets ............................... 36,110 61,742 60,578 34,791 31,015
Long-term debt ............................. 10,944 12,694 7,944 6,444 6,444
Stockholders' equity ....................... 11,178 19,835 25,881 19,560 15,597
Earnings (loss) per common share: (1)
Earnings (loss) from continuing operations . $ (0.81) $ (0.57) $ 0.21 $ 0.41 $ --
Cumulative effect of change in
accounting for income taxes .............. -- -- -- 0.02 --
Extraordinary items ........................ -- -- -- -- 0.01
-------- -------- ------- ------- -------
Net earnings (loss) per common share ....... $ (0.81) $ (0.57) $ 0.21 $ 0.43 $ 0.01
======== ======== ======= ======= =======
Other Per Share Data:
Book value ................................. $ 1.04 $ 1.85 $ 2.41 $ 2.18 $ 1.79
Weighted average number of shares and
share equivalents outstanding ............ 10,742 10,734 9,652 9,049 8,724
<FN>
- ---------------------
(1) Earnings per common share are based on the weighted average number of
shares and share equivalents outstanding.
</FN>
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
OPERATIONS
Net sales were $105,425,000, $100,294,000 and $72,350,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. The 1996 increase of
$5,131,000 includes a $6,016,000 increase in Andy Johns' sales and a $2,727,000
increase in M&L's sales, offset by Varon realizing a decrease of $2,079,000 and
Mackintosh realizing a decrease of $1,533,000.
The increase in Andy Johns' sales resulted from investments made in
product development and marketing efforts. However, sales of Andy Johns were
still below 1994 sales levels. M&L realized sales increases in both its
outerwear and sportswear product lines, as it successfully increased its market
share during 1996. Varon's sales reduction results from consciously eliminating
sales of products with unacceptably low gross margins. Mackintosh actually
exceeded its projected sales for 1996 due to a strong sell-through at retail.
The 1995 increase of $27,944,000 includes a $44,739,000 increase in
M&L's sales, a $3,886,000 increase in Varon's sales, offset by Andy Johns
realizing a decrease of $17,634,000 in sales and Mackintosh realizing a decrease
of $3,047,000 in sales. M&L was acquired on November 30, 1994. A significant
portion of the decrease in Andy Johns' sales in 1995 was the result of Wal-Mart,
its largest 1994 private label customer, which represented $12,700,000 of Andy
Johns' 1994 sales, refraining from ordering any goods in 1995. Sales to this
customer, along with other Andy Johns and Mackintosh customers, reflected the
significant impact that the warm 1994-1995 winter had on 1995 outerwear coat
sales. This factor resulted in high levels of inventory carryover from 1994 to
1995. The problem was exacerbated as stagnant apparel sales and warm weather
continued into the 1995 season and prompted retailers to reduce their Fall 1995
programs.
Cost of goods sold was $78,112,000 (74% of net sales), $80,121,000 (80%
of net sales) and $51,697,000 (71% of net sales) for the years ended December
31, 1996, 1995 and 1994, respectively.
Cost of goods sold decreased significantly in 1996 as a result of M&L
lowering its production costs and Andy Johns and Mackintosh rebounding from the
aftermath of the poor industrywide performance sustained in 1995; offset by
Varon continuing to be effected by raw material and labor increases and
production inefficiencies.
The Company recorded inventory markdowns of $638,000, during the 1996
fourth quarter, $4,374,000, during the 1995 fourth quarter, and $179,000 during
the 1994 fourth quarter.
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M&L's Philippines subsidiaries ceased operations on March 1, 1996, and
Varon closed three of its domestic manufacturing facilities in late 1996. M&L
transferred the Philippines production to China and Indonesia, while Varon
transferred the domestic production to its new Honduran facility. These actions,
the addition of new product development and sales personnel, and the positive
effect of the severe winter experienced from late December 1995 to March 1996,
improved the Company's net sales and gross margins in 1996.
Cost of goods sold increased in 1995 due to Andy Johns and Mackintosh
selling off unsold inventory at low margins due to the effects of weather and
the related softness of retail sales; Varon sustaining higher raw material
costs, primarily cotton and labor costs; and M&L realized operating losses from
its Philippines subsidiaries due to labor cost increases and production
inefficiencies.
Selling, general and administrative ("S,G&A") expenses, before
restructuring expense and impairment of long-lived assets, were $24,394,000 (23%
of net sales), $25,434,000 (25% of net sales) and $15,693,000 (22% of net
sales), for the years ended December 31, 1996, 1995 and 1995, respectively. In
1996 S,G&A expenses declined to 23% of net sales as a result of management's
strategic actions to further reduce S,G&A expenses including the reduction of
personnel and operating expenses throughout the Company; consolidation of
administrative functions and consolidation of domestic warehousing and
distribution.
In 1995 S,G&A expenses increased to 25% of net sales due to lower sales
volume at Andy Johns and Mackintosh. However, the 1995 S,G&A expenses actually
decreased by $2,002,000 from the 1994 pro-forma S,G&A expenses, which assumed
M&L was acquired as of January 1, 1994.
RESTRUCTURING CHARGES AND IMPAIRMENT OF LONG-LIVED ASSETS
As more fully discussed in Notes 1 and 5 to the consolidated financial
statements, principally during the fourth quarter of 1996, certain events
occurred which led the Company to evaluate the recoverability of certain of its
long-lived assets, specifically the goodwill of the Andy Johns and Varon
divisions and certain manufacturing facilities. These events included certain
changes in government regulations regarding cotton sleepwear, changes in key
members of the management team, loss of market share and loss of key customers.
As a result, in December 1996, the Company recognized a one-time
noncash charge for impairment of goodwill of $6,532,000, with no associated tax
benefit, and a fixed asset write-down of $530,000 related to a manufacturing
facility.
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During 1996, the Company also recorded restructuring charges of
$2,039,000, relating to termination of long-term contracts and leases and
facility closing costs (approximately $880,000) and salary and separation costs
(approximately $1,159,000).
During the fourth quarter of 1996, the Consumer Product Safety
Commission ("CPSC") issued 1997/1998 rules for the manufacturing for all cotton
thermal and long underwear products. These rules had two effects: i) sleepwear
manufacturers would now be able to produce their products in cotton, and ii)
such cotton sleepwear products would now have to be "tight fitting". As a result
of these regulations, the Company expects significant changes in Varon's
competitive environment related to such products. The impact on Varon's market
position is unknown. Varon could face: i) a decrease in market share due to
increased competition from sleepwear manufacturers, and ii) a potential market
shift, due to customers who previously purchased sleepwear when it was not
required to be "tight fitting" now purchasing other products. Alternatively,
Varon may be able to increase its market share of newly approved cotton
sleepwear, due to its current expertise in manufacturing, if it can take away
market share from heretofore non-cotton sleepwear product sales. These
regulations could impact up to one-third of Varon's revenues.
The apparel industry is subject to substantial cyclical variation, with
purchases of apparel and related goods tending to decline during recessionary
periods when disposable income is low. This could have a material adverse effect
on the Company's business. Although retail sales of outerwear strengthened in
1996, the Company believes that the severe weakness of retail sales of outerwear
in 1995 continued to adversely affect its 1996 operating results. In addition,
various retailers, including some of Biscayne's customers, have experienced
financial difficulties during recent years which have increased the risk of
extending credit to such retailers.
Certain information included herein contains forward-looking statements
which are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve risks
and uncertainties that could cause actual results to differ materially from the
forward-looking statements. Those risks include, but are not limited to,
product acceptance and availablity, changes in the level of consumer demand
and/or spending, fashion trends, weather patterns, further governmental
regulations, etc. All forward-looking statements should be considered in light
of these risks and uncertainties.
OTHER
Interest and other expenses were $3,643,000, $3,805,000 and $1,673,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
15
<PAGE>
The 1996 decrease of $162,000 is a result of lower bank borrowings. The
increases in 1995 and 1994 are due to higher interest rates and increased
borrowings from higher inventory levels, 1995 losses and increased M&L
acquisition debt. Other expenses were $37,000, $90,000 and $11,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. The 1996 other expense
relates primarily to foreign currency exchange losses. The 1995 and 1994 other
expense amounts relate to losses on disposal of assets.
Interest and other income was $246,000, $109,000, and $115,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. The increase in
interest and other income in 1996 relates to the closedown of M&L's Philippine
operations.
In March 1994, the Company paid $1,500,000 for a 20% interest in
Hartwell Sports, Inc. ("Hartwell"), a manufacturer of casual shirts and jackets.
The investment resulted in the Company recognizing $122,000 and $5,000 of equity
in the income from Hartwell in 1995 and 1994, respectively. On March 27, 1996,
the Company sold its 20% interest in Hartwell for $1,750,000, which resulted in
a 1996 gain of $123,000. Proceeds were used to reduce notes payable to banks.
On November 30, 1994, the Company acquired M&L International, Inc.
("M&L"). The Company paid $1,723,500 in cash, retired $2,064,000 of M&L's
existing debt, assumed $1,500,000 of Junior Subordinated Sub Notes, issued
$776,500 of Bridge Notes and issued 1,666,997 shares of its common stock in
connection with the acquisition. The Acquisition has been accounted for under
the purchase method of accounting, therefore, M&L's operating results are
included with the Company's from November 30, 1994.
INCOME TAXES
The Company's effective tax rates during 1996 were affected by the
non-deductibility of the impairment of long-lived assets (primarily goodwill)
and valuation allowances related to Federal net operating loss carryforwards
(see Note 11 to the consolidated financial statements).
EFFECT OF INFLATION AND SEASONALITY
The Company believes that inflation will not significantly affect its
profit margins or have a material effect on the prices of other goods and
services used in its business operations. Further, in connection with recent
increases in wool and cotton raw material costs and increased domestic labor
costs, the Company will continue to seek additional offshore production
opportunities.
Sales of women's and children's outerwear are seasonal. Historically,
Andy Johns, Mackintosh, M&L and Varon have significantly higher revenues in the
third and fourth quarters than in the first and second quarters. Therefore, the
results of any interim period are not necessarily indicative of the results
which might be expected during a full year. Additionally, there is a risk
inherently related to the outerwear industry, resulting from
16
<PAGE>
dependence on consumer reactions to weather patterns, which have recently had a
material effect on the Company's sales and profitability.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $327,000 and $312,000 at December 31,
1996 and 1995, respectively. At December 31, 1996, the Company's working capital
was $19,540,000, representing a current ratio of 2.45 to 1.00. This compares to
working capital of $19,559,000 and a current ratio of 1.68 to 1.00 at December
31, 1995. The positive change in the 1996 current ratio was primarily a result
of management's successful efforts to reduce debt through reductions in accounts
receivable and inventory in 1996.
The Consolidated Statement of Cash Flows for the year ended December
31, 1996 reflects net cash provided by operations in 1996 of $16,210,000,
compared to $(13,495,000) in 1995. The improvement primarily reflects the 1996
decreases in accounts receivable, net of provision for losses and sales
allowances and decreases in inventories. Net cash provided by investing
activities for 1996 of $1,504,000 includes $1,750,000 from the sale of the
Company's 20% interest in Hartwell Sports, Inc. Net cash used in financing
activities reflected the use of cash generated per the above categories in 1996,
to reduce debt.
As presented in the Consolidated Statement of Cash Flows for the year
ended December 31, 1995, the decrease in cash and cash equivalents in 1995,
versus 1994, was due to the losses sustained in 1995, increases in inventories,
decreases in accounts payable and accrued liabilities and capital expenditures,
offset by increased borrowings under notes payable to banks.
On March 16, 1995, the Company entered into an agreement with several
banks (the "Loan Agreement") for a $56,000,000 two year committed revolving
credit facility (the "Revolver") and a $7,500,000 four year term loan (the "Term
Loan"). The Revolver is available for loans, letters of credit and letters of
indemnity.
On March 28, 1996, the Loan Agreement was amended to reduce the
Revolver to $50,000,000; adjust the interest rate under Revolver borrowings to
prime plus 1.0%, or prime plus 1.25% during agreed upon collateral overadvance
periods; adjust the interest rate under the Term Loan to prime plus 2.00% or
Libor plus 4.50% on outstanding borrowings; require an additional fee of
$250,000, collateral monitoring costs of 0.2% of net sales, and provide for the
issuance of warrants to the banks to purchase 425,000 shares of the Company's
common stock for an exercise price of $1.00 per share. The warrants are
exercisable at any time on or after March 31, 1998, except that the warrants
will be canceled, if prior to March 31, 1998, the Company repays the Term Loan
through the sale of assets or operations, or if the Term Loan is reduced to
$1,250,000, or lower, through operating cashflows or the infusion of additional
equity or subordinated debt.
17
<PAGE>
On March 24, 1997, the Loan Agreement was amended to reduce the
Revolver Agreement to $45,000,000; adjust the interest rate for Revolver
Agreement borrowings to prime plus 1.0%, or prime plus 1.75% during agreed upon
collateral overadvanced periods and require additional fees of $325,000.
The Revolver is collateralized by all of the Company's assets,
excluding Mackintosh's domestic inventory and Varon's domestic raw materials and
work-in-process inventories. Additionally, the Revolver contains various
financial covenants, reporting requirements and limits capital expenditures,
cash dividends, other indebtedness, affiliate transactions, mergers and
acquisitions and other items.
Capital expenditures for the year ended December 31, 1996, decreased to
$257,000 from $941,000 in 1995 primarily due to 1995 purchases of machinery and
equipment relating to the establishment of Varon's Honduran manufacturing
facility.
The Company expects that cash on hand, investments in short-term
securities, cash from operations and borrowings under its new revolving credit
agreement will be sufficient to fund current operations and to enable the
Company to meet its obligations as they become due.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-25 of this Form 10-K, incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has not had any disagreements on accounting or financial
disclosure with its accountants required to be reported hereunder.
PART III
ITEMS 10, 11, 12 AND 13.
The information called for by Items 10, 11, 12 and 13 is incorporated
by reference to the Company's definitive proxy statement which involves the
election of directors and will be filed with the Commission within 120 days
after the end of the fiscal year.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) 1. FINANCIAL STATEMENTS:
An index to the financial
statements appears on Page F1,
which index is incorporated herein
by reference.
2. FINANCIAL STATEMENT SCHEDULES:
An index to the financial statement schedules appears on Page
F1, which index is incorporated herein by reference.
3. EXHIBITS:
(An asterisk to the left of an exhibit number denotes a
management contract or compensatory arrangement required to be
filed as an exhibit to this Annual Report on Form 10-K.)
2.1 Agreement and Plan of Merger, dated as of November 1, 1994,
by and among the Registrant and M&L Acquisition Corp. and
New ML Holding, Inc., incorporated by reference to Exhibit
2.1 filed with the Registrant's Quarterly Report on Form
8-K, filed December 14, 1994.
2.2 Company Shareholders Agreement, dated as of November 1,
1994, by and among the Registrant and M&L Acquisition Corp.
and New M&L Holding, Inc. and certain Company shareholders,
incorporated by reference to Exhibit 2.2 filed with the
Registrant's Quarterly Report on Form 8-K, filed December
14, 1994.
2.3 Escrow Agreement, dated as of November 1, 1994, by and
among Gordon and Einstein, Ltd., the Registrant and M&L
Acquisition Corp., New M&L Holding, Inc., Odyssey Partners,
L.P., Merrill Lynch Capital Corporation, Gregg H.
Feinstein, Steven M. Friedman, Kurt C. Gutfreund and Eugene
S. Weiner, incorporated by reference to Exhibit 2.3 filed
with the Registrant's Quarterly Report on Form 8-K, filed
December 14, 1994.
19
<PAGE>
2.4 Registration Rights Agreement, dated as of November 30, 1994, among the
Registrant, the Federal Deposit Insurance Corporation, as Receiver for
Goldome FSB, Odyssey Partners, L.P., Merrill Lynch Capital Corporation,
Gregg H. Feinstein, Steven M. Friedman, Kurt C. Gutfreund and Eugene S.
Weiner, incorporated by reference to Exhibit 2.4 filed with the
Registrant's Current Report on Form 8-K, filed December 14, 1994.
2.5 Note Modification Agreement, dated as of November 30, 1994, between the
Registrant, M&L International, Inc., and Kurt C. Gutfreund,
incorporated by reference to Exhibit 2.5 filed with the Registrant's
Current Report on Form 8-K, filed December 14, 1994.
2.6 Note Modification Agreement, dated as of November 30, 1994, between the
Registrant, M&L International, Inc. and Eugene S. Weiner, incorporated
by reference to Exhibit 2.6 filed with the Registrant's Current Report
on Form 8-K, filed December 14, 1994.
2.7 Stock Purchase Agreement, dated September 13, 1994, between New M&L
Holding, Inc. and the Federal Deposit Insurance Corporation,
incorporated by reference to Exhibit 2.7 filed with the Registrant's
Current Report on Form 8-K, filed December 14, 1994.
3.1 Registrant's Amended and Restated Articles of Incorporation, as
amended, incorporated by reference to Exhibit 3.1 filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
3.2 Registrant's Bylaws, as amended, incorporated by reference to Exhibit
3.2 filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991.
4.1 Form of stock certificate evidencing ownership of the Registrant's
Common Stock, incorporated by reference to Exhibit 4.1 filed with the
Registrant's Quarterly Report on Form 10-Q, for the quarter ended
September 30, 1994.
4.2 Indenture of the Registrant to First Union National Bank of Florida as
successor in interest to Southeast Bank, N.A., dated as of December 5,
1989, $9,014,700 Principal Amount of 13% Subordinated Notes due
December 15, 1999, filed with the Registrant's Registration Statement
on Form S-2 (No. 33-32161), incorporated by reference to Exhibit 10.1
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989.
20
<PAGE>
*10.1 Amended and Restated Management Agreement, dated as of November 30,
1994, by and between the Registrant and Trivest, Inc., incorporated by
reference to Exhibit 10.1 filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
*10.2 First Amendment to Amended and Restated Management Agreement dated as
of March 26, 1996 by and between the Registrant and Trivest, Inc.,
incorporated by reference to Exhibit 10.1 filed with the Registrant's
Quarterly Report on Form 10-Q, for the quarter ended June 30, 1996.
10.3 Form of Amended and Restated Indemnification Agreement entered into
between the Registrant and its directors and certain of its officers,
incorporated by reference to Exhibit 10.36 filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990.
*10.4 1994 Stock Option Plan of Registrant with form of Stock Option
Agreement, incorporated by reference to Exhibit 10.3 filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
*10.5 1987 Stock Option Plan for Biscayne Apparel, Inc., incorporated by
reference to Exhibit 10.3 filed with the Registrant's Registration
Statement on Form S-8 (No. 33-20871).
*10.6 Form of Stock Option Agreement entered into between the Registrant and
optionees, incorporated by reference to Exhibit 10.4 filed with the
Registrant's Registration Statement on Form S-8 (No. 33-20871).
*10.7 Amended and Restated 1990 Stock Option Plan for Biscayne Apparel, Inc.,
incorporated by reference to Exhibit 10.1 filed with the Registrant's
Registration Statement on Form S-8 (No. 33-41139).
*10.8 Form of Stock Option Agreement entered into between the Registrant and
optionees incorporated by reference to Exhibit 10.2 filed with the
Registrant's Registration Statement on Form S-8 (No. 33-41139).
*10.9 Warrant for the Purchase of Shares of Common Stock dated as of March
26, 1996 among the Registrant and Trivest, Inc., incorporated by
reference to Exhibit 10.2 filed with the Registrant's Quarterly Report
on Form 10-Q, for the quarter ended June 30, 1996.
*10.10 Waiver Letter, dated as of December 30, 1996 relating to Warrant No.
W-2, dated as of March 26, 1996. (1)
21
<PAGE>
*10.11 Salary Deferral Agreement between the Registrant and Peter Vandenberg,
Jr. (1)
*10.12 Warrant for the Purchase of Shares of Common Stock, dated as of
December 30, 1996 issued to Peter Vandenberg, Jr. (1)
10.13 Domestic License Agreement by and between Bon Jour Group, Ltd. and M &
L International, Inc., dated as of January 25, 1995, incorporated by
reference to Exhibit 10.4 filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.14 Agreement of Lease, dated July 16, 1990, between Broad Park Associates
and Biscayne Apparel, Inc. (Andy Johns Fashions Division), with term
commencing February 15, 1993, incorporated by reference to Exhibit
10.24 filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990.
10.15 First Amendment, dated August 21, 1990, to the SubLease Agreement
between Broad Park Associates and Biscayne Apparel, Inc. (Andy Johns
Fashions Division), incorporated by reference to Exhibit 10.25 filed
with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
10.16 Second Amendment, dated May 25, 1993, to the Sublease Agreement between
Broad Park Associates and Biscayne Apparel, Inc. (Andy Johns Fashion
Division), incorporated by reference to Exhibit 10.19 filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993.
10.17 Lease Agreement, dated May 12, 1993, between Dah Chong Hong Trading
Corp. and Biscayne Apparel, Inc. (Varon Division), incorporated by
reference to Exhibit 10.22 filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.
10.18 Lease Modification Agreement, dated September 30, 1993, between Dah
Chong Hong Trading Corp. and Biscayne Apparel, Inc. (Varon Division),
incorporated by reference to Exhibit 10.23 filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.19 Indenture Agreement by and between Clark's Cove Realty, Co. and
Mackintosh of New England Co., dated June 17, 1991, incorporated by
reference to Exhibit 10.35 filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991.
22
<PAGE>
10.20 Indenture Agreement, dated December 30, 1992, between Clark's Cove
Realty Co. and Mackintosh of New England Co., incorporated by reference
to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
10.21 Lease Agreement, dated February 18, 1993, between The Arsenal Company
and Biscayne Apparel, Inc. (Andy Johns Fashion Division), incorporated
by reference to Exhibit 10.27 filed with the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993.
10.22 Modification Agreement, dated June 23, 1993, between the Arsenal
Company and Biscayne Apparel, Inc. (Andy Johns Fashion Division),
incorporated by reference to Exhibit 10.28 filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.23 Unsecured Promissory Note from Quality Prints, Inc. to E&B Acquisition,
Inc., Elliot Estes and Becky Estes, in the amount of $150,000, dated
November 24, 1994, incorporated by reference to Exhibit 10.25 filed
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.24 License Agreement between OshKosh B'Gosh, Inc. and M&L International,
Inc., dated September 16, 1994, incorporated by reference to Exhibit
10.30 filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
*10.25 Employment Agreement between M&L International, Inc. and Kurt C.
Gutfreund, dated as of November 30, 1994, incorporated by reference to
Exhibit 10.31 filed with the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.26 Amended and Restated Credit Agreement and Guaranty dated as of March
28, 1996 among the Registrant, Biscayne Apparel International, Inc.,
Mackintosh of New England Co. and M&L International, Inc. and The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.)
as Agent and Milberg Factors, Inc. as Servicing Agent, incorporated by
reference to Exhibit 10 filed with the Registrant's Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1996.
10.27 First Amendment and Waiver to Amended and Restated Credit Agreement and
Guaranty dated as of August 30, 1996 among the Registrant, Biscayne
Apparel International, Inc., Mackintosh of New England Co. and M&L
International, Inc. and The Chase Manhattan Bank (successor by merger
to The Chase Manhattan Bank, N.A.) as Agent and Milberg Factors, Inc.
as Servicing Agent. (1)
23
<PAGE>
10.28 Second Amendment and Waiver to Amended and Restated Credit Agreement
and Guaranty dated as of February 24, 1997 among the Registrant,
Biscayne Apparel International, Inc., Mackintosh of New England Co. and
M&L International, Inc. and The Chase Manhattan Bank (successor by
merger to The Chase Manhattan Bank, N.A.) as Agent and Milberg Factors,
Inc. as Servicing Agent. (1)
10.29 Sublease Agreement, dated January 1, 1996, between Richland Mills,
Inc., as sublandlord and Varon (a division of Biscayne Apparel
International, Inc.) as subtenant, incorporated by reference to Exhibit
10.31 filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995.
10.30 Lease Agreement, dated June 10, 1995, between Buena Vista Export
Processing Zone (ZIP Buena Vista, S.A.) and Amy Industries de Honduras,
S.A., de C.V., incorporated by reference to Exhibit 10.32 filed with
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1995.
11 Statement re: Computation of Per Share Earnings.(1)
21 Subsidiaries of the Registrant.(1)
23 Consent of Coopers and Lybrand L.L.P.(1)
27 Financial Data Schedule.
- -------------------
(1) Filed herewith
(b) No reports on Form 8-K were filed by the Registrant during the last
quarter of the period covered by this report.
(c) Not applicable.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned.
BISCAYNE APPAREL, INC.
Date: March 27, 1997 By: /s/ PETER VANDENBERG, JR.
----------------------------
Peter Vandenberg, Jr.
Executive Vice President,
Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 27, 1997 By: /s/ EARL W. POWELL
---------------------------
Earl W. Powell
Chairman, President and Chief
Executive Officer
Date: March 27, 1997 By: /s/ PETER VANDENBERG, JR.
---------------------------
Peter Vandenberg, Jr.
Executive Vice President,
Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: March 27, 1997 By: /s/ KURT C. GUTFREUND
---------------------------
Kurt C. Gutfreund
Vice Chairman
Date: March 27, 1997 By: /s/ HAROLD E. BERRIT
---------------------------
Harold E. Berritt
Director
Date: March 27, 1997 By: /s/ PHILLIP T. GEORGE, M.D.
---------------------------
Director
Date: March 27, 1997 By: /s/ JOSEPH B. GILDENHORN
---------------------------
Joseph B. Gildenhorn
Director
Date: March 27, 1997 By: /s/ R. STEPHEN LEFLER
---------------------------
R. Stephen Lefler
Director
Date: March 27, 1997 By: /s/ JAMES J. PINTO
---------------------------
James J. Pinto
Director
25
<PAGE>
BISCAYNE APPAREL, INC.
INDEX TO FINANCIAL STATEMENTS
(ITEM 14 (A))
BISCAYNE APPAREL, INC. PAGE
----
Report of Independent Accountants F-2
Consolidated balance sheets at December 31, 1996 F-3
and 1995
Consolidated statements of operations for each of the F-4
three years in the period ended December 31, 1996
Consolidated statements of stockholders' equity for F-5
each of the three years in the period ended
December 31, 1996
Consolidated statements of cash flows for each of the F-6
three years in the period ended December 31, 1996
Notes to consolidated financial statements F-7 to F-21
Consolidated financial statements schedules:
Schedule I - Condensed financial information F-22 to F-25
of registrant
Schedule II - Valuation and qualifying accounts F-26
All other schedules are omitted since the required information is not present,
or is not present in amounts sufficient to require submission of the schedules,
or because the information required is included in the financial statements and
notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Biscayne Apparel, Inc.:
We have audited the consolidated financial statements and the financial
statement schedules of Biscayne Apparel, Inc., and subsidiaries as of December
31, 1996 and 1995, and for the years in the period ended December 31, 1996
listed in Item 14(a) of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Biscayne
Apparel, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
Coopers & Lybrand L.L.P.
Parsippany, New Jersey
March 7, 1997, except for Note 7, for which the date is March 24, 1997.
F-2
<PAGE>
BISCAYNE APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
ASSETS 1996 1995
-------- -------
Current assets:
Cash and cash equivalents ............................ $ 327 $ 312
Trade accounts receivable, less allowances
of $2,018 in 1996 and $1,967 in 1995 ................ 14,374 18,271
Inventories .......................................... 14,554 25,890
Federal income tax receivable ........................ 1,455 1,969
Prepaid expenses and other ........................... 2,261 1,972
-------- -------
Total current assets .............................. 32,971 48,414
Property, plant and equipment, net ..................... 2,864 3,652
Investment in Hartwell Sports, Inc. .................... -- 1,627
Goodwill, net .......................................... -- 6,532
Other assets, net ...................................... 275 1,517
-------- -------
$ 36,110 $61,742
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 4,024 $ 3,841
Accrued liabilities .................................. 6,184 5,914
Notes payable to banks ............................... 1,473 17,850
Current portion of long-term debt .................... 1,750 1,250
-------- -------
Total current liabilities ......................... 13,431 28,855
Subordinated notes ..................................... 6,444 6,444
Long-term debt ......................................... 4,500 6,250
Other liabilities ...................................... 557 358
Commitments and contingencies .......................... -- --
Stockholders' Equity:
Common stock ......................................... 107 107
Additional paid-in capital ........................... 26,311 26,309
Unearned stock award ................................. (68) (135)
Accumulated deficit .................................. (15,172) (6,446)
-------- -------
Total stockholders' equity ......................... 11,178 19,835
-------- -------
$ 36,110 $61,742
======== =======
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ...................................... $ 105,425 $ 100,294 $ 72,350
Operating costs and expenses:
Cost of goods sold ............................ 78,112 80,121 51,697
Selling, general and administrative ........... 24,394 25,434 15,693
Restructuring charges ......................... 2,039 -- --
Impairment of long-lived assets ............... 7,062 -- --
----------- ----------- -----------
111,607 105,555 67,390
----------- ----------- -----------
Operating income (loss) ........................ (6,182) (5,261) 4,960
Other income and (expenses):
Interest and other expenses ................... (3,643) (3,805) (1,673)
Interest and other income ..................... 246 109 115
Gain on sale and equity in net income of
investee...................................... 123 122 5
----------- ----------- -----------
Earnings (loss) before provision (benefit)
for income taxes .............................. (9,456) (8,835) 3,407
Provision (benefit) for income taxes ........... (732) (2,708) 1,359
----------- ----------- -----------
Net earnings (loss) ............................ $ (8,724) $ (6,127) $ 2,048
=========== =========== ===========
Net earnings (loss) per common share ........... $ (0.81) $ (0.57) $ 0.21
=========== =========== ===========
Shares used in computing earnings (loss) per
common share .................................. 10,741,748 10,733,551 9,651,637
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN UNEARNED (ACCUMULATED
STOCK CAPITAL STOCK AWARD DEFICIT) TOTAL
------ ---------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ....................... $ 81 $19,838 $ (270) $ (89) $19,560
Issuance of 400,440 shares of common stock
due to stock dividend ............................. 4 1,198 -- (1,202) --
Issuance of 1,666,997 shares of restricted common
stock due to acquisition of M&L International, Inc. 17 4,150 -- -- 4,167
Exercise of employee stock options ................. -- 39 -- -- 39
Amortization of unearned stock award ............... -- -- 67 -- 67
Net earnings ....................................... -- -- -- 2,048 2,048
----- ------- ------ -------- -------
Balance at December 31, 1994 ....................... 102 25,225 (203) 757 25,881
Issuance of 505,862 shares of common stock due to
stock dividend .................................... 5 1,071 -- (1,076) --
Exercise of employee stock options ................. -- 13 -- -- 13
Amortization of unearned stock award ............... -- -- 68 -- 68
Net loss ........................................... -- -- -- (6,127) (6,127)
----- ------- ------ -------- -------
Balance at December 31, 1995 ....................... 107 26,309 (135) (6,446) 19,835
Issuance of 507 shares of common stock due to
stock dividend .................................... -- 2 -- (2) --
Amortization of unearned stock award ............... -- -- 67 -- 67
Net loss ........................................... -- -- -- (8,724) (8,724)
----- ------- ------ -------- -------
Balance at December 31, 1996 ....................... $ 107 $26,311 $ (68) $(15,172) $11,178
===== ======= ====== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) ............................. $ (8,724) $ (6,127) $ 2,048
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Noncash stock compensation expense ............ 67 68 67
(Gain) loss on sale of assets ................. (11) 91 (2)
Gain on sale and equity in net income of
investee ..................................... (123) (122) (5)
Depreciation expense .......................... 544 584 409
Amortization expense .......................... 95 (35) 230
Provision for losses and sales allowances
on receivables................................ 5158 4,584 3,558
Impairment of long-lived assets ............... 7062 -- --
(Increase) decrease in operating assets:
Trade accounts receivable ..................... (951) (1,846) (1,151)
Inventories ................................... 11,588 (3,737) (4,901)
Prepaid expenses and other .................... (360) (410) (613)
Federal income tax receivable ................. 514 (1,969) --
Other assets .................................. 1516 (499) 583
Increase (decrease) in operating liabilities:
Accounts payable .............................. 60 (2,398) 1,994
Accrued liabilities ........................... (511) (1,178) (1,476)
Other liabilities ............................. 286 (501) 269
-------- -------- --------
Net cash provided by (used in) operating
activities ................................. 16,210 (13,495) 1,010
-------- -------- --------
INVESTING ACTIVITIES:
Proceeds from net sale of assets ................ 11 9 15
Capital expenditures ............................ (257) (941) (1,090)
Purchase of subsidiary, net of cash acquired .... -- -- 1,858
Proceeds on sale of, and (investment) in,
Hartwell Sports, Inc. .......................... 1,750 -- (1,500)
-------- -------- --------
Net cash provided by (used in) investing
activities .................................. 1,504 (932) (717)
-------- -------- --------
FINANCING ACTIVITIES:
Payments under notes payable to banks ........... (87,402) (72,155) (66,845)
Borrowings under notes payable to banks ......... 71,025 81,505 69,160
Proceeds from term loan ......................... -- 7,500 --
Repayment of subordinated notes ................. -- (6,276) --
Principal payments of long-term debt and
capital leases ................................. (1,322) (26) (37)
Proceeds from exercise of employee stock options. -- 13 39
-------- -------- --------
Net cash (used in) provided by financing
activities ................................. (17,699) 10,561 2,317
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ..................................... 15 (3,866) 2,610
Cash and cash equivalents at beginning of year ... 312 4,178 1,568
-------- -------- --------
Cash and cash equivalents at end of year ......... $ 327 $ 312 $ 4,178
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Biscayne Apparel, Inc. (the
"Company" or "BAI") include the accounts of the parent company, Biscayne
Apparel, Inc., and its wholly-owned subsidiaries, Biscayne Apparel
International, Inc. ("BAII") and M&L International, Inc. ("M&L"), which was
acquired in 1994 (see Note 2), and its wholly-owned subsidiaries, Unidex
Garments (Philippines), Inc., Watersports Garment Manufacturing, Inc., Teri
Outerwear Manufacturing, Inc., GES Sportswear Manufacturing Corp. and M&L
International (H.K.) Limited. As of March 1, 1996, Unidex, Watersports, Teri and
GES ceased operations due to operating losses caused by labor increases and
production inefficiencies. BAII operates through two divisions, Andy Johns
Fashions International ("Andy Johns") and Varon, and its wholly-owned
subsidiaries, Mackintosh of New England Co., Mackintosh (U.K.) Limited and Amy
Industries De Honduras, S.A. de C.V., which was organized in 1995. All material
intercompany balances and transactions have been eliminated. Certain amounts in
the 1995 and 1994 financial statements and related notes have been reclassified
to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant assumptions and estimates relate to sales
allowances, inventory reserves and recoverability of assets. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The carrying amounts
of these investments approximate fair market value due to their short-term
maturities.
INVENTORIES
Inventories are stated at the lower of cost, (first-in, first-out) (FIFO)
or market, for all subsidiaries except M&L, whose inventory is stated at lower
of cost, (last-in, first-out) (LIFO), or market.
F-7
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets, which
range from 3 to 30 years. Maintenance and repair costs are charged to expense as
incurred, and renewals and improvements are capitalized. When capital assets are
retired or disposed, the asset and related accumulated depreciation accounts are
adjusted accordingly, and any gain or loss is recorded.
The Company follows Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (FAS 121), which requires an impairment loss be recognized if an
event or change in circumstances indicate that the carrying amount of an asset
may not be recoverable. The impairment loss shall be measured as the amount by
which the carrying amount of the asset exceeds the fair value less the estimated
selling costs (see Note 5).
GOODWILL
Goodwill and negative goodwill have been amortized on a straight-line
basis over forty years from the date of each acquisition. The Company has
historically used various criteria to evaluate the amortization period of
goodwill, including the following: established market position (with stable
customer relationships); experienced management team; history of profitable
operations and positive cash flows at or above industry levels, with prospective
growth opportunities; and longevity of entity and industry.
Accumulated amortization of negative goodwill, which relates to the
acquisition of M&L (see Note 2), was $20,000 for the year ending December 31,
1996 and is included in Other assets, net.
The carrying value of goodwill is reviewed if the facts and circumstances
suggest it may be impaired. Such facts and circumstances resulted in the write
off of $6,532,000 of goodwill relating to the Company's Andy Johns and Varon
divisions, for the year ended December 31, 1996 (see Note 5).
Accumulated amortization of goodwill was approximately $1,812,000, net of
$12,000 of accumulated amortization of negative goodwill at December 31, 1995.
DEBT
The estimated fair market value of notes payable to banks and long-term
debt approximate their carrying value, since, in accordance with the Company's
loan agreement with several banks,
F-8
<PAGE>
DEBT (CONT'D)
these obligations are subject to fluctuating market rates of interest and can be
settled at any time at the fair market value rate. The fair market value of the
Company's Subordinated Notes is estimated to be below par value based on nominal
trading activity.
REVENUE RECOGNITION
The Company records revenues at the time of shipment of merchandise. The
Company establishes reserves for sales returns and allowances based upon actual
and historical levels of returns.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109),
which requires the liability method for computing deferred income taxes.
Deferred income taxes are recognized for the effect of temporary differences
between the financial and tax bases of assets and liabilities and for operating
loss and tax credit carryforwards. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not, that some portion of the deferred tax assets may not be realized.
EARNINGS PER COMMON SHARE
Earnings per common share is based upon the weighted average number of
common and common equivalent shares outstanding during the period, if dilutive.
Common stock equivalents include incremental shares from the exercise of stock
options and warrants under the treasury stock method. For the years ended
December 31, 1996, 1995 and 1994, fully diluted earnings per common share
approximate primary earnings per common share. All prior period earnings per
common share amounts have been restated due to the Company's stock dividends in
1995 and 1994 (see Note 9).
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
("FAS No. 128") was issued in February 1997 and is effective for fiscal years
ending after December 15, 1997. FAS No. 128 establishes the standards for
computing basic earnings per share (excluding dilution) and diluted earnings per
share (reflecting the dilutive effect if securities or other contracts to issue
common stock were exercised or converted) and applies to entities with publicly
held common stock.
This standard simplifies the computation of earnings per share as required
under Accounting Principles Board Opinion No. 15, Earnings Per Share and makes
them comparable to international earnings per share standards. FAS No. 128
requires the restatement of all prior period earnings per share data presented
including interim periods. The Company is currently evaluating the impact of
this standard on previously reported earnings per share.
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers'
financial condition. At December 31, 1996, the Company had no significant
concentrations of credit risk due to a large, geographically dispersed customer
base. Generally, the Company does not require collateral against its trade
accounts receivable. For the year ended December 31, 1996, three customers
represented approximately 34% of total sales. The individual customers
represented 14%, 10% and 10% of total sales, respectively. For the year ended
December 31, 1995, one customer accounted for approximately 11% of total sales.
For the year ended December 31, 1994, two major customers represented
approximately 19% and 15% of total sales, respectively.
F-9
<PAGE>
2. ACQUISITIONS/DISPOSITIONS
On March 4, 1994, the Company paid $1,500,000 for a 20% interest in
Hartwell Sports, Inc. ("Hartwell"), a manufacturer of casual shirts and jackets.
On March 27, 1996, the Company sold its 20% interest in Hartwell for $1,750,000.
Proceeds from the sale were used to reduce notes payable to banks.
On November 30, 1994, the Company acquired M&L International, Inc.
("M&L"), a Chicago-based designer, manufacturer and marketer of infants',
toddlers' and children's outerwear, sportswear and swimwear, with showrooms in
Chicago, New York, Atlanta and Los Angeles and manufacturing and sourcing
operations in the Philippines, Hong Kong, Bangladesh and Sri Lanka ("the
Acquisition").
The Company paid $1,723,500 in cash, retired $2,064,000 of M&L's existing
debt, assumed $1,500,000 (paid on March 16, 1995) of Junior Subordinated Sub
Notes, issued $776,500 (paid on March 16, 1995) of Bridge Notes and issued
1,666,997 shares of its common stock in connection with the Acquisition. The
Acquisition has been accounted for under the purchase method of accounting.
Therefore, M&L's operating results are included with the Company's from November
30, 1994.
The following table summarizes the cash payment relating to the
acquisition of M&L (in thousands):
Fair value of assets acquired $ 20,755
Less: liabilities assumed (9,636)
Less: cash acquired (2,173)
--------
Total purchase price less cash acquired 8,946
Less: debt issued (6,637)
Less: common stock issued (4,167)
---------
Purchase of M&L, net of cash acquired $ (1,858)
=========
The excess of net assets acquired over the purchase price, as adjusted,
amounted to $739,000 of negative goodwill, which is being amortized over forty
years from the date of acquisition (see Note 1).
The following pro forma consolidated financial data reflects the results
of the Company and M&L as if the Acquisition had occurred on January 1, 1994 (in
thousands):
PRO FORMA DATA
FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
------------------
Net sales $ 119,506
==========
Income before cumulative
effect of change in accounting
for income taxes $ 3,617
==========
Net income $ 3,617
==========
Earnings per share $ 0.32
==========
Shares used in computing pro
forma earnings per share 11,172,486
F-10
<PAGE>
3. INVENTORIES
Inventories at December 31, 1996 and 1995 are comprised of the following:
(IN THOUSANDS) 1996 1995
------- -------
Raw materials $ 3,684 $ 5,037
Work-in-process 785 1,075
Finished goods 10,085 19,778
------- -------
$14,554 $25,890
======= =======
Included in inventory at December 31, 1996 and 1995 respectively, is
$5,739,000 and $10,524,000 relating to M&L's inventory, which is valued under
the LIFO method. M&L's inventory at December 31, 1996 would have been $220,000
higher had the inventory been valued under FIFO. There was no LIFO reserve for
1995.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 is as follows:
(IN THOUSANDS) 1996 1995
------- -------
Land $ 17 $ 17
Buildings and building
improvements 972 2,015
Machinery and equipment 3,787 3,537
------- -------
4,776 5,569
Less accumulated depreciation
and amortization $(1,912) $(1,917)
======== =======
$ 2,864 $ 3,652
======== =======
5. WRITEDOWN OF GOODWILL, IMPAIRMENT OF LONG-LIVED ASSETS AND
RESTRUCTURING CHARGES
Principally, during the fourth quarter of 1996, certain events occurred
which led the company to evaluate the recoverability of goodwill of its Andy
Johns and Varon Divisions. Since the goodwill under evaluation is related to the
specific enterprises and not to any of their long-term assets, the evaluation
was done pursuant to Accounting Principles Board Opinion No. 17, "Intangible
Assets". These events included certain changes in government regulations
regarding cotton sleepwear, changes in key members of the management team, loss
of market share and loss of a key customer. As a result, in December 1996, the
Company recognized a one-time non-cash charge for impairment of goodwill of
$6,532,000, with no associated tax benefit.
Principally, during the fourth quarter of 1996, the Company evaluated the
recoverability of a manufacturing facility and, as a result of such analysis,
the Company recorded a fixed asset writedown of $530,000.
F-11
<PAGE>
5. WRITEDOWN OF GOODWILL, IMPAIRMENT OF LONG-LIVED ASSETS AND
RESTRUCTURING CHARGES (CONT'D)
During 1996, the Company also recorded restructuring charges of
$2,039,000, relating to termination of long-term contracts and leases and
facility closing costs (approximately $880,000) and salary and separation costs
(approximately $1,159,000). As of December 31, 1996, $951,000 of the Company's
restructuring charges were paid.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1996 and
1995:
(IN THOUSANDS) 1996 1995
------ ------
Wages, commissions and bonus $3,071 $2,247
Other 3,113 3,667
------ ------
$6,184 $5,914
====== ======
7. DEBT
On March 16, 1995, the Company entered into an agreement (the "Loan
Agreement") with several banks for a $56,000,000 two year committed revolving
credit facility (the "Revolver Agreement") and a $7,500,000 four year term loan
(the "Term Loan"). The Revolver Agreement is available for loans, letters of
credit and letters of indemnity.
The Company had notes payable to banks under the Revolver Agreement at
December 31, 1996 and 1995 of $1,473,000 and $17,850,000, respectively.
Additionally, at December 31, 1996 and 1995, the Company had letters of credit
outstanding of $10,650,000 and $4,958,000, respectively.
At December 31, 1996, the Company had $9,398,000 of available credit under
the Revolver Agreement. At December 31, 1995, the Company was at its available
credit limits. The interest rate was prime (8.25%) plus 1.0% at December 31,
1996 and prime (8.5%) plus 1.25% at December 31, 1995 on the Revolver Agreement.
The weighted average interest rate on outstanding short-term borrowings
and the term loan at December 31, 1996 and 1995, was 9.91% and 9.26%,
respectively.
Principal payments of the Term Loan are payable on March 31 in each of the
following years:
1997 $1,750,000
1998 $2,000,000
1999 $2,500,000
----------
Total $6,250,000
==========
F-12
<PAGE>
7. DEBT (CONT'D)
On March 28, 1996, the Loan Agreement was amended to reduce the Revolver
Agreement facility to $50,000,000; adjust the interest rate under Revolver
Agreement borrowings to prime plus 1.0%; or prime plus 1.25% during agreed upon
collateral overadvance periods; adjust the interest rate under the Term Loan, to
prime plus 2.00%, or, at the Company's election, LIBOR plus 4.50% on outstanding
borrowings; require an additional fee of $250,000, collateral monitoring costs
of 0.2% of net sales, and provide for the issuance of warrants to the banks to
purchase 425,000 shares of the Company's common stock for an exercise price of
$1.00 per share. The warrants are exercisable at any time on or after March 31,
1998, except that the warrants will be canceled if, prior to March 31, 1998, the
Company repays the Term Loan through the sale of assets or operations, or if the
Term Loan is reduced to $1,250,000, or lower, through operations or infusion of
additional equity or subordinated debt.
On March 24, 1997, the Loan Agreement was amended to reduce the Revolver
Agreement to $45,000,000; adjust the interest rate for Revolver Agreement
borrowings to prime plus 1.0%, or prime plus 1.75% during agreed upon collateral
overadvance periods, require additional fees of $325,000 and waive violations of
certain covenants during 1996.
The Revolver Agreement is collateralized by all of the Company's assets,
excluding Mackintosh's domestic inventory and Varon's domestic raw materials and
work-in-process inventories. Additionally, the Revolver Agreement contains
various financial covenants, reporting requirements and limits on capital
expenditures, cash dividends, other indebtedness, affiliate transactions,
mergers and acquisitions and other items.
Interest expense paid on notes payable to banks and subordinated notes
(see Note 9) was approximately $3,688,000, $3,715,000, and $1,665,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company leases warehouses, office space and transportation equipment
under operating leases expiring at various times. Most of the operating leases
contain renewal options. Rent free periods granted under certain leases and
scheduled rent increases are charged to rent expense on a straight-line basis
over the related lease terms. Total rent expense for all operating leases was
$2,279,000 in 1996, $2,385,000 in 1995, and $860,000 in 1994.
F-13
<PAGE>
8. COMMITMENTS AND CONTINGENCIES (CONT'D)
Future minimum operating lease payments at December 31, 1996 are as
follows (in thousands):
1997 $2,237
1998 1,774
1999 1,638
2000 1,522
2001 1,412
Thereafter 1,283
------
$9,866
======
At December 31, 1996, the present value of future minimum capital lease
payments was $310,000, which is included in other liabilities on the balance
sheets. In 1995, the Company, through a financing lease, obtained computer
equipment at a cost of $363,000, which for financial reporting purposes, has
been accounted for as a capital lease.
The Company licenses the rights to use certain brand names on its
products, for which it is contingently obligated to pay minimum royalty and
advertising fees through 1998 in the amount of approximately $1,400,000.
9. SUBORDINATED DEBT
At December 31, 1996, the Company had outstanding $6,444,000 of 13%
Subordinated notes (the "Subordinated Notes") due December 15, 1999 with
interest payable biannually on June 15 and December 15. The Subordinated Notes
are subordinated in right of payment to all existing and future senior
indebtedness of the Company. The Company may redeem all or part of the
Subordinated Notes at any time at a price equal to the principal amount plus
accrued interest.
The fair value of the Company's Subordinated Notes is estimated to be 55%
to 60% ($3,544,000 to $3,866,000) of face amount at December 31, 1996, based on
nominal trading activity during the year.
10. STOCKHOLDERS' EQUITY
The Company is authorized to issue 25,000,000 shares of common stock, par
value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01
per share. At December 31, 1996 and 1995, the Company had 10,741,748 and
10,741,253 shares of common stock, issued and outstanding, respectively. No
shares of preferred stock have been issued.
In March 1995 and 1994, the Company's Board of Directors declared a five
percent stock dividend with respect to its common stock par value, $0.01 per
share. Each holder of record on May 24, 1995 and April 1, 1994, respectively,
received one share of common stock for every 20 shares held, with cash being
paid in lieu of
F-14
<PAGE>
10. STOCKHOLDERS' EQUITY (CONT'D)
issuing fractional shares. The distribution dates were May 31, 1995 and April
15, 1994, respectively. Accordingly, retained earnings and paid-in-capital
reflect the stock dividend distribution and all prior year stock option
information has been restated to reflect the 1995 and 1994 stock dividends.
In November 1994, the Company issued 1,666,997 shares of its common stock,
par value $0.01, per share in connection with the acquisition of M&L (see Note
2).
In March 1996, in connection with the Company's Revolver Agreement and
Term Loan, warrants were issued to purchase 425,000 shares of the Company's
common stock (see Note 7). Additionally, in 1996, the Company issued warrants to
purchase a total of 240,000 shares of Common Stock at an exercise price of $0.75
per share, as follows: 200,000 shares to Trivest, as part of the amendment to
the Company's management agreement (see Note 13) and 40,000 shares to two
executives of the Company. These warrants are fully exercisable effective
January 1, 1997 and expire December 31, 2001. The value of the above warrants is
not material to the consolidated financial statements.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("FAS 123"), but applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. The application of FAS 123 would
not result in a significant difference from reported net income and earnings per
share. There is no related compensation expense for 1996.
The Company has three nonqualified stock option plans, the 1987 Stock
Option Plan ("1987 SOP"), the 1990 Stock Option Plan ("1990 SOP") and the 1994
Stock Option Plan ("1994 SOP"). Under the terms of the 1987 SOP, 1990 SOP, and
1994 SOP, 550,000 shares, 650,000 shares, and 150,000 shares, respectively, may
be issued at not less than 100% of market value at the date of grant. Options
issued under the plans expire ten years from date of grant and generally vest
over five years from date of grant.
F-15
<PAGE>
10. STOCKHOLDERS' EQUITY (CONT'D)
The following table summarizes the activity of the Company's stock option
plans:
1996 1995 1994
---------- ---------- -------
Balance outstanding at
beginning of year 1,225,637 1,248,403 1,086,703
Granted 45,000 5,250 193,200
Canceled (68,027) (16,991) -
Exercised - (11,025) (31,500)
---------- ---------- ----------
Balance outstanding at
December 31 1,202,610 1,225,637 1,248,403
=========== =========== ===========
Price range per share $0.75-$2.44 $0.79-$2.44 $0.79-$2.44
=========== =========== ===========
Exercisable at December 31 928,367 751,465 541,217
=========== =========== ==========
Available for grant at
December 31 110,428 87,401 75,647
=========== =========== ==========
Weighted-average fair value
of options granted during
the year $0.75
===========
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED- ---------------------- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE LIFE AT 12/31/96 PRICE AT 12/31/96 PRICE
- -------- ----------- ----------- -------- ----------- --------
$0.75 9 yrs 45,000 $0.75 45,000 $0.75
$0.7936 5 yrs 102,536 $0.7936 102,536 $0.7936
$1.2471 1/2-4 yrs 426,779 $1.2471 426,779 $1.2471
$1.9274 7 yrs 471,322 $1.9274 282,793 $1.9274
$2.2619 8 yrs 5,250 $2.2619 2,100 $2.2619
$2.2675 7 yrs 2,756 $2.2675 1,653 $2.2675
$2.3810 8 yrs 96,705 $2.3810 39,060 $2.3810
$2.4376 8 yrs 52,262 $2.4376 28,446 $2.4376
--------- -------
1,202,610 928,367
========= =======
F-16
<PAGE>
11. INCOME TAXES
The components of the provision (benefit) for income taxes for each of the
three years in the period ended December 31, 1996 are as follows:
(IN THOUSANDS) 1996 1995 1994
------- ------- ------
Current $(1,577) $(2,039) $1,333
Deferred 845 (669) 26
------- ------- ------
$ (732) $(2,708) $1,359
------- ------- ------
The total Federal and state provision (benefit) for income taxes is as
follows:
(IN THOUSANDS) 1996 1995 1994
------ -------- ------
Federal $(498) $(2,712) $1,082
State (234) 4 277
----- ------- ------
$(732) $(2,708) $1,359
===== ======= ======
A reconciliation of the statutory provision and the effective provision
for income taxes is as follows:
(IN THOUSANDS) 1996 1995 1994
-------- -------- ------
Income tax at statutory rate $(3,215) $(3,004) $1,158
State income taxes, net of
federal benefit 7 200 185
Impairment of goodwill 2,173 - -
Tax exempt interest income - (3) (1)
Amortization of goodwill 45 70 72
Refund of prior year's income
taxes and related adjustments (473) (37) (17)
Other, net (157) 66 (38)
------- ------- ------
(1,620) (2,708) 1,359
Valuation allowance 888 - -
------- -------- ------
$ (732) $(2,708) $ 1,359
======= ======= =======
F-17
<PAGE>
11. INCOME TAXES (CONT'D)
The components of the net deferred tax (assets) and liabilities recorded on
the balance sheets at December 31, 1996 and 1995 are as follows:
(IN THOUSANDS) 1996 1995
---- ----
Deferred Tax Liabilities:
LIFO inventory adjustments $ 1,167 $ 1,245
Depreciation - 111
Equity in investee - 41
------- -------
1,167 1,397
Deferred Tax (Assets):
Federal net operating loss
carryovers $(1,855) $ -
State net operating loss
carryover (900) (829)
State jobs credit carryover (237) (208)
Accounts receivable and sales
allowances (870) (2,164)
Capitalized trademarks (590) (598)
Capitalized inventory (310) (498)
Deferred compensation (260) (33)
Employee benefit reserves (121) (109)
Operating leases (100) (99)
Depreciation (16) -
Other (71) (30)
------- -------
(5,330) (4,568)
Valuation allowance on deferred
tax assets 2,922 1,032
------- -------
(2,408) (3,536)
------- -------
Total ($1,241) $(2,139)
======= =======
The Company has recorded a valuation allowance of $2,922,000 and
$1,032,000 in 1996 and 1995, respectively, to reflect the estimated amount of
deferred federal and state tax assets, which arose due to net operating loss and
tax credit carryforwards. This increase is due to continued operating losses in
1996.
The majority of these carryforwards expire in the year 2011. This valuation
allowance reflects management's estimate of the total amount of deferred tax
assets which may not be realized depending on future operating results of the
Company. Remaining deferred tax assets considered realizable would be reduced in
the near term if future taxable income is not achieved.
Income taxes paid during 1996, 1995 and 1994 were $82,000, $215,000 and
$2,022,000, respectively.
12. EMPLOYEE BENEFIT PLANS
The Company maintains employee profit sharing plans covering all domestic
employees. No contribution was made for the years ended December 31, 1996 and
1995. The Company made a contribution of $150,000 to the plan for the year ended
December 31, 1994.
F-18
<PAGE>
13. RELATED PARTY TRANSACTIONS
As of January 1, 1987, the Company entered into a management agreement
with Trivest, for a seven-year period, which required payment of an annual cash
management fee of $675,000 (subject to inflation adjustments), payable in
advance in equal quarterly installments. The management agreement was amended,
effective January 1, 1992, to reduce the annual management fee to $475,000
(subject to inflation adjustments) and was again amended, effective January 1,
1993, to further reduce the annual management fee to $250,000 (subject to
inflation adjustments).
Pursuant to the second amendment, the term of the agreement was extended
four years (expiring December 31, 1997) and Trivest received a restricted stock
award consisting of 225,000 shares of the Company's $.01 par value common stock.
The stock award restrictions lapse in five equal annual installments commencing
January 1, 1994, subject to acceleration of vesting in certain circumstances,
including a change of control of the Company. The Company recognized $338,000 of
deferred management fee expense, relating to the stock award, based upon the
fair market value at date of grant. The $338,000 is being amortized over the
five year vesting period and accordingly, the Company recognized approximately
$67,000, $68,000 and $67,000 of management fee expense for the years ended
December 31, 1996, 1995 and 1994, respectively.
Effective December 1, 1994, the management agreement was amended and
restated due to the acquisition of M&L (see Note 2). This amendment increased
the yearly fee to $350,000 (subject to inflation adjustments). Effective January
1, 1996, the management agreement was amended to reduce the yearly fee to
$180,000 (subject to inflation adjustments). Additionally, the agreement
provided for the issuance of a warrant to purchase 200,000 shares of the
Company's stock.
The Company expensed approximately $180,000, $366,000 and $265,000 for
services rendered under the management agreement during the years ended December
31, 1996, 1995 and 1994, respectively.
Certain officers of the Company have a minority interest in the equity
securities of a vendor. The vendor supplies warehousing and distribution
facilities to Andy Johns and Mackintosh. This vendor relationship, which was
under contract until 1999, was terminated as of December 31, 1996 for a
negotiated payment of $525,000, which has been included as part of restructuring
expenses (see Note 5.) During the years ended December 31, 1996, 1995 and 1994,
actual warehousing and shipping expenses to this vendor totaled approximately
$884,000, $633,000 and $938,000, respectively.
F-19
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited consolidated quarterly financial data for fiscal years 1996 and
1995 is as follows (in thousands, except Per Share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1996 1996 1996 1996
-------- -------- ------- -------
Net sales $16,236 $12,893 $46,301 $29,995
======== ======== ======= =======
Gross profit $ 3,966 $ 2,557 $12,517 $ 8,273
======== ======== ======= =======
Net earnings (loss) $(1,413) $(2,181) $ 2,830 $(7,960)
======== ======== ======= ========
Net earnings (loss)
per common share $ (0.13) $ (0.20) $ 0.26 $ (0.74)
======== ======== ======= ========
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1995 1995 1995 1995(1)
-------- -------- ------- -------
Net sales $15,389 $14,517 $40,898 $29,490
======== ======== ======= =======
Gross profit $ 3,865 $ 3,323 $10,607 $ 2,378
======== ======== ======= =======
Net earnings (loss) $(1,588) $(1,787) $ 1,355 $(4,107)
======== ======== ======= ========
Net earnings (loss)
per common share $ (0.15) $ (0.17) $ 0.12 $ (0.38)
======== ======== ======= ========
(1) Each quarter is calculated independently and as such does not total year-end
1995 earnings (loss) per share of $(0.57).
The 1996 fourth quarter includes the effects of restructuring expenses,
impairment of long-lived assets and valuation allowances on Federal tax net
operating loss carryforwards totaling $9,100,000, net of taxes, or $0.85 per
share. These charges primarily resulted from the evaluation of recoverability of
such assets, particularly considering certain events, which princippally
occurred in the fourth quarter, including; changes in key members of management;
government regulations regarding cotton sleepwear, loss of market share and loss
of a key customer.
The 1995 fourth quarter includes the adverse results on the outerwear
industry of high levels of carryover inventory, at both the retail and
manufacturer's level, from 1994 to 1995, due to the effects of the 1994-1995
warm Winter season. This caused retailers to delay and reduce ordering Fall 1995
merchandise, including the Company's largest 1994 customer, who refrained from
ordering any
F-20
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONT'D)
Fall 1995 outerwear. The weather in early Fall 1995 was also unseasonably warm,
which further mitigated the demand for outerwear. These factors caused the
Company to sustain significant losses due to the sale of inventory during the
1995 third and fourth quarters at low margins and markdowns of remaining Fall
1995 and 1994 inventory. During the 1995 fourth quarter, the Company expensed
inventory markdowns of $4,374,000, compared to $179,000 during the 1994 fourth
quarter.
F-21
<PAGE>
SCHEDULE I
BISCAYNE APPAREL, INC.
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
ASSETS 1996 1995
------- -------
Current assets:
Cash and cash equivalents ........................... $ 29 $ 29
Accounts receivable ................................. 25 28
Intercompany accounts receivable .................... 4,191 2,455
Federal income tax receivable ....................... 1,455 1,969
Prepaid expenses and other .......................... 31 31
------- -------
Total current assets .................. 5,731 4,512
Investments in subsidiaries .......................... 12,346 20,519
Intercompany subordinated notes receivable ........... -- --
Property, plant and equipment, net ................... 18 23
Investment in Hartwell Sports, Inc. .................. -- 1,627
Other assets, net .................................... 69 27
------- -------
$18,164 $26,708
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 49 $ --
Accrued liabilities ................................. 455 381
------- -------
Total current liabilities ............. 504 381
Subordinated notes ................................... 6,444 6,444
Other liabilities .................................... 38 48
Stockholders' Equity:
Common stock ........................................ 107 107
Additional paid-in capital .......................... 26,311 26,309
Unearned stock award ................................ (68) (135)
Accumulated deficit ................................. (15,172) (6,446)
------- -------
Total stockholders' equity ............ 11,178 19,835
------- -------
$18,164 $26,708
======= =======
F-22
<PAGE>
SCHEDULE I
CONT'D
BISCAYNE APPAREL, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
------- ------- ------
Expenses:
General and administrative expenses ...... $ 67 $ 35 $ (72)
Management fee to Trivest, Inc. .......... 180 366 265
------- ------- ------
Operating expenses ......................... (247) (401) (193)
Other income and (expenses):
Interest and other expenses .............. (838) (954) (889)
Intercompany interest income ............. 519 551 365
Interest and other income ................ 37 40 75
Equity in and gain on sale of investee ... 123 122 5
Equity in earnings (loss) of subsidiaries,
net of applicable income taxes .......... (8,673) (5,826) 2,271
Management fee from subsidiaries ......... 180 366 265
------- ------- ------
Earnings (loss) before provision (benefit)
for income taxes ......................... (8,899) (6,102) 1,899
Provision (benefit) for income taxes ....... (175) 25 (149)
------- ------- ------
Net earnings (loss) ........................ $(8,724) $(6,127) $2,048
======= ======= ======
F-23
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
BISCAYNE APPAREL, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) ....................................... $(8,724) $(6,127) $ 2,048
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Noncash stock compensation expense ...................... 67 68 67
Equity in earnings (loss) of subsidiaries ............... 8,673 5,826 (2,271)
Gain on sale and equity in net income of investee ....... (123) (122) (5)
Depreciation expense .................................... 6 5 4
(Increase) decrease in operating assets:
Trade accounts receivable ............................... 3 36 (39)
Prepaid expenses and other .............................. -- 54 10
Federal income tax receivable ........................... 514 (1,969) --
Other assets ............................................ (42) 49 22
Increase (decrease) in operating liabilities:
Accounts payable ........................................ 49 (45) 9
Accrued liabilities ..................................... 74 (536) (508)
Other liabilities ....................................... (10) (6) (9)
------- ------- -------
Net cash provided by (used in) operating activities ..... 487 (2,767) (672)
INVESTING ACTIVITIES:
Capital expenditures ...................................... (1) (6) (10)
Purchase of subsidiary, net of cash acquired .............. -- -- (315)
Proceeds on sale and (investment) in Hartwell Sports, Inc. 1,750 -- (1,500)
------- ------- -------
Net cash provided by (used in) investing activities ..... 1,749 (6) (1,825)
FINANCING ACTIVITIES:
Repayments (advances) of intercompany loans ............... (2,236) 6,761 2,462
Payment on subordinated notes ............................. -- (4,776) --
Proceeds from exercise of employee stock options .......... -- 13 39
------- ------- -------
Net cash (used in) provided by financing activities ... (2,236) 1,998 2,501
------- ------- -------
Net increase (decrease) in cash and cash equivalents ....... 0 (775) 4
Cash and cash equivalents at beginning of year ............. 29 804 800
------- ------- -------
Cash and cash equivalents at end of year ................... $ 29 $ 29 $ 804
======= ======= =======
</TABLE>
(Continued on following page)
F-24
<PAGE>
SCHEDULE I
CONT'D
BISCAYNE APPAREL, INC.
PARENT COMPANY ONLY
STATEMENTS OF CASH FLOWS (CONT'D)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
----- ----- -------
Supplemental disclosure:
Interest paid $ 838 $ 957 $ 838
Income taxes paid $ 1 $ 10 $ 1,603
Supplemental schedule of noncash financing
activities:
Net changes in investments in subsidiaries $ 500 $ - $ 139
Acquisition of subsidiary:
Fair value of assets acquired $20,755
Liabilities assumed (9,636)
-------
Total purchase price 11,119
Less: debt issued (6,637)
Less: common stock issued (4,167)
-------
Net cash paid for acquisition of subsidiary(1) $ 315
=======
(1) Exclusive of cash acquired of $2,173,000 which is included in the
Statement of Cash Flows for M&L International, Inc.
F-25
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
BISCAYNE APPAREL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------- ---------- ------------------------- ---------- --------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
----------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $ 227 $ 223 $ 44 $ 325 $ 169
Allowance for sales discounts 162 522 - 588 96
Reserve for sales allowance 404 671 - 775 300
Reserve for advertising allowance 99 222 - 198 123
Reserve for freight and warehouse discounts 72 396 - 363 105
Reserve for returns 1,003 3,875 - 3,653 1,225
Year ended December 31, 1995:
Allowance for doubtful accounts $ 422 $ 400 $(71) $ 524 $ 227
Allowance for sales discounts 156 561 - 555 162
Reserve for sales allowance 334 371 - 301 404
Reserve for advertising allowance 97 203 - 201 99
Reserve for freight and warehouse discounts 15 258 - 201 72
Reserve for returns 730 2,866 - 2,593 1,003
Year ended December 31, 1994:
Allowance for doubtful accounts $ 344 $ 763 $ - $ 685 $ 422
Allowance for sales discounts 288 686 - 818 156
Reserve for sales allowance 226 1,157 - 1,049 334
Reserve for advertising allowance 57 313 - 273 97
Reserve for freight and warehouse discounts 18 157 - 160 15
Reserve for returns 491 1,359 - 1,120 730
<FN>
- -------------------
(1) For the year ended December 31, 1994, additions per Column C include
amounts from M&L International, Inc.'s date of acquisition, November 30,
1994.
</FN>
</TABLE>
F-26
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.10 Waiver Letter, dated as of December 30, 1996 relating to Warrant
No. W-2, dated as of March 26, 1996.
10.11 Salary Deferral Agreement between the Registrant and Peter Vandenberg,
Jr.
10.12 Warrant for the Purchase of Shares of Common Stock, dated as of
December 30, 1996 issued to Peter Vandenberg, Jr.
10.27 First Amendment and Waiver to Amended and Restated Credit Agreement
and Guaranty dated as of August 30, 1996 among the Registrant,
Biscayne Apparel International, Inc., Mackintosh of New England Co.
and M&L International, Inc. and The Chase Manhattan Bank (successor
by merger to The Chase Manhattan Bank, N.A.) as Agent and Milberg
Factors, Inc. as Servicing Agent.
10.28 Second Amendment and Waiver to Amended and Restated Credit Agreement
and Guaranty dated as of February 24, 1997 among the Registrant,
Biscayne Apparel International, Inc., Mackintosh of New England Co.
and M&L International, Inc. and The Chase Manhattan Bank (successor
by merger to The Chase Manhattan Bank, N.A.) as Agent and Milberg
Factors, Inc. as Servicing Agent.
11 Statement re: Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Coopers and Lybrand L.L.P.
27 Financial Data Schedule.
EXHIBIT 10.1
FIRST AMENDMENT AND WAIVER TO
AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
FIRST AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT
AGREEMENT AND GUARANTY (the "Amendment and Waiver") dated as of August 30, 1996
among BISCAYNE APPAREL, INC., BISCAYNE APPAREL INTERNATIONAL, INC., MACKINTOSH
OF NEW ENGLAND CO., and M & L INTERNATIONAL, INC., (individually, each a
"Borrower" and collectively, the "Borrowers" and individually, each a
"Guarantor" and collectively, the "Guarantors"), THE CHASE MANHATTAN BANK
(successor by merger to The Chase Manhattan Bank, N.A.), CORESTATES BANK, N.A.,
THE FIRST NATIONAL BANK OF BOSTON, FLEET BANK N.A. (successor by merger to
Natwest Bank, N.A.), and MILBERG FACTORS, INC. (individually, each a "Lender"
and collectively, the "Lenders"), THE CHASE MANHATTAN BANK (successor by merger
to The Chase Manhattan Bank, N.A.), as agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Agent"), and MILBERG
FACTORS, INC., as servicing agent for the Lenders (in such capacity, together
with its successors in such capacity, the "Servicing Agent").
PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the
Lenders and the Agents have entered into an Amended and Restated Credit
Agreement and Guaranty dated as of March 28, 1996 (the "Credit Agreement"). The
terms defined in the Credit Agreement are used in this Amendment and Waiver as
in the Credit Agreement unless otherwise defined in this Amendment and Waiver.
The Borrowers, the Lenders and the Agents have agreed to amend
and waive certain provisions of the Credit Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 3 hereof, hereby amended as
follows:
(a) The following definition is added in its proper
alphabetical order:
"Andy Johns" means Andy Johns Fashions
International.
(b) The definition of "Revolving Credit Loans Borrowing Base"
is amended by deleting the first sentence
<PAGE>
thereof in its entirety and inserting in its place the
following:
"Revolving Credit Loans Borrowing Base" means for
each date or period specified below the lesser of (1) an
amount equal to the total of (a) the Collateral Borrowing
Base, and to the extent the amount is a positive number plus,
and to the extent the amount is a negative number minus, the
integer of (b) the Revolving Credit Loans Permitted
Overadvance or (2) column A set forth below for such date or
period:
<TABLE>
<CAPTION>
DATE OR PERIOD A
-------------- -
<S> <C>
August 30, 1996 to and including August 31, Thirty Million Dollars ($30,000,000)
1996
September 1, 1996 to and including Thirty-Three Million Dollars ($33,000,000)
October 30, 1996
October 31, 1996 to and including Twenty-Five Million Dollars ($25,000,000)
November 29, 1996
November 30, 1996 to and including Sixteen Million Dollars ($16,000,000)
December 30, 1996
On December 31, 1996 Eight Million Dollars ($8,000,000)
January 1, 1997 to the Revolving Credit Fifty Million Dollars ($50,000,000)
Termination Date
</TABLE>
(c) The definition of "Revolving Credit Loans Permitted
Overadvance (During the Month)" is amended by deleting the months of August,
September, October, November and December and the amounts corresponding to such
months and inserting in their place the following:
MONTH AMOUNT
----- ------
August $ 14,750,000
September $ 7,000,000
October $ 2,500,000
November ($ 2,000,000)
December ($ 3,500,000)
(d) The definition of "Revolving Credit Loans Permitted
Overadvance (Month End)" is amended by (i) deleting the months of August,
September and October and the amounts corresponding to such months and inserting
in their place the following:
2
<PAGE>
MONTH AMOUNT
----- ------
August $ 5,250,000
September $ 0
October ($ 5,000,000)
and (ii) inserting at the end thereof the following:
Notwithstanding the foregoing, the proceeds of the
Revolving Credit Loans made to BAI which are used to finance
its Andy Johns division shall be equal to or less than the
Eligible Accounts of the Andy Johns division relied on in
computing the Collateral Borrowing Base as set forth on the
Reconciliation Report for the months ended November and
December. In addition, the proceeds of the Revolving Credit
Loans made to BAI for its Varon division shall be less than
the Eligible Accounts of the Varon division relied on in
computing the Collateral Borrowing Base as set forth on the
Reconciliation Report in amounts of at least $1,000,000,
$2,000,000 and $3,000,000 for the months ended October,
November, and December, respectively.
In addition, notwithstanding the foregoing (1) the
proceeds of intercompany loans or advances made to BAI which
are used to finance the Andy Johns division of BAI (excluding
amounts related to corporate expenses, management fee
expenses, and state and federal income taxes between BAI and
Apparel) shall not exceed an amount equal to Two Million Seven
Hundred Fifty Thousand Dollars ($2,750,000) in the aggregate
at any time, and (2) the proceeds of intercompany loans or
advances made to BAI which are used to finance the Varon
division of BAI (excluding amounts related to corporate
expenses, management fee expenses, and state and federal
income taxes between BAI and Apparel) shall not exceed Three
Million Nine Hundred Fifty-Three Dollars ($3,000,953) in the
aggregate at any time.
(e) The definition of "Working Capital Borrowing Base" is
amended by inserting after "time" in the first line thereof the following:
"prior to August 30, 1996 and on and after January 1, 1997,".
(f) Section 3.01, LETTERS OF CREDIT, is amended by adding at
the end thereof the following:
Notwithstanding the foregoing, during the
period from August 15, 1996 to December 31, 1996
3
<PAGE>
Chase will not be required to issue a Letter of Credit or
amend an outstanding Letter of Credit if after giving effect
to the issuance thereof or amendment thereto the total of (a)
the aggregate face amount of all Letters of Credit issued
during such period plus (b) the increase in the face amount of
all outstanding Letters of Credit during such period less (c)
the aggregate face amount of all Letters of Credit cancelled
during such period, is equal to or greater than Eleven Million
Five Hundred Thousand Dollars ($11,500,000). In addition,
during such period, Chase will not be required to issue a
Letter of Credit or amend an outstanding Letter of Credit
issued for the account of BAI where the goods covered by such
Letter of Credit are for or such Letter of Credit otherwise
relates to the Andy Johns division of BAI if after giving
effect to the issuance thereof or amendment thereto the total
of (a) the aggregate face amount of all such Letters of Credit
issued during such period plus (b) the increase in the face
amount of all such outstanding Letters of Credit during such
period less (c) the aggregate face amount of all Letters of
Credit cancelled during such period, is equal to or greater
than Two Million Five Hundred Thousand Dollars ($2,500,000).
SECTION 2. WAIVER. Because the August 7, 1996 and August 15,
1996 Reconciliation Reports reflected that Outstanding Working Capital
Obligations exceeded the Working Capital Borrowing Base and the Borrowers failed
to make a prepayment in the amount of such excess within one (1) day thereof,
the Borrowers are not in compliance with Section 2.08, MANDATORY PREPAYMENTS of
the Credit Agreement. Such noncompliance constitutes Events of Default under the
Credit Agreement. The Borrowers have requested that each Lender and each Agent
waive such Events of Default. Upon the conditions set forth below, each Lender
and each Agent waive the Borrowers failure to comply with Section 2.08,
MANDATORY PREPAYMENTS for the periods set forth in the August 7, 1996 and August
15, 1996 Reconciliation Reports. No Lender nor Agent waives any future
noncompliance with such Section.
SECTION 3. CONDITIONS OF EFFECTIVENESS TO THIS AMENDMENT AND
WAIVER. This Amendment and Waiver shall become effective on the date on which
the Agent shall have received each of the following documents, in form and
substance satisfactory to the Agent and its counsel and the Lenders, and each of
the following requirements shall have been fulfilled:
4
<PAGE>
(1) THIS AMENDMENT AND WAIVER. The Borrowers, the Lenders and
the Agents shall each have executed and delivered this Amendment and Waiver;
(2) INTERCOMPANY LOAN SCHEDULE. The Borrowers shall have
delivered its most recent Intercompany Loan Schedule for each Borrower and each
Borrower's divisions prior to the date of this Amendment, and such Intercompany
Loan Schedule shall be in form and substance satisfactory to the Lenders and the
Agents in their sole discretion;
(3) OFFICER'S CERTIFICATE. The following statements shall be
true and the Agent shall have received a certificate signed by a duly authorized
officer of each Borrower dated the effective date of this Amendment and Waiver
stating that:
(a) The representations and warranties contained in the Credit
Agreement and in each of the other Facility Documents are true and
correct on and as of the effective date of this Amendment and Waiver as
though made on and as of such date;
(b) After giving effect to this Amendment and Waiver, no
Default or Event of Default has occurred and is continuing; and
(c) The amounts set forth on the Intercompany Loan Schedule
delivered in connection with this Amendment are true and correct;
(4) LENDERS' FEES. The Borrowers shall have paid to the Agent
a fee of Twenty-Five Thousand Dollars ($25,000) for the account of the Lenders.
The Agent will promptly thereafter cause to be distributed to each Lender such
Lender's Pro Rata Share of such fees;
(5) LEGAL BILL. Dewey Ballantine will be paid in full for all
legal fees, costs and expenses in connection with the preparation of the
Amendment and Waiver and all past due legal fees, costs and expenses;
(6) ADDITIONAL DOCUMENTATION. The Agent shall have received
such other approvals, opinions or documents as any Lender may reasonably
request.
SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS.
(a) Upon the effectiveness of Section 1 hereof, on and after the date hereof
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import, and each reference in the other
Facility Documents to the Credit Agreement, shall mean
5
<PAGE>
and be a reference to the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and all other Facility Documents shall remain in full force and effect and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment and Waiver shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of any Lender or Agent under any of the
Facility Documents, nor, except as expressly provided herein, constitute a
waiver of any provision of the Facility Documents.
SECTION 5. COSTS AND EXPENSES. The Borrowers agree to pay the
Agent, the Servicing Agent, and the Lenders on demand all costs, expenses and
charges, in connection with the preparation, reproduction, execution, delivery,
filing, recording and administration of this Amendment and Waiver and any other
instruments and documents to be delivered hereunder, including, without
limitation, the fees and out-of-pocket expenses of counsel for the Agent, the
Servicing Agent, and each Lender with respect thereto and with respect to
advising the Agent, the Servicing Agent, and each Lender as to its rights and
responsibilities under such documents, and all costs and expenses, if any, in
connection with the enforcement of any such documents.
SECTION 6. GOVERNING LAW. This Amendment and Waiver shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 7. HEADINGS. Section headings in this Amendment and
Waiver are included herein for convenience of reference only and shall not
constitute a part of this Amendment and Waiver for any other purpose.
SECTION 8. COUNTERPARTS. This Amendment and Waiver may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and any party hereto may execute this
Amendment and Waiver by signing any such counterpart.
[INTENTIONALLY LEFT BLANK.]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Waiver to be duly executed as of the day and year first above
written.
BISCAYNE APPAREL, INC.
By______________________________
Name: Peter Vandenberg Jr.
Title: Vice President
BISCAYNE APPAREL INTERNATIONAL,
INC.
By______________________________
Name: Peter Vandenberg Jr.
Title: Vice President
MACKINTOSH OF NEW ENGLAND CO.
By______________________________
Name: Peter Vandenberg Jr.
Title: Vice President
M & L INTERNATIONAL, INC.
By______________________________
Name: Peter Vandenberg Jr.
Title: Vice President
THE CHASE MANHATTAN BANK (successor
by merger to The Chase Manhattan
Bank, N.A.; "Chase"), as Lender
By___________________________
Name:
Title:
MILBERG FACTORS, INC., as Lender
By:_____________________________
Name:
Title:
7
<PAGE>
CORESTATES BANK, N.A., as Lender
By:_____________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON,
as Lender
By:_____________________________
Name:
Title:
FLEET BANK, N.A. (formerly known as
NatWest Bank N.A.), as Lender
By___________________________
Name:
Title:
THE CHASE MANHATTAN BANK (successor
by merger to The Chase Manhattan
Bank, N.A.; "Chase"), as Agent
By____________________________
Name:
Title:
MILBERG FACTORS, INC., as
Servicing Agent
By:_____________________________
Name:
Title:
8
EXHIBIT 10.2
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
GUARANTY (the "Second Amendment") dated as of February 24, 1997 among BISCAYNE
APPAREL, INC., BISCAYNE APPAREL INTERNATIONAL, INC., MACKINTOSH OF NEW ENGLAND
CO., and M & L INTERNATIONAL, INC., (individually, each a "Borrower" and
collectively, the "Borrowers" and individually, each a "Guarantor" and
collectively, the "Guarantors"), THE CHASE MANHATTAN BANK (successor by merger
with The Chase Manhattan Bank, N.A.), CORESTATES BANK, N.A., THE FIRST NATIONAL
BANK OF BOSTON, FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), and
MILBERG FACTORS, INC. (individually, each a "Lender" and collectively, the
"Lenders"), THE CHASE MANHATTAN BANK (successor by merger with The Chase
Manhattan Bank, N.A.), as agent for the Lenders (in such capacity, together with
its successors in such capacity, the "Agent"), and MILBERG FACTORS, INC., as
servicing agent for the Lenders (in such capacity, together with its successors
in such capacity, the "Servicing Agent").
PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the
Lenders and the Agents have entered into an Amended and Restated Credit
Agreement and Guaranty dated as of March 28, 1996, as amended by a First
Amendment and Waiver to Amended and Restated Credit Agreement dated August 30,
1996 (as so amended and waived, the "Credit Agreement"). The terms defined in
the Credit Agreement are used in this Second Amendment as in the Credit
Agreement unless otherwise defined in this Second Amendment.
The Borrowers, the Lenders and the Agents have agreed to amend
certain provisions of the Credit Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 2 hereof, hereby amended as
follows:
(a) The following definition is added in its proper
alphabetical order:
"Cash Collateral" means a deposit by Borrowers, made
in immediately available funds, to a savings, checking or time
deposit account at the Agent or the purchase by the Borrowers
of a
<PAGE>
certificate of deposit issued by the Agent and the execution
of all documents and the taking of all steps required to give
the Agent a perfected first priority Lien in such deposit or
certificate of deposit.
(b) Section 3.01, LETTERS OF CREDIT, is amended by (i)
deleting the provisos which begin in line 15 and 16 of the first paragraph
thereof and inserting in their place the following:
"; provided, further, that Chase will not be required to issue
a Letter of Credit with a maturity date later than September
30, 1997; provided; further, that Chase will not be required
to issue or amend a Letter of Credit with a maturity date
between April 1, 1997 and September 30, 1997 if after giving
effect to the issuance thereof or the amendment thereto the
aggregate face amount of all Letters of Credit issued by Chase
with a maturity date between April 1, 1997 and September 30,
1997 is equal to or greater than Seventeen Million Six Hundred
Thousand Dollars ($17,600,000)"
and (ii) adding after the first paragraph thereof the
following:
"Notwithstanding the foregoing, on April 1, 1997, the
Borrowers shall provide a standby letter of credit with an
expiration date no earlier than November 30, 1997, in an
amount equal to one hundred five percent (105%) of the undrawn
face amount of all Letters of Credit outstanding on such date
issued by a financial institution acceptable to the Required
Lenders and pursuant to which Chase can draw for any unpaid
reimbursement obligation in connection with any and all such
outstanding Letters of Credit, or in the event that the
Required Lenders determine that the proposed financial
institutions are not acceptable, the Borrowers shall provide
Cash Collateral in an amount equal to one hundred five percent
(105%) of the undrawn face amount of all Letters of Credit
outstanding on such date."
(c) Section 3.03, PAYMENT OF COMMISSIONS, EXPENSES AND
INTEREST, is amended deleting the last paragraph therein and inserting in its
place the following:
"In addition to any and all of Chase's
customary issuance fees and other expenses to be
paid by each Borrower to Chase for its own account
2
<PAGE>
with respect to a Letter of Credit and Letters of Indemnity,
the applicable Borrower shall pay to Chase for the account of
the Lenders a drawing fee equal to the greater of: (1)
five-sixteenths of one percent (5/16%) of the amount drawn
under such Letter of Credit or (2) Chase's then effective
minimum charge for a draw under a letter of credit.
SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS SECOND
AMENDMENT. This Second Amendment shall become effective on the date on which the
Agent shall have received each of the following documents, in form and substance
satisfactory to the Agent and its counsel and the Lenders, and each of the
following requirements shall have been fulfilled:
(1) THIS SECOND AMENDMENT. The Borrowers, the Lenders and the
Agents shall each have executed and delivered this Second Amendment; and
(2) ADDITIONAL DOCUMENTATION. The Agent shall have received
such other approvals, opinions or documents as any Lender may reasonably
request.
SECTION 3. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS.
(a) Upon the effectiveness of Section 1 hereof, on and after the date hereof
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import, and each reference in the other
Facility Documents to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and all other Facility Documents shall remain in full force and effect and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Second
Amendment shall not operate as a waiver of any present or future right, power or
remedy of any Lender or Agent under any of the Facility Documents, nor
constitute a waiver of any provision of the Facility Documents, nor constitute a
waiver of any Default or Event of Default.
SECTION 4. COSTS AND EXPENSES. The Borrowers agree to pay the
Agent, the Servicing Agent, and the Lenders on demand all costs, expenses and
charges, in connection with the preparation, reproduction, execution, delivery,
filing, recording and administration of this Second Amendment and any other
instruments and documents to be delivered hereunder, including, without
limitation, the fees
3
<PAGE>
and out-of-pocket expenses of counsel for the Agent, the Servicing Agent, and
each Lender with respect thereto and with respect to advising the Agent, the
Servicing Agent, and each Lender as to its rights and responsibilities under
such documents, and all costs and expenses, if any, in connection with the
enforcement of any such documents.
SECTION 5. GOVERNING LAW. This Second Amendment
shall be governed by and construed in accordance with the
laws of the State of New York.
SECTION 6. HEADINGS. Section headings in this
Second Amendment are included herein for convenience of
reference only and shall not constitute a part of this
Second Amendment for any other purpose.
SECTION 7. COUNTERPARTS. This Second Amendment may be executed
in any number of counterparts, all of which taken together shall constitute one
and the same instrument, and any party hereto may execute this Second Amendment
by signing any such counterpart.
[INTENTIONALLY LEFT BLANK.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the day and year first above written.
BISCAYNE APPAREL, INC.
By______________________________
Name: Peter Vandenberg Jr.
Title: Vice President
BISCAYNE APPAREL INTERNATIONAL,
INC.
By______________________________
Name: Peter Vandenberg Jr.
Title: Vice President
MACKINTOSH OF NEW ENGLAND CO.
By______________________________
Name: Peter Vandenberg Jr.
Title: Vice President
M & L INTERNATIONAL, INC.
By______________________________
Name: Peter Vandenberg Jr.
Title: Vice President
THE CHASE MANHATTAN BANK (successor
by merger with The Chase Manhattan
Bank, N.A.), as Lender
By___________________________
Name:
Title:
MILBERG FACTORS, INC., as Lender
By:_____________________________
Name:
Title:
5
<PAGE>
CORESTATES BANK, N.A., as Lender
By:_____________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON,
as Lender
By:_____________________________
Name:
Title:
FLEET BANK, N.A. (formerly known as
NatWest Bank N.A.), as Lender
By___________________________
Name:
Title:
THE CHASE MANHATTAN BANK (successor
by merger with The Chase Manhattan
Bank, N.A.), as Agent
By____________________________
Name:
Title:
MILBERG FACTORS, INC., as
Servicing Agent
By:_____________________________
Name:
Title:
6
[LETTERHEAD] EXHIBIT 10.10
December 30, 1996
Mr. Peter Vandenberg Jr.
Vice President, Treasurer and Chief Financial Officer
Biscayne Apparel, Inc.
1373 Broad Street, 3rd Floor
Clifton, New Jersey 07013
RE: WARRANT NO. W-2, DATED MARCH 26, 1996
Dear Chip:
Reference is made to Warrant No. W-2, dated March 26, 1996 (the "TRIVEST
WARRANT"), entitling Trivest, Inc. to purchase 200,000 shares of the Common
Stock, $.01 par value (the "COMMON STOCK"), of Biscayne Apparel, Inc. (the
"COMPANY") Section 6.3 of the Trivest Warrant provides that the number of shares
of Common Stock subject to the Trivest Warrant shall be adjusted in the event of
certain issuances of Common Stock by the Company. These adjustment provisions do
not apply to, among other things, shares issued pursuant to the Company's stock
options for employees and directors.
We understand that the Company intends to issue warrants to certain
employees of the Company and its subsidiaries (Warrants No. W-3, W-4, W-5 and
W-6), for an aggregate of 140,000 shares of Common Stock (collectively, the
"EMPLOYEE WARRANTS"). This will confirm that we waive all provisions of the
Trivest Warrant (including, without limitation, Section 6.3 thereof) that would
cause the number of shares of Common Stock subject thereto to be adjusted by
reason of (i) the issuance of the Employee Warrants, or (ii) the issuance of
shares of Common Stock upon the exercise of the Employee Warrants.
Sincerely,
/s/ EARL W. POWELL
------------------
Earl W. Powell
Chief Executive Officer
EXHIBIT 10.11
SALARY DEFERRAL AGREEMENT
This Agreement is made and entered into as of the 31st day of March,
1996, to be effective as of January 1, 1996, by and between BISCAYNE APPAREL,
INC., a Florida corporation (the "COMPANY"), and PETER VANDENBERG, JR. (the
"EXECUTIVE.")
PRELIMINARY STATEMENTS:
A. The Executive is employed as the Vice President and Chief Financial
Officer of the Company, at an annual base salary of $185,000 (the "BASE
SALARY.")
B. The Executive is willing to reduce the amount of his Base Salary
for the calendar year beginning January 1, 1996 by $15,000, on the terms and
subject to the conditions set forth in this Agreement.
AGREEMENT:
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. PREAMBLE AND RECITALS. The preamble and recitals hereinabove set
forth are incorporated herein and made a part hereof.
2. WARRANT. On or before December 30, 1996, the Company shall cause to
be issued to the Executive a warrant (the "WARRANT") to purchase 15,000 shares
(individually, a "WARRANT SHARE" and collectively, the "WARRANT SHARES") of the
Company's Common Stock, $.01 par value, and containing terms substantially as
set forth on EXHIBIT A hereto.
3. SALARY DEFERRAL.
(a) The Executive's Base Salary shall be reduced by $15,000
(the "1996 REDUCTION AMOUNT"), from $185,000 to $170,000, with respect to the
period from January 1, 1996 through December 31, 1996. Effective January 1,
1997, the Executive's Base Salary shall be restored to $185,000, or such higher
amount as shall be approved by the Compensation Committee of the Company's Board
of Directors in its sole and absolute discretion.
(b) At any time after February 15, 1997 and prior to February
15, 2000, the Executive may elect, by written notice to the Company, to receive
cash payment of the 1996 Reduction Amount, in which case:
(i) one-half of the 1996 Reduction Amount will be paid to
the Executive (subject to applicable withholdings), in 52 equal weekly
installments commencing with the second regular payroll date next
succeeding such election (the "COMMENCEMENT DATE"); and
(ii) the remaining one-half of the 1996 Reduction Amount
will be paid to the
<PAGE>
Executive (subject to applicable withholdings) in a lump sum on the
first anniversary of the Commencement Date.
(c) Regardless of whether the Executive has made the election
referred to in Section 3(b) hereof, if the combined pretax income plus
management fees, corporate expense and amortization of goodwill ("OPERATING
INCOME") of the Company's Andy Johns Fashions International divisions and
Mackintosh of New England, Co. subsidiary for the fiscal years ending December
31, 1996, 1997 or 1998 exceeds 75% of the actual 1993 Operating Income of
$3,400,000 (I.E., $2,550,000), the Company shall pay the Executive in cash
(subject to applicable withholdings) an amount equal to 1% of the 1996 Reduction
Amount for each 1% of Operating Income earned in any such fiscal year in excess
of $2,550,000. Payment of any such amount with respect to any such fiscal year
shall be made no later than 75 days after the close of such fiscal year.
Notwithstanding any provision of this Agreement which may be to the contrary,
any amounts otherwise payable to the Executive pursuant to the provisions of
Section 3(b) hereof shall be reduced by the amount of any payments to the
Executive pursuant to this Section 3(c).
(d) In the event that the Executive's employment with the
Company shall be terminated for any reason, then any and all unpaid amounts of
the 1996 Reduction Amount shall become due and payable and the Company shall
make payment thereof to the Executive (subject to applicable withholdings) no
later than 30 days after the date of such termination of employment.
(e) Notwithstanding any provision of this Agreement or the
Warrant which may be to the contrary (but subject to the adjustment provisions
contained in the Warrant), (i) the number of unexcercised Warrant Shares subject
to the Warrant shall be reduced by one (1) share for each $1.00 of the 1996
Reduction Amount paid to the Executive pursuant to Sections 3(b), 3(c) or 3(d)
hereof, and (ii) in no event shall the Executive be entitled to receive any
payment of the 1996 Reduction Amount pursuant to Sections 3(b), 3(c) or 3(d) to
the extent that the amount of any such payment, when aggregated with all prior
payments, exceeds the remainder of (A) the 1996 Reduction Amount, MINUS (B) the
number of Warrant Shares issued (or issuable) to the Executive under the Warrant
pursuant to any exercise(s) of the Warrant occurring prior to the date of any
such payment pursuant to the provisions thereof.
4. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New Jersey.
5. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, understandings and arrangements, both oral and
written, between the parties hereto with respect to such subject matter. This
Agreement may not be modified in any way unless by a written instrument signed
by each of the parties hereto.
6. NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and shall be given by personal delivery, facsimile
transmission, Federal Express (or other equivalent courier service) or by
registered or certified mail, postage prepaid, return receipt requested (i) if
to the Company, to the address of its principal offices in Clifton, New Jersey,
Attention: President, with a copy to Trivest, Inc., 2665 South Bayshore Drive,
Suite 800, Miami, Florida 33133, Attention: General Counsel, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other addresses as either party hereto may from time to time give notice
of to the other. Notice by registered or certified mail will be effective three
days after deposit in the United States mail. Notice by any other
2
<PAGE>
permitted means will be effective upon receipt.
7. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
8. WAIVERS. The waiver by either party hereto of a breach or
violation of any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation.
9. ARBITRATION. ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR INVALIDITY THEREOF,
SHALL BE FINALLY RESOLVED IN NEWARK, NEW JERSEY, IN ACCORDANCE WITH THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION AS THEN IN EFFECT. SUCH ARBITRATION SHALL
BE CONDUCTED BEFORE AN ARBITRATOR SELECTED BY THE PARTIES TO SUCH DISPUTE,
CONTROVERSY OR CLAIM. IF THE PARTIES FAIL TO AGREE ON THE ARBITRATOR WITHIN 30
DAYS AFTER NOTICE BY ONE PARTY TO THE OTHER OF THE EXISTENCE OF A DISPUTE,
CONTROVERSY OR CLAIM, THE ARBITRATOR SHALL BE SELECTED BY THE AMERICAN
ARBITRATION ASSOCIATION. THE NON-PREVAILING PARTY SHALL PAY THE FEES AND
EXPENSES OF THE ARBITRATOR, AS WELL AS ALL REASONABLE COSTS, FEES (INCLUDING
REASONABLE ATTORNEYS' FEES) AND EXPENSES OF THE PREVAILING PARTY IN CONNECTION
WITH ANY SUCH ARBITRATION. JUDGMENT ON THE AWARD RENDERED BY THE ARBITRATOR MAY
BE ENTERED BY ANY COURT OF COMPETENT JURISDICTION.
10. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
BISCAYNE APPAREL, INC.
By:/s/ Earl W. Powell
--------------------
Earl W. Powell
Chairman of the Board
3
<PAGE>
/s/ Peter Vandenburg, Jr.
-------------------------
PETER VANDENBERG, JR.
4
<PAGE>
EXHIBIT A
WARRANT TERMS
Exercise Price: $.75 per share
Exercisable: From and after January 1, 1997 through and
including December 31, 2001
Termination: December 31, 2001
Adjustment Provisions: Standard
Registration Rights: Piggyback
EXHIBIT 10.12
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT
OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE
SUBJECT TO CERTAIN AGREEMENTS, INCLUDING, WITHOUT LIMITATION, REDUCTION OF THE
NUMBER OF SHARES OF WARRANT STOCK AVAILABLE FOR ISSUE HEREUNDER, AS SET FORTH IN
A SALARY DEFERRAL AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF,
DATED AS OF MARCH 31, 1996, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF
AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.
DECEMBER 30, 1996
BISCAYNE APPAREL, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA)
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
NO. W-6
FOR VALUE RECEIVED, BISCAYNE APPAREL, INC. (the "Company"), a Florida
corporation, hereby certifies that PETER VANDENBERG, JR. or transferees or
assigns (the "Holder") is entitled, subject to the provisions of this Warrant,
to purchase from the Company, up to 15,000 fully paid and non-assessable shares
of Common Stock at a price of $0.75 per share (the "Exercise Price").
The term "Common Stock" means the Common Stock, par value $.01 per share,
of the Company as constituted on December 30, 1996 (the "Base Date"). The number
of shares of Common Stock to be received upon the exercise of this Warrant may
be adjusted from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, and as adjusted from time to time, are
hereinafter referred to as "Warrant Stock." The term "Other Securities" means
any other equity or debt securities that may be issued by the Company in
addition thereto or in substitution for the Warrant Stock. The term "Company"
means and
<PAGE>
includes the corporation named above as well as (i) any immediate or more remote
successor corporation resulting from the merger or consolidation of such
corporation (or any immediate or more remote successor corporation of such
corporation) with another corporation, or (ii) any corporation to which such
corporation (or any immediate or more remote successor corporation of such
corporation) has transferred its property or assets as an entirety or
substantially as an entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reason ably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time, or from time to time during the period commencing on January
1, 1997 and expiring 5:00 p.m. Eastern Time on December 31, 2001 (the
"Expiration Date") or, if such day is a day on which banking institutions in New
York are authorized by law to close, then on the next succeeding day that shall
not be such a day, by presentation and surrender of this Warrant to the Company
at its principal office, or at the office of its stock transfer agent, if any,
with the Warrant Exercise Form attached hereto duly executed and accompanied by
payment (either in cash or by bank check, payable to the order of the Company)
of the Exercise Price for the number of shares specified in such form and
instruments of transfer, if appropriate, duly executed by the Holder or his or
her duly authorized attorney. In the alternative, the Exercise Price for the
number of shares specified in the Warrant Exercise Form may be paid by (i)
surrendering to the Company securities of the Company having a fair market value
equal to the Exercise Price, or (ii) deducting from the number of shares of
Warrant Stock to be delivered upon exercise of the Warrant a number of shares
which has an aggregate fair market value equal to the Exercise Price. Fair
market value shall be determined as provided in paragraph 3 hereof. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the shares purchasable
hereunder. Upon receipt by the Company of this Warrant, together with the
Exercise Price, at its office, or by the stock transfer agent of the Company at
its office, in proper form for exercise, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder. The Company shall pay any and all
documentary stamp or
2
<PAGE>
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of Common Stock on exercise of this Warrant. Notwithstanding any other
provisions hereof, if an exercise of any portion of the Warrant is to be made in
connection with a public offering of Common Stock, the exercise of any portion
of this Warrant may at the election of the Holder be conditioned upon the
consummation of such transaction, in which case such exercise shall not be
deemed to be effective until the consummation of such transaction.
2. RESERVATION OF SHARES; LISTING OF SHARES. The Company will at all
times reserve for issuance and delivery upon exercise of this Warrant all shares
of Common Stock or other shares of capital stock of the Company (and Other
Securities) from time to time receivable upon exercise of this Warrant. All such
shares (and Other Securities) shall be duly authorized and, when issued upon
such exercise, shall be validly issued, fully paid and non-assessable and free
of all preemptive rights. The Company will use its best efforts to cause the
Warrant Stock, immediately upon such exercise, to be listed on any domestic
securities exchange upon which shares of Common Stock are listed at the time of
such exercise.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant, but the
Company shall pay the holder an amount equal to the fair market value of such
fractional share of Common Stock in lieu of each fraction of a share otherwise
called for upon any exercise of this Warrant. For purposes of this Warrant, the
fair market value of a share of Common Stock shall be determined as follows:
(a) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the current market value shall be the last
reported sale price of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange or system; or
(b) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
3
<PAGE>
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations, entitling the
Holder or Holders thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. ANTI-DILUTION PROVISIONS. In order to prevent dilution of the rights
granted under the Warrant, the following provisions shall apply:
6.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any
time subdivide its outstanding shares of Common Stock (or other securities at
the time receivable upon the exercise of the Warrant) by recapitalization,
reclassification or split-up thereof, or if the Company shall declare a stock
dividend or distribute shares of Common Stock to its shareholders, the number of
shares of Common Stock subject to this Warrant immediately prior to such
subdivision shall be proportionately increased, and if the Company shall at any
time combine the outstanding shares of Common Stock by recapitalization,
reclassification or combination thereof, the number of shares of Common Stock
subject to this Warrant immediately prior to such combination shall be
proportionately decreased. Any such adjustment and adjustment to the Exercise
Price pursuant to this Section 6.1 shall be effective at the close of business
on the effective date of such subdivision or combination or if any adjustment is
the result of a stock dividend or distribution then the effective date for such
adjustment based thereon shall be the record date therefor.
6.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
case of any reorganization of the Company (or any other corporation, the
securities of which are at the time receivable on the exercise of this Warrant)
after the Base Date or in case after such date the Company (or any such other
corporation) shall consolidate with or merge into another corporation or convey
all or substantially all of its assets to another corporation, then, and in each
such case, the Holder of this Warrant upon the exercise thereof as provided in
Section 1.1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled
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<PAGE>
to receive, in lieu of the securities and property receivable upon the exercise
of this Warrant prior to such consummation, the securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto; in each such case, the terms
of this Warrant shall be applicable to the securities or property receivable
upon the exercise of this Warrant after such consummation.
6.3 ADJUSTMENT OF EXERCISE PRICE. Whenever the number of shares of
Common Stock purchasable upon the exercise of this Warrant is adjusted, as
provided in this Section 6, the Exercise Price shall be adjusted to the nearest
cent by multiplying such Exercise Price immediately prior to such adjustment by
a fraction (x) the numerator of which shall be the number of shares of Common
Stock purchasable upon the exercise immediately prior to such adjustment, and
(y) the denominator of which shall be the number of shares of Common Stock so
purchasable immediately thereafter.
6.4 NO DILUTION. The Company will not, by amendment of its Articles
of Incorporation or through reorganization, consolidation, merger, dissolution,
issue or sale of securities, sale of assets or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of the
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
while any Warrant is outstanding, the Company (a) will not permit the par value,
if any, of the shares of stock receivable upon the exercise of this Warrant to
be above the amount payable therefor upon such exercise and (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue or sell fully paid and non-assessable stock upon the
exercise of all Warrants at the time outstanding.
6.5 CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment in
the number of shares of Common Stock receivable on the exercise of the Warrant,
the Company at its expense will promptly compute such adjustment in accordance
with the terms of the Warrant and prepare a certificate executed by an executive
officer of the Company setting forth such adjustment and showing in detail the
facts upon which such adjustment is based. The Company will forthwith mail a
copy of each such certificate to each Holder.
6.6 NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or Other Securities at the time receivable upon the exercise of the
Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities, or to receive any other
right; or
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<PAGE>
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or
(c) of any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then, and in each such case, the Company shall mail
or cause to be mailed to each holder of the Warrant at the time outstanding a
notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the date
on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding up is to take place, and the
time, if any is to be fixed, as to which the holders of record of Common Stock
(or such other securities at the time receivable upon the exercise of the
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Such notice shall be mailed at least 20
days prior to the date therein specified and the Warrant may be exercised prior
to said date during the term of the Warrant.
7. REGISTRATION RIGHTS.
7.1 PIGGYBACK REGISTRATION RIGHTS. If the Company, at any time
during the period commencing on the date hereof and ending on the Expiration
Date, proposes to file a registration statement on a general form for
registration under the Securities Act, other than a registration effected solely
to implement any employee benefit plan or a transaction to which Rule 145
promulgated under the Securities Act is applicable, and relating to securities
issued or to be issued by it, then it shall give written notice of such proposal
to each Holder at least 30 days prior to filing such registration statement with
the Securities and Exchange Commission. If, within 20 days after the giving of
such notice, the Holder shall request in writing that all or any shares of
Warrant Stock or Other Securities issued or issuable to the Holder upon exercise
of this Warrant be included in such proposed registration, the Company will also
register such securities as shall have been requested in writing; provided,
however, that:
(a) the Holder shall cooperate with the Company in the
preparation of such registration statement to the extent required to furnish
information concerning such owners therein;
(b) the Holder may not request that its shares of Warrant Stock
or Other Securities be included, pursuant to this Section 7.1, in more than two
registration statements;
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<PAGE>
(c) if any underwriter or managing agent is purchasing or
arranging for the sale of the securities then being offered by the Company under
such registration statement, then the Holder (i) shall agree to have the
securities being so registered sold to or by such underwriter or managing agent
on terms substantially equivalent to the terms upon which the Company is selling
the securities so registered, or (ii) if such underwriter or managing agent so
requests, shall delay the sale of such securities for the 90 day period
commencing with the effective date of the registration statement; and
(d) (i) if in the written opinion of the Company's managing
underwriter, if any, for the offering contemplated by such registration
statement, the inclusion of all or a portion of the shares of Warrant Stock or
Other Securities requested to be registered, when added to the securities being
registered by the Company or any selling security holder, will exceed the
maximum amount of the Company's securities which can be marketed (A) at a price
reasonably related to their then current market value, or (B) without otherwise
materially adversely affecting the entire offering, then the Company may exclude
from such offering a pro rata portion of the shares of Warrant Stock or Other
Securities requested to be registered as required by the managing underwriter;
(ii) if securities are proposed to be offered for sale
pursuant to such registration statement by other security holders of the Company
and the total number of securities to be offered by the holders of all the
Warrants and shares of Warrant Stock and Other Securities and such other selling
security holders is required to be reduced pursuant to a request from the
managing underwriter (which request shall be made only for the reasons and in
the manner set forth above) the aggregate number of shares of Warrant Stock and
Other Securities to be offered by the Holders pursuant to such registration
statement shall equal the number which bears the same ratio to the maximum
number of securities that the underwriter believes may be included for all the
selling security holders (including the Holders of all the Warrants) as the
original number of shares of Warrant Stock or Other Securities proposed to be
sold by the Holders of all the Warrants bears to the total original number of
securities proposed to be offered by the Holders of all the Warrants and the
other selling security holders; and
(iii) and in the event the Company exercises the rights
granted under this Section 7.1, the Holder(s) shall retain any remaining
piggyback registration rights for their shares of Warrant Stock or Other
Securities (to the extent not registered) as set forth in this Section 7.1.
7.2 COMPANY OBLIGATIONS. In connection with the filing of a
registration statement pursuant to Section 7.1, the Company shall:
(a) notify the Holders as to the filing thereof and of all
amendments thereto filed prior to the effective date of said registration
statement;
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<PAGE>
(b) notify the Holders promptly after it shall have received
notice of the time when the registration statement becomes effective or any
supplement to any prospectus forming a part of the registration statement has
been filed;
(c) prepare and file without expense to the Holders any
necessary amendment or supplement to such registration statement or prospectus
as may be necessary to comply with Section 10(a)(3) of the Securities Act or
advisable in connection with the proposed distribution of the securities by the
Holders;
(d) take all reasonable steps to qualify the shares of Warrant
Stock or Other Securities, issued or issuable upon exercise of this Warrant for
sale under the securities or blue sky laws of such reasonable number of states
as such Holders may designate in writing and to register or obtain the approval
of any federal or state authority which may be required in connection with the
proposed distribution, except, in each case, in jurisdictions in which the
Company must either qualify to do business or file a general consent to service
of process as a condition to the qualification of such securities;
(e) notify the Holders of any stop order suspending the
effectiveness of the registration statement and use its reasonable best efforts
to remove such stop order;
(f) undertake to keep such registration statement and prospectus
effective for a period of nine months after its effective date; and
(g) furnish to the Holders as soon as available, copies of any
such registration statement and each preliminary or final prospectus and any
supplement or amendment required to be prepared pursuant to the foregoing
provisions of Section 7.1 hereof, all in such quantities as the Holders may from
time to time reasonably request.
7.3 FEES AND EXPENSES. The Holders of the shares of Warrant Stock or
Other Securities being so registered agree to pay all applicable underwriting
discounts and commissions, brokerage commissions and transfer taxes with respect
to the securities owned by them being registered. The Company will pay all other
costs and expenses in connection with a registration statement to be filed
pursuant to Section 7.1 hereof including, without limitation, the fees and
expenses of counsel for the Company and the Holders, the fees and expenses of
its accountants and all other costs and expenses incident to the preparation,
printing and filing under the Securities Act of any such registration statement,
each prospectus and all amendments and supplements thereto, the costs incurred
in connection with the qualification of such securities for sale in such
reasonable number of states as Holders have designated, including fees and
disbursements of counsel for the Company, and the costs of supplying a
reasonable number of copies of the registration statement, each preliminary
prospectus, final prospectus and any supplements or amendments thereto to such
Holders.
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<PAGE>
7.4 INDEMNIFICATION. The Company agrees to enter into an appropriate
cross-indemnity agreement with any underwriter (as defined in the Securities
Act) for such Holders in connection with the filing of a registration statement
pursuant to Sections 7.1 hereof. If the Company shall file any registration
statement including therein all or any part of the shares of Warrant Stock or
Other Securities, the Company and each Holder shall enter into an appropriate
cross-indemnity agreement whereby the Company shall indemnify and hold harmless
the Holder against any losses, claims, damages or liabilities (or actions in
respect thereof) arising out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make statements therein not misleading unless
such statement or omission was made in reliance upon and in conformity with
written information furnished or required to be furnished by any such Holder,
and each such Holder shall indemnify and hold harmless the Company, each of its
directors and officers who have signed the registration statement and each
person, if any, who controls the Company, within the meaning of the Securities
Act against any losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with written
information furnished or required to be furnished by such Holder expressly for
use in such registration statement.
7.5 MISCELLANEOUS. Nothing herein shall be construed to require any
of the Holders who may desire to include any shares of Warrant Stock in any
registration statement referred to in Section 7.1 hereof to exercise their
Warrants prior to the effective date of any registration statement and such
Holders, at their option, to the extent permissible by law, may exercise the
Warrants against payment of the proceeds of the sale of such Warrant Stock or
Other Securities pursuant to a registration statement.
8. TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant and any
Warrant Stock or Other Securities may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except as follows: (a) to a person who, in
the opinion of counsel to the Company, is a person to whom this Warrant or the
Warrant Stock or Other Securities may legally be transferred without
registration and without the delivery of a current prospectus under the
Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Section 8 with
respect to any resale or other disposition of such securities; or (b) to any
person upon delivery of a prospectus then meeting the requirements of the
Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.
9
<PAGE>
9. LEGEND. Unless the shares of Warrant Stock or Other Securities have
been registered under the Securities Act, upon exercise of any of the Warrants
and the issuance of any of the shares of Warrant Stock, all certificates
representing shares shall bear on the face thereof substantially the following
legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be sold, offered for sale, assigned, transferred or otherwise
disposed of, unless registered pursuant to the provisions of that
Act or unless an opinion of counsel to the Corporation is obtained
stating that such disposition is in compliance with an available
exemption from such registration.
10. ADJUSTMENT FOR SALARY DEFERRAL. THE COMPANY HAS ENTERED INTO A
SALARY DEFERRAL AGREEMENT, DATED AS OF MARCH 31, 1996, WITH THE HOLDER (THE
"SALARY DEFERRAL AGREEMENT.") THE NUMBER OF SHARES OF WARRANT STOCK ISSUABLE TO
THE HOLDER HEREUNDER SHALL BE SUBJECT TO REDUCTION AS PROVIDED IN THE SALARY
DEFERRAL AGREEMENT.
11. NOTICES. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail, return receipt
requested, to the Company or the Holder, as the case may be, for whom such
notice is intended, at the address of such party as set forth on the first page,
or at such other address of which the Company or the Holder has been advised by
notice hereunder.
12. APPLICABLE LAW. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Florida.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
BISCAYNE APPAREL, INC.
By:/s/ EARL W. POWELL
----------------------
Earl W. Powell
Chairman of the Board
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<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _____ shares of Common Stock of Biscayne
Apparel, Inc., a Florida corporation, and hereby makes payment of $__________ in
payment therefor.
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature, if jointly held
- --------------------------------------------------------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(IF OTHER THAN TO THE REGISTERED HOLDER OF THE WITHIN WARRANT)
Name___________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________
________________________________________________________________
Social Security or Taxpayer
Identification Number____________________________________________
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,______________________________________________________
hereby sells, assigns and transfers unto
Name___________________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase Common Stock of Biscayne Apparel, Inc., a Florida
corporation, represented by this Warrant to the extent of shares as to which
such right is exercisable and does hereby irrevocably constitute and appoint
__________________________________ Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
DATED: _____________, 199__.
_____________________________
Signature
_____________________________
Signature, if jointly held
EXHIBIT 10.27
Execution Copy
FIRST AMENDMENT AND WAIVER TO
AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
FIRST AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT
AGREEMENT AND GUARANTY (the "Amendment and Waiver") dated as of August 30, 1996
among BISCAYNE APPAREL, INC., BISCAYNE APPAREL INTERNATIONAL, INC., MACKINTOSH
OF NEW ENGLAND CO., and M & L INTERNATIONAL, INC., (individually, each a
"Borrower" and collectively, the "Borrowers" and individually, each a
"Guarantor" and collectively, the "Guarantors"), THE CHASE MANHATTAN BANK
(successor by merger to The Chase Manhattan Bank, N.A.), CORESTATES BANK, N.A.,
THE FIRST NATIONAL BANK OF BOSTON, FLEET BANK N.A. (successor by merger to
Natwest Bank, N.A.), and MILBERG FACTORS, INC. (individually, each a "Lender"
and collectively, the "Lenders"), THE CHASE MANHATTAN BANK (successor by merger
to The Chase Manhattan Bank, N.A.), as agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Agent"), and MILBERG
FACTORS, INC., as servicing agent for the Lenders (in such capacity, together
with its successors in such capacity, the "Servicing Agent").
PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the
Lenders and the Agents have entered into an Amended and Restated Credit
Agreement and Guaranty dated as of March 28, 1996 (the "Credit Agreement"). The
terms defined in the Credit Agreement are used in this Amendment and Waiver as
in the Credit Agreement unless otherwise defined in this Amendment and Waiver.
The Borrowers, the Lenders and the Agents have agreed to amend
and waive certain provisions of the Credit Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 3 hereof, hereby amended as
follows:
(a) The following definition is added in its proper
alphabetical order:
"Andy Johns" means Andy Johns Fashions
International.
(b) The definition of "Revolving Credit Loans Borrowing Base"
is amended by deleting the first sentence
<PAGE>
thereof in its entirety and inserting in its place the
following:
"Revolving Credit Loans Borrowing Base" means for
each date or period specified below the lesser of (1) an
amount equal to the total of (a) the Collateral Borrowing
Base, and to the extent the amount is a positive number plus,
and to the extent the amount is a negative number minus, the
integer of (b) the Revolving Credit Loans Permitted
Overadvance or (2) column A set forth below for such date or
period:
<TABLE>
<CAPTION>
DATE OR PERIOD A
-------------- -
<S> <C>
August 30, 1996 to and including August 31, Thirty Million Dollars ($30,000,000)
1996
September 1, 1996 to and including Thirty-Three Million Dollars ($33,000,000)
October 30, 1996
October 31, 1996 to and including Twenty-Five Million Dollars ($25,000,000)
November 29, 1996
November 30, 1996 to and including Sixteen Million Dollars ($16,000,000)
December 30, 1996
On December 31, 1996 Eight Million Dollars ($8,000,000)
January 1, 1997 to the Revolving Credit Fifty Million Dollars ($50,000,000)
Termination Date
</TABLE>
(c) The definition of "Revolving Credit Loans Permitted
Overadvance (During the Month)" is amended by deleting the months of August,
September, October, November and December and the amounts corresponding to such
months and inserting in their place the following:
MONTH AMOUNT
----- ------
August $ 14,750,000
September $ 7,000,000
October $ 2,500,000
November $ (2,000,000)
December $ (3,500,000)
(d) The definition of "Revolving Credit Loans Permitted
Overadvance (Month End)" is amended by (i) deleting the months of August,
September and October and the amounts corresponding to such months and inserting
in their place the following:
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<PAGE>
MONTH AMOUNT
----- ------
August $ 5,250,000
September $ 0
October $ (5,000,000)
and (ii) inserting at the end thereof the following:
Notwithstanding the foregoing, the proceeds of the
Revolving Credit Loans made to BAI which are used to finance
its Andy Johns division shall be equal to or less than the
Eligible Accounts of the Andy Johns division relied on in
computing the Collateral Borrowing Base as set forth on the
Reconciliation Report for the months ended November and
December. In addition, the proceeds of the Revolving Credit
Loans made to BAI for its Varon division shall be less than
the Eligible Accounts of the Varon division relied on in
computing the Collateral Borrowing Base as set forth on the
Reconciliation Report in amounts of at least $1,000,000,
$2,000,000 and $3,000,000 for the months ended October,
November, and December, respectively.
In addition, notwithstanding the foregoing (1) the
proceeds of intercompany loans or advances made to BAI which
are used to finance the Andy Johns division of BAI (excluding
amounts related to corporate expenses, management fee
expenses, and state and federal income taxes between BAI and
Apparel) shall not exceed an amount equal to Two Million Seven
Hundred Fifty Thousand Dollars ($2,750,000) in the aggregate
at any time, and (2) the proceeds of intercompany loans or
advances made to BAI which are used to finance the Varon
division of BAI (excluding amounts related to corporate
expenses, management fee expenses, and state and federal
income taxes between BAI and Apparel) shall not exceed Three
Million Nine Hundred Fifty-Three Dollars ($3,000,953) in the
aggregate at any time.
(e) The definition of "Working Capital Borrowing Base" is
amended by inserting after "time" in the first line thereof the following:
"prior to August 30, 1996 and on and after January 1, 1997,".
(f) Section 3.01, LETTERS OF CREDIT, is amended by adding at
the end thereof the following:
Notwithstanding the foregoing, during the
period from August 15, 1996 to December 31, 1996
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<PAGE>
Chase will not be required to issue a Letter of Credit or
amend an outstanding Letter of Credit if after giving effect
to the issuance thereof or amendment thereto the total of (a)
the aggregate face amount of all Letters of Credit issued
during such period plus (b) the increase in the face amount of
all outstanding Letters of Credit during such period less (c)
the aggregate face amount of all Letters of Credit cancelled
during such period, is equal to or greater than Eleven Million
Five Hundred Thousand Dollars ($11,500,000). In addition,
during such period, Chase will not be required to issue a
Letter of Credit or amend an outstanding Letter of Credit
issued for the account of BAI where the goods covered by such
Letter of Credit are for or such Letter of Credit otherwise
relates to the Andy Johns division of BAI if after giving
effect to the issuance thereof or amendment thereto the total
of (a) the aggregate face amount of all such Letters of Credit
issued during such period plus (b) the increase in the face
amount of all such outstanding Letters of Credit during such
period less (c) the aggregate face amount of all Letters of
Credit cancelled during such period, is equal to or greater
than Two Million Five Hundred Thousand Dollars ($2,500,000).
SECTION 2. WAIVER. Because the August 7, 1996 and August 15,
1996 Reconciliation Reports reflected that Outstanding Working Capital
Obligations exceeded the Working Capital Borrowing Base and the Borrowers failed
to make a prepayment in the amount of such excess within one (1) day thereof,
the Borrowers are not in compliance with Section 2.08, MANDATORY PREPAYMENTS of
the Credit Agreement. Such noncompliance constitutes Events of Default under the
Credit Agreement. The Borrowers have requested that each Lender and each Agent
waive such Events of Default. Upon the conditions set forth below, each Lender
and each Agent waive the Borrowers failure to comply with Section 2.08,
MANDATORY PREPAYMENTS for the periods set forth in the August 7, 1996 and August
15, 1996 Reconciliation Reports. No Lender nor Agent waives any future
noncompliance with such Section.
SECTION 3. CONDITIONS OF EFFECTIVENESS TO THIS AMENDMENT AND
WAIVER. This Amendment and Waiver shall become effective on the date on which
the Agent shall have received each of the following documents, in form and
substance satisfactory to the Agent and its counsel and the Lenders, and each of
the following requirements shall have been fulfilled:
4
<PAGE>
(1) THIS AMENDMENT AND WAIVER. The Borrowers, the Lenders and
the Agents shall each have executed and delivered this Amendment and Waiver;
(2) INTERCOMPANY LOAN SCHEDULE. The Borrowers shall have
delivered its most recent Intercompany Loan Schedule for each Borrower and each
Borrower's divisions prior to the date of this Amendment, and such Intercompany
Loan Schedule shall be in form and substance satisfactory to the Lenders and the
Agents in their sole discretion;
(3) OFFICER'S CERTIFICATE. The following statements shall be
true and the Agent shall have received a certificate signed by a duly authorized
officer of each Borrower dated the effective date of this Amendment and Waiver
stating that:
(a) The representations and warranties contained in the Credit
Agreement and in each of the other Facility Documents are true and
correct on and as of the effective date of this Amendment and Waiver as
though made on and as of such date;
(b) After giving effect to this Amendment and Waiver, no
Default or Event of Default has occurred and is continuing; and
(c) The amounts set forth on the Intercompany Loan Schedule
delivered in connection with this Amendment are true and correct;
(4) LENDERS' FEES. The Borrowers shall have paid to the Agent
a fee of Twenty-Five Thousand Dollars ($25,000) for the account of the Lenders.
The Agent will promptly thereafter cause to be distributed to each Lender such
Lender's Pro Rata Share of such fees;
(5) LEGAL BILL. Dewey Ballantine will be paid in full for all
legal fees, costs and expenses in connection with the preparation of the
Amendment and Waiver and all past due legal fees, costs and expenses;
(6) ADDITIONAL DOCUMENTATION. The Agent shall have received
such other approvals, opinions or documents as any Lender may reasonably
request.
SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS.
(a) Upon the effectiveness of Section 1 hereof, on and after the date hereof
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import, and each reference in the other
Facility Documents to the Credit Agreement, shall mean
5
<PAGE>
and be a reference to the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and all other Facility Documents shall remain in full force and effect and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment and Waiver shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of any Lender or Agent under any of the
Facility Documents, nor, except as expressly provided herein, constitute a
waiver of any provision of the Facility Documents.
SECTION 5. COSTS AND EXPENSES. The Borrowers agree to pay the
Agent, the Servicing Agent, and the Lenders on demand all costs, expenses and
charges, in connection with the preparation, reproduction, execution, delivery,
filing, recording and administration of this Amendment and Waiver and any other
instruments and documents to be delivered hereunder, including, without
limitation, the fees and out-of-pocket expenses of counsel for the Agent, the
Servicing Agent, and each Lender with respect thereto and with respect to
advising the Agent, the Servicing Agent, and each Lender as to its rights and
responsibilities under such documents, and all costs and expenses, if any, in
connection with the enforcement of any such documents.
SECTION 6. GOVERNING LAW. This Amendment and
Waiver shall be governed by and construed in accordance with
the laws of the State of New York.
SECTION 7. HEADINGS. Section headings in this
Amendment and Waiver are included herein for convenience of
reference only and shall not constitute a part of this
Amendment and Waiver for any other purpose.
SECTION 8. COUNTERPARTS. This Amendment and Waiver may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and any party hereto may execute this
Amendment and Waiver by signing any such counterpart.
[INTENTIONALLY LEFT BLANK.]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Waiver to be duly executed as of the day and year first above
written.
BISCAYNE APPAREL, INC.
By: /s/ PETER VANDENBERG JR.
--------------------------
Name: Peter Vandenberg Jr.
Title: Vice President
BISCAYNE APPAREL INTERNATIONAL, INC.
By: /s/ PETER VANDENBERG JR.
--------------------
Name: Peter Vandenberg Jr.
Title: Vice President
MACKINTOSH OF NEW ENGLAND CO.
By: /s/ PETER VANDENBERG JR.
--------------------
Name: Peter Vandenberg Jr.
Title: Vice President
M & L INTERNATIONAL, INC.
By: /s/ PETER VANDENBERG JR.
--------------------
Name: Peter Vandenberg Jr.
Title: Vice President
THE CHASE MANHATTAN BANK (successor
by merger to The Chase Manhattan
Bank, N.A.; "Chase"), as Lender
By: /s/ JOHN MURPHY
------------------------
Name: John Murphy
Title: Vice President
MILBERG FACTORS, INC., as Lender
By: /s/
-----------------------
Name:
Title:
7
<PAGE>
CORESTATES BANK, N.A., as Lender
By: /s/ JOHN A. GINTER
-------------------------
Name: John A. Ginter
Title: Commercial Officer
THE FIRST NATIONAL BANK OF BOSTON,
as Lender
By: /s/ DAVID F. EUSDEN
--------------------------
Name: David F. Eusden
Title: Director
FLEET BANK, N.A. (formerly known as
NatWest Bank N.A.), as Lender
By: /s/ BRUCE WICKS
---------------------------
Name: Bruce Wicks
Title: Vice President
THE CHASE MANHATTAN BANK (successor
by merger to The Chase Manhattan
Bank, N.A.; "Chase"), as Agent
By: /s/ JOHN MURPHY
-------------------------
Name: John Murphy
Title: Vice President
MILBERG FACTORS, INC., as
Servicing Agent
By: /s/
--------------------------
Name:
Title:
8
EXHIBIT 10.28
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
GUARANTY (the "Second Amendment") dated as of February 24, 1997 among BISCAYNE
APPAREL, INC., BISCAYNE APPAREL INTERNATIONAL, INC., MACKINTOSH OF NEW ENGLAND
CO., and M & L INTERNATIONAL, INC., (individually, each a "Borrower" and
collectively, the "Borrowers" and individually, each a "Guarantor" and
collectively, the "Guarantors"), THE CHASE MANHATTAN BANK (successor by merger
with The Chase Manhattan Bank, N.A.), CORESTATES BANK, N.A., THE FIRST NATIONAL
BANK OF BOSTON, FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), and
MILBERG FACTORS, INC. (individually, each a "Lender" and collectively, the
"Lenders"), THE CHASE MANHATTAN BANK (successor by merger with The Chase
Manhattan Bank, N.A.), as agent for the Lenders (in such capacity, together with
its successors in such capacity, the "Agent"), and MILBERG FACTORS, INC., as
servicing agent for the Lenders (in such capacity, together with its successors
in such capacity, the "Servicing Agent").
PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Lenders and
the Agents have entered into an Amended and Restated Credit Agreement and
Guaranty dated as of March 28, 1996, as amended by a First Amendment and Waiver
to Amended and Restated Credit Agreement dated August 30, 1996 (as so amended
and waived, the "Credit Agreement"). The terms defined in the Credit Agreement
are used in this Second Amendment as in the Credit Agreement unless otherwise
defined in this Second Amendment.
The Borrowers, the Lenders and the Agents have agreed to amend
certain provisions of the Credit Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof, hereby amended as follows:
(a) The following definition is added in its proper alphabetical
order:
"Cash Collateral" means a deposit by Borrowers, made in
immediately available funds, to a savings, checking or time deposit
account at the Agent or the purchase by the Borrowers of a
<PAGE>
certificate of deposit issued by the Agent and the execution of all
documents and the taking of all steps required to give the Agent a
perfected first priority Lien in such deposit or certificate of
deposit.
(b) Section 3.01, LETTERS OF CREDIT, is amended by (i) deleting the
provisos which begin in line 15 and 16 of the first paragraph thereof and
inserting in their place the following:
"; provided, further, that Chase will not be required to issue a
Letter of Credit with a maturity date later than September 30, 1997;
provided; further, that Chase will not be required to issue or amend
a Letter of Credit with a maturity date between April 1, 1997 and
September 30, 1997 if after giving effect to the issuance thereof or
the amendment thereto the aggregate face amount of all Letters of
Credit issued by Chase with a maturity date between April 1, 1997 and
September 30, 1997 is equal to or greater than Seventeen Million Six
Hundred Thousand Dollars ($17,600,000)"
and (ii) adding after the first paragraph thereof the following:
"Notwithstanding the foregoing, on April 1, 1997, the Borrowers
shall provide a standby letter of credit with an expiration date no
earlier than November 30, 1997, in an amount equal to one hundred
five percent (105%) of the undrawn face amount of all Letters of
Credit outstanding on such date issued by a financial institution
acceptable to the Required Lenders and pursuant to which Chase can
draw for any unpaid reimbursement obligation in connection with any
and all such outstanding Letters of Credit, or in the event that the
Required Lenders determine that the proposed financial institutions
are not acceptable, the Borrowers shall provide Cash Collateral in an
amount equal to one hundred five percent (105%) of the undrawn face
amount of all Letters of Credit outstanding on such date."
(c) Section 3.03, PAYMENT OF COMMISSIONS, EXPENSES AND INTEREST, is
amended deleting the last paragraph therein and inserting in its place the
following:
"In addition to any and all of Chase's customary issuance fees
and other expenses to be paid by each Borrower to Chase for its own
account
2
<PAGE>
with respect to a Letter of Credit and Letters of Indemnity, the
applicable Borrower shall pay to Chase for the account of the Lenders
a drawing fee equal to the greater of: (1) five-sixteenths of one
percent (5/16%) of the amount drawn under such Letter of Credit or
(2) Chase's then effective minimum charge for a draw under a letter
of credit.
SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS SECOND AMENDMENT. This
Second Amendment shall become effective on the date on which the Agent shall
have received each of the following documents, in form and substance
satisfactory to the Agent and its counsel and the Lenders, and each of the
following requirements shall have been fulfilled:
(1) THIS SECOND AMENDMENT. The Borrowers, the Lenders and the Agents
shall each have executed and delivered this Second Amendment; and
(2) ADDITIONAL DOCUMENTATION. The Agent shall have received such
other approvals, opinions or documents as any Lender may reasonably request.
SECTION 3. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. (a)
Upon the effectiveness of Section 1 hereof, on and after the date hereof each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in the other Facility
Documents to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement and
all other Facility Documents shall remain in full force and effect and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Second
Amendment shall not operate as a waiver of any present or future right, power or
remedy of any Lender or Agent under any of the Facility Documents, nor
constitute a waiver of any provision of the Facility Documents, nor constitute a
waiver of any Default or Event of Default.
SECTION 4. COSTS AND EXPENSES. The Borrowers agree to pay the Agent,
the Servicing Agent, and the Lenders on demand all costs, expenses and charges,
in connection with the preparation, reproduction, execution, delivery, filing,
recording and administration of this Second Amendment and any other instruments
and documents to be delivered hereunder, including, without limitation, the fees
3
<PAGE>
and out-of-pocket expenses of counsel for the Agent, the Servicing Agent, and
each Lender with respect thereto and with respect to advising the Agent, the
Servicing Agent, and each Lender as to its rights and responsibilities under
such documents, and all costs and expenses, if any, in connection with the
enforcement of any such documents.
SECTION 5. GOVERNING LAW. This Second Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 6. HEADINGS. Section headings in this Second Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Second Amendment for any other purpose.
SECTION 7. COUNTERPARTS. This Second Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Second Amendment by
signing any such counterpart.
[INTENTIONALLY LEFT BLANK.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the day and year first above written.
BISCAYNE APPAREL, INC.
By /s/ PETER VANDENBERG JR.
---------------------------
Name: Peter Vandenberg Jr.
Title: Vice President
BISCAYNE APPAREL INTERNATIONAL,
INC.
By /s/ PETER VANDENBERG JR.
-----------------------------
Name: Peter Vandenberg Jr.
Title: Vice President
MACKINTOSH OF NEW ENGLAND CO.
By /s/ PETER VANDENBERG JR.
-----------------------------
Name: Peter Vandenberg Jr.
Title: Vice President
M & L INTERNATIONAL, INC.
By /s/ PETER VANDENBERG JR.
-----------------------------
Name: Peter Vandenberg Jr.
Title: Vice President
THE CHASE MANHATTAN BANK (successor by merger
with The Chase Manhattan Bank, N.A.), as Lender
By /s/ JOHN MURPHY
------------------------------
Name: John Murphy
Title: Vice President
5
<PAGE>
MILBERG FACTORS, INC., as Lender
By:/s/ DAVID J. MILBERG
-----------------------------
Name: David J. Milberg
Title: Vice President
CORESTATES BANK, N.A., as Lender
By:/s/ JOHN A GUNTER
------------------------------
Name: John A. Gunter
Title: Assistant Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as Lender
By: /s/ DAVID E. EUSDEN
--------------------------------
Name: David E. Eusden
Title: Director
FLEET BANK, N.A. (formerly known as
NatWest Bank N.A.), as Lender
By: /s/ A. SANTORO
---------------------------------
Name: A. Santoro
Title: Vice President
THE CHASE MANHATTAN BANK (successor by merger with
The Chase Manhattan Bank, N.A.), as Agent
By:/s/ JOHN MURPHY
---------------------------------
Name: John Murphy
Title: Vice President
MILBERG FACTORS, INC., as
Servicing Agent
By: /s/ DAVID J. MILBERG
---------------------------------
Name: David J. Milberg
Title: Vice President
6
EXHIBIT 11
<TABLE>
<CAPTION>
BISCAYNE APPAREL, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Net earnings (loss) $ (8,724) $ (6,127) $ 2,048
=========== =========== ==========
PRIMARY:
Common and common equivalent shares:
Weighted average common shares outstanding 10,741,748 10,733,551 9,179,461
Potential dilution upon excercise of
stock options and warrants -- -- 472,176
----------- ----------- ----------
Shares used in computation of earnings (loss)
per common share 10,741,748 10,733,551 9,651,637
=========== =========== ==========
PER SHARE AMOUNTS:
Net earnings (loss) per share $ (0.81) $ (0.57) $ 0.21
=========== =========== ==========
FULLY DILUTED:
Common and common equivalent shares:
Weighted average common shares outstanding 10,741,748 10,733,551 9,179,461
Potential dilution upon exercise of
stock options and warrants -- -- 472,176
----------- ----------- ----------
Shares used in computation of earnings (loss)
per common share 10,741,748 10,733,551 9,651,637
=========== =========== ==========
PER SHARE AMOUNTS:
Net earnings (loss) per share $ (0.81) $ (0.57) $ 0.21
=========== =========== ==========
</TABLE>
EXHIBIT 21
BISCAYNE APPAREL, INC.
SUBSIDIARIES OF THE REGISTRANT
FOR THE YEAR ENDING DECEMBER 31, 1996
Biscayne Apparel International, Inc., a Delaware corporation
d/b/a: Andy Johns Fashions International
Andy Johns Kids
KAOS
Varon, Inc.
Varon & Sons, Inc.
Amy Industries
Mackintosh of New England Co., a Delaware corporation
Mackintosh (UK) Limited, a United Kingdom corporation
Amy Industries De Honduras, S.A. de C.V., a Honduran corporation
Scientific Products, Inc.
M&L International, Inc., an Illinois corporation
Unidex Garments (Philippines), Inc., a Philippine corporation
Watersports Garment Manufacturing, Inc., a Philippine corporation
GES Sportswear Manufacturing Corporation, a Philippine
corporation
Teri Outerwear Manufacturing, Inc., a Philippine corporation
M&L Holding (Hong Kong) Limited, a Hong Kong corporation
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Biscayne Apparel, Inc. and Subsidiaries on Forms S-8 and S-3 of our report dated
March 7, 1997, except for Note 7, for which the date is March 24, 1997, on our
audit of the consolidated financial statements and financial statement schedules
of Biscayne Apparel, Inc. and Subsidiaries as of December 31, 1996, and for the
year then ended, which report is included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
Coopers & Lybrand L.L.P.
Parsippany, New Jersey
March 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 327
<SECURITIES> 0
<RECEIVABLES> 16,392
<ALLOWANCES> (2,018)
<INVENTORY> 14,554
<CURRENT-ASSETS> 32,971
<PP&E> 4,776
<DEPRECIATION> (1,912)
<TOTAL-ASSETS> 36,110
<CURRENT-LIABILITIES> 13,431
<BONDS> 0
0
0
<COMMON> 107
<OTHER-SE> 11,071
<TOTAL-LIABILITY-AND-EQUITY> 36,110
<SALES> 105,425
<TOTAL-REVENUES> 105,425
<CGS> 78,112
<TOTAL-COSTS> 78,112
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,643
<INCOME-PRETAX> (9,456)
<INCOME-TAX> (732)
<INCOME-CONTINUING> (8,724)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,724)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> (0.81)
</TABLE>
