<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended SEPTEMBER 30, 1998
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-9635
------
BISCAYNE APPAREL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0200397
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1373 BROAD STREET, CLIFTON, NEW JERSEY 07013
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 473-3240
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the
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 [ ]
At September 30, 1998, there were 10,797,666 outstanding shares of the
registrant's Common Stock, $0.01 par value.
<PAGE> 2
BISCAYNE APPAREL, INC.
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997............... 2
Consolidated Statements of Operations
Nine Months Ended September 30, 1998 and 1997.......... 3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997.......... 4
Notes to Consolidated Financial Statements............. 5-10
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 10-15
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings............................. 16
Item 3 - Defaults Upon Senior Securities............... 16
Item 6 - Exhibits and Reports on Form 8-K.............. 6-17
Signatures............................................. 18
<PAGE> 3
BISCAYNE APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ -- $ 139
Trade accounts receivable, less allowances
of $1,245 in 1998 and $630 in 1997 ............ 16,280 6,164
Inventories .................................... 5,922 7,120
Prepaid expenses and other ..................... 522 503
Current assets of discontinued operations ...... 17,513 18,071
---------- ----------
Total current assets ........................ 40,237 31,997
Property, plant and equipment, less
accumulated depreciation of $352 in 1998
and $222 in 1997 ............................... 330 415
Other assets, net ................................ 187 190
Non-current assets of discontinued operations .... -- 2,649
---------- ----------
$ 40,754 $ 35,251
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 1,008 $ 2,123
Accrued liabilities ............................ 2,724 2,624
Notes payable to banks ......................... 9,790 --
Current portion of long-term debt .............. 2,500 2,000
Current liabilities of discontinued operations . 25,419 11,306
---------- ----------
Total current liabilities ................... 41,441 18,053
Subordinated notes ............................... 6,444 6,444
Long-term debt ................................... -- 2,500
Other liabilities ................................ 241 21
Negative goodwill ................................ 421 434
Non-current liabilities of discontinued
operations ...................................... -- 141
Commitments and contingencies .................... -- --
Stockholders' Equity:
Preferred stock - par value $0.01;
5,000 shares authorized; no shares issued
Common stock - par value $0.01; 25,000,000 shares
authorized; 10,797,666 and 10,771,308 shares
outstanding at September 30, 1998 and
December 31, 1997, respectively ................ 108 108
Additional paid-in capital ....................... 26,612 26,610
Accumulated deficit .............................. (34,513) (19,060)
---------- ----------
Total stockholders' equity .................. (7,793) 7,658
---------- ----------
$ 40,754 $ 35,251
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE> 4
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales .................................................. $ 20,226 $ 25,614 $ 37,768 $ 41,887
Operating costs and expenses:
Cost of goods sold ....................................... 13,536 16,858 25,247 27,888
Selling, general and administrative ...................... 3,631 4,382 9,215 9,968
---------- ---------- ---------- ----------
Operating income ........................................... 3,059 4,374 3,306 4,031
Other income and (expenses):
Interest and other expenses ............................... (662) (694) (1,686) (1,684)
Interest and other income ................................. -- 92 3 112
---------- ---------- ---------- ----------
Income from continuing operations before
provision for income taxes ................................ 2,397 3,772 1,623 2,459
Provision for income taxes ................................. 12 -- 12 --
---------- ---------- ---------- ----------
Net earnings from continuing operations .................... 2,385 3,772 1,611 2,459
Loss from discontinued operations,
net of taxes .............................................. (2,536) (1,268) (7,424) (2,523)
Estimated loss on disposal, net of taxes ................... (9,637) -- (9,637) --
---------- ---------- ---------- ----------
Net loss from discontinued operations ...................... (12,173) (1,268) (17,061) (2,523)
---------- ---------- ---------- ----------
Net earnings (loss) ........................................ $ (9,788) $ 2,504 $ (15,450) $ (64)
========== ========== ========== ==========
Basic and diluted net earnings (loss) per common share:
From continuing operations ............................... $ 0.22 $ 0.35 $ 0.15 $ 0.23
From discontinued operations ............................. (1.12) (0.12) (1.58) (0.24)
---------- ---------- ---------- ----------
Net earnings (loss) per common share ..................... $ (0.90) $ 0.23 $ (1.43) $ (0.01)
========== ========== ========== ==========
Shares used in computing basic and diluted net
earnings (loss) per common share .......................... 10,797,666 10,793,639 10,797,666 10,761,288
========== ========== ========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 5
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Operating activities:
Net loss .................................................. $ (15,450) $ (64)
Adjustments to reconcile net loss to net cash
used in continuing operating activities:
Discontinued operations ................................. 17,061 2,523
Depreciation expense .................................... 138 68
Amortization expense .................................... (13) (13)
Amortization of unearned stock award compensation ....... -- 51
Amortization of warrant costs ........................... 86 156
Provision for losses and sales allowances on receivables 1,837 1,855
(Increase) decrease in operating assets:
Trade accounts receivable ................................ (11,953) (13,740)
Inventories .............................................. 1,198 (1,072)
Prepaid expenses and other ............................... (19) (358)
Federal income tax receivable ............................ -- 1,455
Other assets ............................................. (83) 32
Increase (decrease) in operating liabilities:
Accounts payable ......................................... (1,115) 245
Accrued liabilities ...................................... 99 268
Other liabilities ........................................ 220 (372)
---------- ----------
Net cash used in continuing operating activities ........ (7,994) (8,966)
Net cash provided by discontinued operations ............ 118 3,081
---------- ----------
Net cash used in operating activities ................... (7,876) (5,885)
Investing activities:
Capital expenditures ...................................... (53) (131)
---------- ----------
Net cash used in investing activities ................... (53) (131)
Financing activities:
Payments under notes payable to banks ..................... (25,120) (28,524)
Borrowings under notes payable to banks ................... 34,910 36,387
Principal payments under term loan ........................ (2,000) (1,750)
Proceeds from exercise of employee stock options .......... -- 18
---------- ----------
Net cash provided by financing activities ............... 7,790 6,131
Net (decrease) increase in cash and cash equivalents ....... (139) 115
Cash and cash equivalents at beginning of year ............. 139 327
---------- ----------
Cash and cash equivalents at end of period ................. $ 0 $ 442
========== ==========
Interest expense paid ..................................... $ 2,312 $ 1,883
Income taxes paid ......................................... $ 12 $ 1
</TABLE>
See accompanying notes.
4
<PAGE> 6
BISCAYNE APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements,
which are for an interim period, do not include all
disclosures provided in the annual consolidated financial
statements. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the footnotes with respect thereto, contained
in the Biscayne Apparel, Inc., ("Company") 1997 Annual Report
on Form 10-K.
The consolidated financial statements of the Company include the
accounts of the parent company, and its wholly-owned subsidiaries,
Biscayne Apparel International, Inc. ("BAII"), and M&L International,
Inc. ("M&L") 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. Through
December 31, 1997, BAII operated through two divisions, Andy Johns
Fashions International ("Andy Johns") and Varon, and its wholly-owned
subsidiaries, Mackintosh of New England Co., ("Mackintosh") Mackintosh
(U.K.) Limited, and Amy Industries De Honduras, S.A. de C.V. As of
January 1, 1998, the assets, liabilities and operations of Andy Johns
were contributed by BAII into Mackintosh. All material intercompany
balances and transactions have been eliminated.
Certain amounts included in prior period financial statements have
been reclassified to conform with the 1998 presentation (see Note 2).
In the opinion of the Company, the accompanying unaudited consolidated
financial statements, as so reclassified, contain all adjustments
(consisting of only normal recurring accruals) necessary for a fair
presentation of the financial statements.
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. Therefore, the results of operations for the
nine month periods ended September 30, 1998 and 1997 are not
necessarily indicative of the results to be expected for the full
year.
5
<PAGE> 7
As discussed more thoroughly in Note 2, BAII and its wholly-owned
subsidiary, Mackintosh, are presented as discontinued operations.
The accompanying unaudited consolidated financial statements have been
prepared assuming the Company will continue as a going concern. This
assumption is based upon the continuing operating results for the nine
months ended September 30, 1998 and September 30, 1997. The going
concern basis also assumes that the Company will be able to
restructure existing debt and obtain working capital financing for
operations, which cannot be assured. Therefore, the Company's ability
to service its existing debt obligations, other liabilities and
prospective working capital needs, is predicated on obtaining a
restructuring of existing debt and working capital financing for
continuing operations (see note 6).
2. In September 1998, the Company determined to dispose of the majority
of the assets of its BAII and Mackintosh subsidiaries. Accordingly,
operating results of these subsidiaries and certain corporate expenses
relating to discontinued operations, for the nine months ended
September 30, 1998 and 1997, have been reclassified as loss from
discontinued operations.
The Company is negotiating the sale of selected assets of its BAII and
Mackintosh subsidiaries, but, to date, has not entered into any
definitive agreements providing for such sales. If sales of such
assets do not occur, the Company intends to liquidate such assets,
along with other assets currently offered for sale, and to terminate
the operations of such subsidiaries.
The estimated loss on disposal provides for the write down of assets
to the estimated sale value and/or market value, loss on fulfilling
other obligations, costs of disposal and future operating losses. The
estimated loss on disposal could materially differ from final amounts
realized on the loss on disposal of discontinued operations.
Accordingly, the Company has recorded an estimated loss on disposal of
$9,637,000 for the nine months ended September 30, 1998. The Company
also reclassified the net operating losses of discontinued operations
of $7,424,000 and $2,523,000 for the nine months ended September 30,
1998 and 1997, respectively, to loss from discontinued operations.
6
<PAGE> 8
Operating results of discontinued operations are as follows (in
thousands, unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 11,188 $ 16,183 $ 19,475 $ 27,605
Costs and
expenses (23,361) (17,451) (36,536) (30,128)
---------- ---------- ---------- ----------
Net loss from
discontinued
operations $ (12,173) $ (1,268) $ (17,061) $ (2,523)
========== ========== ========== ==========
</TABLE>
The net assets and liabilities of discontinued operations included in
the accompanying consolidated balance sheets are as follows (in
thousands, unaudited):
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------- ----------
Cash $ 137 $ 130
Accounts receivables, net 7,478 7,345
Inventories 8,905 10,137
Prepaid expenses 128 459
Property, plant and
equipment, net 723 2,324
Other assets, net 142 325
---------- ----------
Total assets of
discontinued operations $ 17,513 $ 20,720
========== ==========
Accounts payable $ 4,006 $ 2,196
Accrued liabilities 7,235 2,254
Notes payable to banks 14,021 6,856
Other long-term liabilities 157 141
---------- ----------
Total liabilities of
discontinued operations $ 25,419 $ 11,447
========== ==========
Liabilities of discontinued operations of $25,419,000 at September
30, 1998 exceed the assets of discontinued operations of $17,513,000
at September 30, 1998 by $7,906,000. This difference is subject to a
change in estimates. From time to time, the Company's discontinued
operating subsidiaries have not been able to make timely payments to
their trade and other creditors. The Company does not intend to fund
the majority of this deficit from the Company's continuing
operations, other than those liabilities of its discontinued
operations that are subject to guarantees by the Company's continuing
operations. The liabilities of its discontinued operations that are
subject to such guarantees approximate $14,700,000 and are primarily
related to the Company's notes payable to banks. Such notes payable
to banks
7
<PAGE> 9
related to discontinued operations are collateralized by
substantially all of the assets of the discontinued operations.
The Company intends to pay its bank lenders all of the net proceeds
arising from any sale or liquidation of assets of the discontinued
operations. The Company does not anticipate that such net proceeds
will be adequate to satisfy all liabilities of the discontinued
operations, whether owed to its lenders or otherwise. Accordingly,
the Company and its lenders will negotiate with respect to the
payment of less than all of such obligations, and the Company cannot
predict the outcome of such negotiations. Additionally, the Company
cannot predict whether creditors of discontinued operations other
than its bank lenders will assert claims against the Company arising
from those operations.
3. Effective for the year ending December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("FAS No. 128") which requires the
presentation of basic earnings per share ("Basic EPS"), and
diluted earnings per share ("Diluted EPS"). Basic EPS
excludes dilution and is computed by dividing net income
(loss) by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the dilutive
effect if securities or other contracts to issue common stock
were exercised or converted. FAS No. 128 requires the
restatement of all prior period earnings per share data
presented including interim periods.
The numerator and denominator of the basic and dilutive per share
computations are as follows (in thousands, except per share amounts,
unaudited):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator: Net Earnings (Loss) $ (9,788) $ 2,504 $ (15,450) $ (64)
Denominator:
Shares
Outstanding 10,797,666 10,793,639 10,797,666 10,761,288
Basic and Dilutive
Net Earnings (Loss)
Per Share $ (0.90) $ 0.23 $ (1.43) $ (0.01)
</TABLE>
The Company has not included potential common shares in the Diluted
EPS computation as the result is antidilutive.
Options and warrants to purchase 1,307,428 and 1,090,210 shares of
common stock at prices ranging from $0.75 to $2.44 per share were
outstanding at September 30, 1998 and 1997, respectively. These shares
were not included in the computation of Diluted EPS because the
options' exercise price was greater than the average market price of
the common shares. The options outstanding at September 30, 1998
expire from November 1998 to November 2007.
8
<PAGE> 10
The Company's common stock is currently traded on the American Stock
Exchange ("Amex"). The Amex has certain rules, guidelines and
financial measures to maintain a listing. Due to losses sustained from
1995 through 1998 and the related reduction to stockholders' equity,
the Company's common stock may be delisted from the Amex. Were the
Company's shares delisted, the Company intends to list its shares for
trading in the over-the-counter markets, for as long as its financial
condition permits it to do so.
4. Inventories at September 30, 1998 and December 31, 1997 are comprised
of the following:
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(unaudited)
Raw materials $ 813,000 $ 1,334,000
Work-in-process -- --
Finished goods 5,109,000 5,786,000
----------- -----------
$ 5,922,000 $ 7,120,000
=========== ===========
5. Included in accounts payable at September 30, 1998 and September 30,
1997 are the Company's obligations under outstanding letters of credit
of $543,000 and $1,182,000, respectively.
6. The Company has entered into several amendments to its Loan
Agreement during 1998 to amend or waive violations of certain
covenants during the 1998 period. The Company has violated
certain requirements of its Loan Agreement, relating to
collateral coverage and levels of tangible net worth. The
Company's lenders have not declared the Company in default and
have allowed the Company to remain in violation of these
agreements. Were a default to be declared and the Company's
loan obligations required to be immediately repaid, the
Company would not be able to operate without immediate
alternative financing becoming available, including debtor-in-
possession financing that might be available upon a filing
under Chapter 11 of the Bankruptcy Code. The Company is
discussing its financing needs with its existing lenders;
however, there can be no assurances that such existing lenders
or any other lenders will agree to fund such needs or
otherwise to provide working capital financing that would
permit the Company to operate as it has in the past. A
Reservation of Rights and Waiver Agreement was entered into on
October 1, 1998, whereby the Company's bank lenders agreed to
extend credit at their discretion without waiving any rights
that might arise upon one or more events of default which
occur subsequent to the amendments discussed above.
9
<PAGE> 11
If any lender to the Company determined to exercise any of its rights
that might arise upon any event of default by the Company, or if the
Company were not able to secure additional or alternative financing,
the Company would consider a range of alternatives, including the
commencement of a proceeding under Chapter 11 of the Bankruptcy Code.
Notes payable to banks as of September 30, 1998 is composed of the
following (in thousands, unaudited) (see Note 2):
SEPTEMBER 30, 1998
------------------
Notes payable to banks
from continuing operations $ 9,790
Notes payable to banks
from discontinued operations 14,021
Current portion of long-term
debt 2,500
-------
Total $26,311
=======
The above total notes payable to banks and the current portion of
long-term debt are collateralized by substantially all of the
Company's assets, continuing or discontinued.
7. In June 1997, Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information"
was issued, effective for the fiscal year ending December 31, 1998.
Earlier adoption for interim periods is not required, and the Company
is currently evaluating the financial statement impact.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1998 VERSUS QUARTER ENDED SEPTEMBER 30, 1997:
Net sales for the third quarter of 1998 were $20,226,000, which were lower than
the third quarter of 1997 net sales of $25,614,000 by 21%. The decrease
primarily relates to lower sales of M&L's OshKosh licensed outerwear product
sales.
Cost of goods sold, as a percentage of net sales, was 67% versus 66% for the
quarter ended September 30, 1997. The increase is due to lower sales of OshKosh
licensed outerwear product.
10
<PAGE> 12
Selling, general and administrative expenses ("S,G&A"), as a percentage of net
sales, increased to 18% in 1998 from 17% in 1997. This increase is due to lower
net sales levels related to fixed S,G&A expenses.
OTHER
Interest and other expenses for the quarter ended September 30, 1998 decreased
to $662,000 from $694,000 due to lower levels of long-term debt offset by
increased working capital debt interest during 1998.
Interest and other income was zero for the third quarter of 1998 versus $92,000
in 1997, due to parent company interest income in 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1997:
Net sales for the first nine months of 1998 decreased to $37,768,000 from the
first nine months of 1997 sales of $41,887,000. The 10% decrease was primarily
due to lower sales of M&L's OshKosh licensed outerwear product sales.
Consolidated sales backlog for continuing operations at October 30, 1998 was
$7,170,000, compared to $12,878,000 at October 29, 1997. The decrease of 44% is
largely due to lower fourth quarter 1998 sales backlog and lower Spring 1999
sales backlog. Both decreased seasons result from continuing poor market
conditions related to warm weather throughout the country during the third and
early fourth quarter months, poor Spring 1998 sales throughout the market and
increased levels of M&L's customers sourcing outerwear goods directly versus
the purchase of such goods from wholesalers, such as M&L.
Cost of goods sold, as a percentage of net sales, was 67% for both the nine
months ended September 30, 1998 and 1997.
S,G&A decreased to $9,215,000 (24% of net sales) for the nine months ended
September 30, 1998, compared to $9,968,000 (24% of net sales) in 1997.
OshKosh B'Gosh, Inc. ("OshKosh") notified M&L during the second quarter of 1997
that it would not renew its outerwear license with M&L after May 31, 1998. As
part of a strategy adopted over the last several years, OshKosh decided to sell
directly to retailers. For the nine months ended September 30, 1998 and 1997,
M&L's sales of OshKosh outerwear were $11,414,000 and $16,653,000 respectively,
and for the year ended December 31, 1997 M&L's sales of OshKosh outerwear were
$19,888,000. M&L's strategy is to replace the OshKosh brand sales of outerwear
with several well-known brand name
11
<PAGE> 13
children's outerwear and activewear licenses. The Company cannot predict
whether M&L's strategy will ultimately be successful in replacing such levels
of OshKosh sales and related margins in the future.
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. Accordingly, a recession could have a
material adverse effect on the Company's business.
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 availability, 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 for the nine months ended September 30, 1998 was
$1,686,000 compared with $1,684,000 for the comparable period of 1997.
INCOME TAXES
For the nine months ended September 30, 1998 and 1997, the Company recorded
valuation allowances relating to deferred tax assets and Federal and state net
operating loss carryforwards, due to the Company sustaining operating losses.
Any future tax provisions, as realized, would be offset against such valuation
allowances and net operating loss carryforwards.
DISCONTINUED OPERATIONS
In September 1998, the Company determined to dispose of the majority of the
assets of its BAII and Mackintosh subsidiaries. Accordingly, operating results
of these subsidiaries and certain corporate expenses relating to discontinued
operations, for the nine months ended September 30, 1998 and 1997, have been
reclassified as loss from discontinued operations.
The Company is negotiating the sale of selected assets of these subsidiaries,
but, to date, has not entered into any definitive agreements providing for such
sales. If sales of such assets do not occur, the Company intends to liquidate
such assets, along with other assets currently offered for sale, and to
terminate the operations of such subsidiaries.
12
<PAGE> 14
The estimated loss on disposal provides for the write down of assets to the
estimated sale value and/or market value, loss on fulfilling other obligations,
costs of disposal and future operating losses. The estimated loss on disposal
could materially differ from final amounts realized on the loss on disposal of
discontinued operations. Accordingly, the Company has recorded an estimated
loss on disposal of $9,637,000 for the nine months ended September 30, 1998.
The Company also reclassified the net operating losses of discontinued
operations of $7,424,000 and $2,523,000 for the nine months ended September 30,
1998 and 1997, respectively, to loss from discontinued operations.
Operating results of discontinued operations are as follows (in thousands,
unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 11,188 $ 16,183 $ 19,475 $ 27,605
Costs and
expenses (23,361) (17,451) (36,536) (30,128)
---------- ---------- ---------- ----------
Net loss from
discontinued
operations $ (12,173) $ (1,268) $ (17,061) $ (2,523)
========== ========== ========== ==========
</TABLE>
The net assets and liabilities of discontinued operations included in the
accompanying consolidated balance sheets are as follows (in thousands,
unaudited):
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------- ----------
Cash $ 137 $ 130
Accounts receivables, net 7,478 7,345
Inventories 8,905 10,137
Prepaid expenses 128 459
Property, plant and
equipment, net 723 2,324
Other assets, net 142 325
---------- ----------
Total assets of
discontinued operations $ 17,513 $ 20,720
========== ==========
Accounts payable $ 4,006 $ 2,196
Accrued liabilities 7,235 2,254
Notes payable to banks 14,021 6,856
Other long-term liabilities 157 141
---------- ----------
Total liabilities of
discontinued operations $ 25,419 $ 11,447
========== ==========
13
<PAGE> 15
Liabilities of discontinued operations of $25,419,000 at September 30, 1998
exceed the assets of discontinued operations of $17,513,000 at September 30,
1998 by $7,906,000. This difference is subject to a change in estimates. From
time to time, the Company's discontinued operating subsidiaries have not been
able to make timely payments to their trade and other creditors. The Company
does not intend to fund the majority of this deficit from the Company's
continuing operations, other than those liabilities of its discontinued
operations that are subject to guarantees by the Company's continuing
operations. The liabilities of its discontinued operations that are subject to
such continuing operation guarantees approximate $14,700,000 and are primarily
related to the Company's notes payable to banks. Such notes payable to banks
related to discontinued operations are collateralized by substantially all of
the assets of the discontinued operations.
The Company intends to pay its bank lenders all of the net proceeds arising
from any sale or liquidation of assets of the discontinued operations. The
Company does not anticipate that such net proceeds will be adequate to satisfy
all liabilities of the discontinued operations, whether owed to its lenders or
otherwise. Accordingly, the Company and its lenders will negotiate with respect
to the payment of less than all of such obligations, and the Company cannot
predict the outcome of such negotiations. Additionally, the Company cannot
predict whether creditors of discontinued operations other than its bank
lenders will assert claims against the Company arising from those operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were zero and $139,000 at September 30, 1998 and
December 31, 1997, respectively. At September 30, 1998 the Company's working
capital was a negative $1,204,000, representing a working capital ratio of 0.97
to 1. This compares to working capital of $13,944,000 and a current ratio of
1.77 to 1 at December 31, 1997. This change is due to operating losses
sustained from discontinued operations.
As presented in the Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998, the increase in accounts receivable of $11,953,000
and decrease in inventories of $1,198,000 are due to the seasonality of the
Company's continuing operations. On March 31, 1998 the Company repaid
$2,000,000 of its long-term debt. Capital expenditures for the nine months
ended September 30, 1998 decreased to $53,000 from $131,000 in 1997.
The Company has entered into several amendments to its Loan Agreement during
1998 to amend or waive violations of certain covenants during the 1998 period.
The Company has violated certain requirements of its Loan Agreement, including
those relating to collateral coverage and levels of tangible net worth. The
Company's lenders have not declared the Company in default and have allowed the
Company to operate while in violation of these
14
<PAGE> 16
agreements. Were a default to be declared and the Company's loan obligations
required to be immediately repaid, the Company would not be able to operate
without immediate alternative financing, including debtor-in-possession
financing that might be available upon a filing under Chapter 11 of the
Bankruptcy Code. The Company is discussing financing needs with its existing
lenders, however, there can be no assurances that such existing lenders, or any
other lenders, will agree to such needs. A Reservation of Rights and Waiver
Agreement was entered into on October 1, 1998, whereby the Company's bank
lenders agreed to extend credit at their discretion without waiving any rights
that might arise upon one or more events of default which occur subsequent to
the amendments discussed above.
If any lender to the Company determined to exercise any of its rights that
might arise upon any event of default by the Company, the Company would
consider a range of alternatives, including the commencement of a proceeding
under Chapter 11 of the Bankruptcy Code. Furthermore, if the Company were not
able to secure additional or alternative financing, it would be forced to
consider a comparable range of alternatives, including the commencement of a
proceeding under Chapter 11.
The Company has prepared the accompanying unaudited consolidated financial
statements assuming that it will continue as a going concern. This assumption
is based upon the continuing operating results for the nine months ended
September 30, 1998 and September 30, 1997 and that the Company restructures
existing debt and obtains working capital financing for operations; the Company
cannot predict whether it will be able to satisfy both of these conditions. The
Company believes that it cannot service its existing debt and its other
liabilities and meet its prospective working capital needs without
restructuring its existing debt and without obtaining working capital financing
for its continuing operations.
EFFECT OF INFLATION AND SEASONALITY
The Company believes that inflation will not significantly effect 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 increases in wool
and cotton costs over the last several years, the Company has increased
offshore production.
Sales of children's outerwear are seasonal. Historically, M&L has 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 consumer reactions to weather patterns, which have had and
continue to have a material effect on the Company's sales and profitability.
15
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently involved in routine litigation. None
of such litigation in which the Company is presently involved is material to
its financial position or results of operations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has violated certain requirements of its Loan
Agreement, including those relating to collateral coverage and levels of
tangible net worth. The Company's lenders have not declared the Company in
default and have allowed the Company to operate while in violation of these
agreements. Were a default to be declared and the Company's loan obligations
required to be immediately repaid, the Company would not be able to operate
without immediate alternative financing, including debtor-in- possession
financing that might be available upon a filing under Chapter 11 of the
Bankruptcy Code. The Company is discussing financing needs with its existing
lenders; however, there are no assurances that such existing lenders, or any
other lenders, will agree to such needs. A Reservation of Rights and Waiver
Agreement was entered into on October 1, 1998, whereby the Company's bank
lenders agreed to extend credit at their discretion without waiving any rights
that might arise upon one or more events of default which occur subsequent to
the amendments discussed above. If any lender to the Company determines to
exercise any of its rights that might arise upon any event of default by the
Company, the Company would consider a range of alternatives, including the
commencement of a proceeding under Chapter 11 of the Bankruptcy Code.
Furthermore, if the Company were not able to secure additional or alternative
financing, it would be forced to consider a comparable range of alternatives,
including the commencement of a proceeding under Chapter 11 of the Bankruptcy
Code.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
10.1 Sixth Amendment to Second Amended and Restated
Credit Agreement and Guaranty dated as of June
30, 1998 among the Registrant, Biscayne
Apparel International, Inc., Mackintosh of New
England Co., and M&L International, Inc. and
The Chase Manhattan Bank (National
Association) as Agent and Milberg Factors,
Inc. as Servicing Agent.
16
<PAGE> 18
10.2 Seventh Amendment to Second Amended and
Restated Credit Agreement and Guaranty dated
as of September 21, 1998 among the Registrant,
Biscayne Apparel International, Inc.,
Mackintosh of New England Co., and M&L
International, Inc. and The Chase Manhattan
Bank (National Association) as Agent and
Milberg Factors, Inc. as Servicing Agent.
11 Computation of Per Share Earnings
27 Financial Data Schedule
b) Reports on Form 8-K:
During the quarter for which this Quarterly Report
on Form 10-Q is filed, the Registrant did not file
any current reports on Form 8-K.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
BISCAYNE APPAREL, INC.
Date: November 19, 1998 By: /s/ Earl W. Powell
--------------------------------
Earl W. Powell
Chairman of the Board and Chief
Executive Officer
Date: November 19, 1998 By: /s/ Peter Vandenberg, Jr.
--------------------------------
Peter Vandenberg, Jr.
President, Chief Operating Officer,
Treasurer and Chief Financial
Officer
18
<PAGE> 1
EXHIBIT 10.1
SIXTH AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT AND GUARANTY (the "SIXTH AMENDMENT") dated as of June 30, 1998 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, CORESTATES BANK,
N.A., BANKBOSTON, N.A. (formerly known as The First National Bank of Boston),
FLEET BANK N.A. and MILBERG FACTORS, INC. (individually, each a "LENDER" and
collectively, the "LENDERS"), THE CHASE MANHATTAN BANK, 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"
and together with the Agent, the "AGENTS").
PRELIMINARY STATEMENTS:
WHEREAS, the Borrowers, the Guarantors, the Lenders and the
Agents have entered into a Second Amended and Restated Credit Agreement and
Guaranty dated as of March 24, 1997, as amended by a First Amendment, dated as
of May 22, 1997, a Second Amendment, dated as of February 18, 1998, a Third
Amendment, dated as of March 6, 1998, a Fourth Amendment, dated as of March 25,
1998 and a Fifth Amendment and Waiver dated as of June 8, 1998 (as so amended,
the "CREDIT AGREEMENT"); and
WHEREAS, the terms defined in the Credit Agreement are used
in this Sixth Amendment as in the Credit Agreement unless otherwise defined
herein;
WHEREAS, the Borrowers and the Guarantors have requested that
certain provisions of the Credit Agreement be amended as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO CREDIT AGREEMENT. The Credit
Agreement is hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended by
inserting the following new definition in the appropriate alphabetical order:
"Arlington Net Proceeds" shall mean the net cash
proceeds received by the Borrowers from the sale of the Varon
plant located in Arlington, Georgia after deducting all
reasonable and customary expenses incurred by the Borrowers
in connection with such sale.
<PAGE> 2
(b) Section 1.01 of the Credit Agreement is hereby further
amended by amending and restating the following definitions in their entirety
as follows:
"Revolving Credit Loans Maximum Outstanding" means
during the period specified below the amounts specified below
for such period:
PERIOD AMOUNT
------ ------
Fourth Closing Date to and
including April 30, 1998 $13,750,000
May 1, 1998 to and
including May 31, 1998 $16,750,000
June 1, 1998 to and
including June 30, 1998 $25,000,000
July 1, 1998 to and
including July 31, 1998 $32,000,000
August 1, 1998 to and
including August 31, 1998 $35,000,000
September 1, 1998 to and
including October 20, 1998 $28,750,000
October 21, 1998 to and
including October 30, 1998 $23,000,000
October 31, 1998 to and
including November 19, 1998 $20,500,000
November 20, 1998 to and
including November 30, 1998 $10,750,000
December 1, 1998 to and
including December 20, 1998 $ 8,000,000
December 21, 1998 to and
including December 31, 1998 $ 5,000,000
January 1, 1999 to and
including February 28, 1999 $ 7,000,000
March 1, 1999 to and
including March 31, 1999 $ 9,000,000
2
<PAGE> 3
"Revolving Credit Loans Permitted Overadvance (During the
Month)" means the amount specified below for each day during the month
specified below other than the last day of the applicable month:
MONTH AMOUNT
----- ------
March, 1998 $ 5,000,000
April, 1998 $ 9,500,000
May, 1998 $ 11,500,000
June, 1998 $ 12,500,000
July, 1998 $ 16,000,000
August, 1998 $ 12,250,000
September, 1998 $ 7,750,000
October, 1998 $ 500,000
November, 1998 $ (4,000,000)
December, 1998 $ (8,000,000)
January, 1999 $ (4,000,000)
February, 1999 $ (2,500,000)
March, 1999 $ (1,000,000)
PROVIDED, that, to the extent any Arlington Net Proceeds are received by the
Borrowers during the months of July 1998 or August 1998, the amounts set forth
opposite such months shall be reduced on a prospective basis by such amount of
proceeds received.
In addition, the proceeds of Revolving Credit Loans made to
BAI which are used to finance Varon shall for each day during the period
specified below other than the last day of the applicable month be equal to or
less than the sum of (1) the Eligible Accounts of Varon relied on in computing
the Collateral Borrowing Base as set forth on the Reconciliation Report and (2)
the amounts specified below for each day during the period specified below
other than the last day of the applicable month:
PERIOD AMOUNT
------ ------
March 1, 1998 to and
including May 31, 1998 $3,750,000
June 1, 1998 to and
including June 30, 1998 $4,500,000
July 1, 1998 to and
including July 31, 1998 $4,500,000
August 1, 1998 to and
including August 31, 1998 $4,000,000
3
<PAGE> 4
September 1, 1998 to and
including September 29, 1998 $ 750,000
October 1, 1998 to and
including October 30, 1998 $ (750,000)
November 1, 1998 to and
including November 29, 1998 $(1,750,000)
December 1, 1998 to and
including December 30, 1998 $(2,250,000)
January 1, 1999 to and
including January 30, 1999 $(2,000,000)
February 1, 1999 to and
including February 27, 1999 $ (750,000)
March 1, 1999 to and
including March 30, 1999 $ 0
PROVIDED, that, to the extent any Arlington Net Proceeds are received by the
Borrowers during the months ended July 31, 1998 or August 31, 1998, the amounts
set forth opposite such months shall be reduced on a prospective basis by such
amount of proceeds received.
For purposes of this definition, the numbers set forth in
parenthesis are negative numbers.
"Revolving Credit Loans Permitted Overadvance (Month End)"
means the amounts specified below for the last day of each month specified
below:
MONTH AMOUNT
----- ------
March, 1998 $ 4,000,000
April, 1998 $ 9,500,000
May, 1998 $ 7,500,000
June, 1998 $ 11,000,000
July, 1998 $ 10,250,000
August, 1998 $ 3,500,000
September, 1998 $ (750,000)
October, 1998 $ (8,000,000)
November, 1998 $ (9,500,000)
December, 1998 $ (10,500,000)
January, 1999 $ (6,000,000)
4
<PAGE> 5
February, 1999 $ (4,000,000)
March, 1999 $ (1,500,000)
PROVIDED, that, to the extent any Arlington Net Proceeds are received by the
Borrowers during the months July 1998 or August 1998, the amounts set forth
opposite such months shall be reduced on a prospective basis by such amount of
proceeds received.
Notwithstanding the foregoing, the proceeds of the Revolving
Credit Loans made to Mackintosh shall as of the last day of each month
specified below be equal to or less than the sum of (1) the Eligible Accounts
of Mackintosh relied on in computing the Collateral Borrowing Base as set forth
on the Reconciliation Report and (2) the amounts specified below for each month
specified below:
MONTH AMOUNT
----- ------
March, 1998 $ 3,250,000
April, 1998 $ 4,000,000
May, 1998 $ 4,750,000
June, 1998 $ 6,000,000
July, 1998 $ 6,250,000
August, 1998 $ 6,250,000
September, 1998 $ 5,250,000
October, 1998 $ 1,500,000
November, 1998 $ (750,000)
December, 1998 $ (1,800,000)
January, 1999 $ 0
February, 1999 $ 0
March, 1999 $ 0
In addition, the proceeds of Revolving Credit Loans made to
BAI which are used to finance Varon shall as of the last day of each month
specified below be equal to or less than the sum of (1) the Eligible Accounts
of Varon relied on in computing the Collateral Borrowing Base as set forth on
the Reconciliation Report and (2) the amounts specified below for each month
specified below:
MONTH AMOUNT
----- ------
March, 1998 $ 3,000,000
April, 1998 $ 3,000,000
May, 1998 $ 3,000,000
June, 1998 $ 4,000,000
July, 1998 $ 3,750,000
August, 1998 $ 1,000,000
September, 1998 $ (1,500,000)
5
<PAGE> 6
October, 1998 $(2,500,000)
November, 1998 $(3,000,000)
December, 1998 $(2,750,000)
January, 1999 $(1,500,000)
February, 1999 $ (750,000)
March, 1999 $ 0
In addition, each of the Borrowers agree that no further
intercompany loans or advances shall be made by any Borrower or Subsidiary from
and after the Fourth Closing Date and that intercompany loans and advances by
and among the Borrowers outstanding as of the Fourth Closing Date shall not be
repaid or reduced by any amounts, other than reductions or repayments arising
from non-cash offsets of federal income tax provisions and allocations of
Apparel's corporate overhead and management fee expenses among Apparel, BAI,
Mackintosh and M&L conducted in the ordinary course of business in accordance
with GAAP.
For purposes of this definition, the numbers set forth in
parenthesis are negative numbers.
(c) Section 10.02 of the Credit Agreement is hereby amended
by amending and restating the PROVISO appearing at the end of such section in
its entirely as follows:
; PROVIDED, that any guaranty by Apparel shall be limited to
orders for the purchase of raw materials which are placed
during the calendar year 1998.
(d) Section 11.02 of the Credit Agreement is hereby amended
and restated in its entirety as follows:
Section 11.01. MINIMUM TANGIBLE NET WORTH.
Consolidated Tangible Net Worth shall not be less than the
amounts specified below for the dates specified below:
DATE AMOUNT
---- ------
March 31, 1998 $5,250,000
June 30, 1998 $3,250,000
July 31, 1998 $4,000,000
August 31, 1998 $4,750,000
September 30, 1998 $7,750,000
December 31, 1998 $9,000,000
March 31, 1999 $7,750,000
In addition, Consolidated Tangible Net Worth shall
not be less than $7,750,000 for the period from October 1,
1998 through and including December 30, 1998 and at no time
may Consolidated Tangible Net Worth be less than $3,250,000.
6
<PAGE> 7
SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS SIXTH
AMENDMENT. This Sixth Amendment shall become effective on the date on which
each of the following conditions have been satisfied or waived:
(i) the Borrowers, the Lenders and the Agents shall each
have executed and delivered this Sixth Amendment;
(ii) payment by the Borrowers of all costs and expenses
of the Agents and the Lenders (including, without
limitation, reasonable attorneys' fees and expenses)
incurred in connection with this Sixth Amendment and
the Credit Agreement;
(iii) payment by the Borrowers to the Agent for the
account of the Lenders a non-refundable amendment
fee equal to $50,000. Each Lender shall be entitled
to twenty percent (20%) of such amendment fee; and
(iv) receipt of such other documents, opinions or
agreements as either of the Agents or any of the
Lenders may reasonably request.
SECTION 3. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS.
Upon the effectiveness of Section 2 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. 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. Except as specifically waived
herein, the execution, delivery and effectiveness of this Sixth Amendment shall
not operate as a waiver of any 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.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrowers
hereby represent and warrant that each of the representations and warranties
contained in Article 8 of the Credit Agreement and in each of the other
Facility Documents is true and correct as of the date hereof (provided that any
representations and warranties which speak to a specific date shall remain true
and correct as of such date).
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 Sixth Amendment 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.
7
<PAGE> 8
SECTION 6. GOVERNING LAW. This Sixth Amendment shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed wholly within such State.
SECTION 7. HEADINGS. Section headings in this Sixth Amendment
are included herein for convenience of reference only and shall not constitute
a part of this Sixth Amendment for any other purpose.
SECTION 8. COUNTERPARTS. This Sixth 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 Sixth Amendment
by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be duly executed as of the day and year first above written.
BISCAYNE APPAREL, INC.
By: /s/ Peter Vandenberg
-------------------------------------
Name: Peter Vandenberg
Title: President
BISCAYNE APPAREL INTERNATIONAL, INC.
By: /s/ Peter Vandenberg
-------------------------------------
Name: Peter Vandenberg
Title: President
MACKINTOSH OF NEW ENGLAND CO.
By: /s/ Peter Vandenberg
-------------------------------------
Name: Peter Vandenberg
Title: President
M & L INTERNATIONAL, INC.
By: /s/ Peter Vandenberg
-------------------------------------
Name: Peter Vandenberg
Title: Vice President
THE CHASE MANHATTAN BANK,
as Lender
By:
-------------------------------------
Name:
Title:
7
<PAGE> 1
EXHIBIT 10.2
SEVENTH AMENDMENT AND WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT AND GUARANTY (the "SEVENTH AMENDMENT") dated as of September 21,1998
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,
CORESTATES BANK, N.A., BANKBOSTON, N.A. (formerly known as The First National
Bank of Boston), FLEET BANK N.A. and MILBERG FACTORS, INC. (individually, each
a "LENDER" and collectively, the "LENDERS"), THE CHASE MANHATTAN BANK, 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" and together with the Agent, the "AGENTS").
PRELIMINARY STATEMENTS:
WHEREAS, the Borrowers, the Guarantors, the Lenders and the
Agents have entered into a Second Amended and Restated Credit Agreement and
Guaranty dated as of March 24, 1997, as amended by a First Amendment, dated as
of May 22, 1997, a Second Amendment, dated as of February 18, 1998 (the "SECOND
AMENDMENT"), a Third Amendment, dated as of March 6, 1998, a Fourth Amendment,
dated as of March 25, 1998, a Fifth Amendment and Waiver dated as of June 8,
1998 and a Sixth Amendment dated as of June 30, 1998 (as so amended, the
"CREDIT AGREEMENT"); and
WHEREAS, the terms defined in the Credit Agreement are used
in this Seventh Amendment as in the Credit Agreement unless otherwise defined
herein;
WHEREAS, the Borrowers and the Guarantors have requested that
certain provisions of the Credit Agreement be amended as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. LIMITED WAIVER. Each Lender and each Agent
hereby waive compliance with:
(i) the provisions contained in the definition of
Revolving Credit Loans Permitted Overadvance (Month End) which
require that the consolidated overadvance shall not be equal
to or greater than $3,500,000 at month end for August 1998;
(ii) the provisions contained in the definition of
Revolving Credit Loans Permitted Overadvance (Month End) which
requires that the aggregate outstanding amount of Revolving
Credit Loans made to BAI during the month of August 1998 which
are used to finance Varon shall be less than the Eligible
Accounts of Varon included in the computation of the
Collateral Borrowing Base as set forth on the
<PAGE> 2
Reconciliation Report for the month of
August 1998 in an amount equal to or greater than $1,000,000;
(iii) the Events of Default arising as a result of
the failure by the Borrowers to make mandatory prepayments
pursuant to Section 2.08(ii) of the Credit Agreement
following the occurrence of the foregoing; and
(iv) the provisions contained in Section 11.02 of
the Credit Agreement which require that Consolidated Tangible
Net Worth shall be at least $3,250,000 and $4,000,000 as of
June 30, 1998 and July 31, 1998, respectively.
SECTION 2. AMENDMENT TO CREDIT AGREEMENT. The Credit
Agreement is hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended by
amending and restating the following definitions in their
entirety as follows:
"Revolving Credit Loans Maximum Outstanding" means
during the period specified below the amounts specified below
for such period:
PERIOD AMOUNT
------ ------
Fourth Closing Date to and
including April 30, 1998 $13,750,000
May 1, 1998 to and including
May 31, 1998 $16,750,000
June 1, 1998 to and including
June 30, 1998 $25,000,000
July 1, 1998 to and including
July 31, 1998 $32,000,000
August 1, 1998 to and
including August 31, 1998 $35,000,000
September 1, 1998 to and
including September 20, 1998 $35,000,000
September 21, 1998 to and
including September 30, 1998 $30,000,000
October 1, 1998 to and
including October 20, 1998 $28,750,000
2
<PAGE> 3
October 21, 1998 to and
including October 30, 1998 $23,000,000
October 31, 1998 to and
including November 19, 1998 $20,500,000
November 20, 1998 to and
including November 30, 1998 $10,750,000
December 1, 1998 to and
including December 20, 1998 $ 8,000,000
December 21, 1998 to and
including December 31, 1998 $ 5,000,000
January 1, 1999 to and
including February 28, 1999 $ 7,000,000
March 1, 1999 to and including
March 31, 1999 $ 9,000,000
"Revolving Credit Loans Permitted Overadvance (During the
Month)" means the amount specified below for each day during the month
specified below other than the last day of the applicable month:
MONTH AMOUNT
----- ------
March, 1998 $ 5,000,000
April, 1998 $ 9,500,000
May, 1998 $ 11,500,000
June, 1998 $ 12,500,000
July, 1998 $ 16,000,000
August, 1998 $ 12,250,000
September, 1998 $ 7,750,000
October, 1998 $ 500,000
November, 1998 $ (4,000,000)
December, 1998 $ (8,000,000)
January, 1999 $ (4,000,000)
February, 1999 $ (2,500,000)
March, 1999 $ (1,000,000)
PROVIDED, that, to the extent any Arlington Net Proceeds are received by the
Borrowers during the months of July 1998 or August 1998, the amounts set forth
opposite such months shall be reduced on a prospective basis by such amount of
proceeds received.
In addition, the proceeds of Revolving Credit Loans made to
BAI which are used to finance Varon shall for each day during the period
specified below other than the last day of the applicable month be equal to or
less than the sum of (1) the Eligible
3
<PAGE> 4
Accounts of Varon relied on in computing the Collateral Borrowing Base as set
forth on the Reconciliation Report and (2) the amounts specified below for each
day during the period specified below other than the last day of the applicable
month:
PERIOD AMOUNT
------ ------
March 1, 1998 to and
including May 31, 1998 $ 3,750,000
June 1, 1998 to and
including June 30, 1998 $ 4,500,000
July 1, 1998 to and
including July 31, 1998 $ 4,500,000
August 1, 1998 to and
including August 31, $ 4,000,000
1998
September 1, 1998 to
and including September
29, 1998 $ 4,000,000
October 1, 1998 to and
including October 30, $ (750,000)
1998
November 1, 1998 to
and including November
29, 1998 $ (1,750,000)
December 1, 1998 to
and including December $ (2,250,000)
30, 1998
January 1, 1999 to and
including January 30, $ (2,000,000)
1999
February 1, 1999 to and
including February 27,
1999 $ (750,000)
March 1, 1999 to and
including March 30, 1999 $ 0
PROVIDED, that, to the extent any Arlington Net Proceeds are received by the
Borrowers during the months ended July 31, 1998 or August 31, 1998, the amounts
set forth opposite such months shall be reduced on a prospective basis by such
amount of proceeds received.
4
<PAGE> 5
For purposes of this definition, the numbers set forth in
parenthesis are negative numbers.
"Revolving Credit Loans Permitted Overadvance (Month End)"
means the amounts specified below for the last day of each month specified
below:
MONTH AMOUNT
----- ------
March, 1998 $ 4,000,000
April, 1998 $ 9,500,000
May, 1998 $ 7,500,000
June, 1998 $ 11,000,000
July, 1998 $ 10,250,000
August, 1998 $ 3,500,000
September, 1998 $ 2,000,000
October, 1998 $ (8,000,000)
November, 1998 $ (9,500,000)
December, 1998 $(10,500,000)
January, 1999 $ (6,000,000)
February, 1999 $ (4,000,000)
March, 1999 $ (1,500,000)
PROVIDED, that, to the extent any Arlington Net Proceeds are received by the
Borrowers during the months July 1998 or August 1998, the amounts set forth
opposite such months shall be reduced on a prospective basis by such amount of
proceeds received.
Notwithstanding the foregoing, the proceeds of the Revolving
Credit Loans made to Mackintosh shall as of the last day of each month
specified below be equal to or less than the sum of (1) the Eligible Accounts
of Mackintosh relied on in computing the Collateral Borrowing Base as set forth
on the Reconciliation Report and (2) the amounts specified below for each month
specified below:
MONTH AMOUNT
----- ------
March, 1998 $ 3,250,000
April, 1998 $ 4,000,000
May, 1998 $ 4,750,000
June, 1998 $ 6,000,000
July, 1998 $ 6,250,000
August, 1998 $ 6,250,000
September, 1998 $ 5,250,000
October, 1998 $ 1,500,000
November, 1998 $ (750,000)
December, 1998 $(1,800,000)
January, 1999 $ 0
February, 1999 $ 0
March, 1999 $ 0
5
<PAGE> 6
In addition, the proceeds of Revolving Credit Loans made to
BAI which are used to finance Varon shall as of the last day of each month
specified below be equal to or less than the sum of (1) the Eligible Accounts
of Varon relied on in computing the Collateral Borrowing Base as set forth on
the Reconciliation Report and (2) the amounts specified below for each month
specified below:
MONTH AMOUNT
----- ------
March, 1998 $ 3,000,000
April, 1998 $ 3,000,000
May, 1998 $ 3,000,000
June, 1998 $ 4,000,000
July, 1998 $ 3,750,000
August, 1998 $ 1,000,000
September, 1998 $ 3,000,000
October, 1998 $(2,500,000)
November, 1998 $(3,000,000)
December, 1998 $(2,750,000)
January, 1999 $(1,500,000)
February, 1999 $ (750,000)
March, 1999 $ 0
In addition, each of the Borrowers agree that no further
intercompany loans or advances shall be made by any Borrower or Subsidiary from
and after the Fourth Closing Date and that intercompany loans and advances by
and among the Borrowers outstanding as of the Fourth Closing Date shall not be
repaid or reduced by any amounts, other than reductions or repayments arising
from non-cash offsets of federal income tax provisions and allocations of
Apparel's corporate overhead and management fee expenses among Apparel, BAI,
Mackintosh and M&L conducted in the ordinary course of business in accordance
with GAAP.
For purposes of this definition, the numbers set forth in
parenthesis are negative numbers.
(b) Section 9.10 of the Credit Agreement is hereby amended
and restated in its entirety as follows:
9.10 INVESTMENT ADVISOR. Retain an investment advisor
reasonably satisfactory to the Agents for purposes
of strategic planning, which investment advisor
shall (i) establish August 28, 1998 as the date by
which letters of intent must be issued by potential
purchasers of one or more of the Borrowers, and (ii)
establish September 11, 1998 as the date by which
bids for the purchase of one or more of the
Borrowers must be received.
6
<PAGE> 7
SECTION 3. CONDITIONS OF EFFECTIVENESS TO THIS SEVENTH
AMENDMENT. This Seventh Amendment shall become effective on the date on which
each of the following conditions have been satisfied or waived:
(i) the Borrowers, the Lenders and the Agents shall each
have executed and delivered this Seventh Amendment;
(ii) payment by the Borrowers of (i) all costs and
expenses of the Agents and the Lenders (including,
without limitation, reasonable attorneys' fees and
expenses) incurred in connection with this Seventh
Amendment and the Credit Agreement and (ii) all
outstanding legal fees and expenses due and payable
to Zalkin, Rodin & Goodman LLP, special counsel for
the Agent;
(iii) payment by the Borrowers to the Agent for the
account of the Lenders a non-refundable amendment
fee equal to $25,000. Each Lender shall be entitled
to twenty percent (20%) of such amendment fee; and
(iv) receipt of such other documents, opinions or
agreements as either of the Agents or any of the
Lenders may reasonably request, including, without
limitation, a schedule listing, for each Borrower,
the categories of information listed in the schedule
annexed to the Second Amendment.
SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS.
Upon the effectiveness of Section 2 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. 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. Except as specifically waived
herein, the execution, delivery and effectiveness of this Seventh Amendment
shall not operate as a waiver of any 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.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrowers
hereby represent and warrant that each of the representations and warranties
contained in Article 8 of the Credit Agreement and in each of the other
Facility Documents is true and correct as of the date hereof (provided that any
representations and warranties which speak to a specific date shall remain true
and correct as of such date).
SECTION 6. 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 Seventh Amendment 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.
7
<PAGE> 8
SECTION 7. GOVERNING LAW. This Seventh Amendment shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed wholly within such State.
SECTION 8. HEADINGS. Section headings in this Seventh
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Seventh Amendment for any other purpose.
SECTION 9. COUNTERPARTS. This Seventh 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
Seventh Amendment by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Seventh Amendment to be duly executed as of the day and year first above
written.
BISCAYNE APPAREL, INC.
By:
------------------------------------
Name:
Title:
BISCAYNE APPAREL INTERNATIONAL, INC.
By:
------------------------------------
Name:
Title:
MACKINTOSH OF NEW ENGLAND CO.
By:
------------------------------------
Name:
Title:
M & L INTERNATIONAL, INC.
By:
------------------------------------
Name:
Title:
8
<PAGE> 9
THE CHASE MANHATTAN BANK,
as Lender
By:
------------------------------------
Name:
Title:
MILBERG FACTORS, INC., as Lender
By:
------------------------------------
Name:
Title:
CORESTATES BANK, N.A., as Lender
By:
------------------------------------
Name:
Title:
BANKBOSTON, N. A., as Lender
By:
------------------------------------
Name:
Title:
FLEET BANK, N.A., as Lender
By:
------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Agent
By:
------------------------------------
Name:
Title:
MILBERG FACTORS, INC., as
Servicing Agent
By:
------------------------------------
Name:
Title:
9
<PAGE> 1
EXHIBIT 11
BISCAYNE APPAREL, INC.
COMPUTATION OF PER SHARE EARNINGS
(Dollars in Thousands, Except
Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income from continuing operations ....... $ 2,385 $ 3,772 $ 1,611 $ 2,459
Net loss from discontinued operations ....... (12,173) (1,268) (17,061) (2,523)
---------- ---------- ---------- ----------
Net earnings (loss) ......................... $ (9,788) $ 2,504 $ (15,450) $ (64)
========== ========== ========== ==========
BASIC:
- ------
Weighted average common shares outstanding .. 10,797,666 10,770,213 10,797,666 10,761,288
========== ========== ========== ==========
Basic net earnings per share from
continuing operations ...................... $ 0.22 $ 0.35 $ 0.15 $ 0.23
Basic net loss per share from
discontinued operations .................... (1.12) (0.12) (1.58) (0.24)
---------- ---------- ---------- ----------
Basic net earnings (loss) per share ......... $ (0.90) $ 0.23 $ (1.43) $ (0.01)
========== ========== ========== ==========
DILUTED:
- --------
Weighted average common shares outstanding .. 10,797,666 10,770,213 10,797,666 10,761,288
Potential dilution upon exercise of stock
options and warrants ....................... -- 23,426 -- --
---------- ---------- ---------- ----------
Shares used in computing net earnings (loss)
per common share .......................... 10,797,666 10,793,639 10,797,666 10,761,288
========== ========== ========== ==========
Diluted net earnings per share from
continuing operations ...................... $ 0.22 $ 0.35 $ 0.15 $ 0.23
Diluted net loss per share from
discontinued operations .................... (1.12) (0.12) (1.58) (0.24)
---------- ---------- ---------- ----------
Diluted net earnings (loss) per share ....... $ (0.90) $ 0.23 $ (1.43) $ (0.01)
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 17,525
<ALLOWANCES> (1,245)
<INVENTORY> 5,922
<CURRENT-ASSETS> 40,237
<PP&E> 682
<DEPRECIATION> (352)
<TOTAL-ASSETS> 40,754
<CURRENT-LIABILITIES> 41,441
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> (7,901)
<TOTAL-LIABILITY-AND-EQUITY> 40,754
<SALES> 37,768
<TOTAL-REVENUES> 37,768
<CGS> 25,247
<TOTAL-COSTS> 25,247
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,686
<INCOME-PRETAX> 1,623
<INCOME-TAX> 12
<INCOME-CONTINUING> 1,611
<DISCONTINUED> (17,061)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,450)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
