<PAGE> 1
- --------------------------------------------------------------------------------
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, 1997
----------------------------------------------
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1373 BROAD STREET, CLIFTON, NEW JERSEY 07013
- ---------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including Area Code) (973) 473-3240
---------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
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 27, 1998, was as follows:
COMMON STOCK, PAR VALUE $.01 10,771,622
---------------------------- ------------------
(Title of each class) (Number of shares)
The aggregate market value of common stock held by non-affiliates of
the registrant at February 27, 1998 was $2,382,242, based on a $0.34 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).
- --------------------------------------------------------------------------------
<PAGE> 2
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.
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 (UK)
Limited and Amy Industries De Honduras, S.A. de C.V., which was organized in
1995. As of January 1, 1998, the assets, liabilities, and operations of Andy
Johns were contributed by BAII into Mackintosh. The result was that all BAI's
women's outerwear lines are now part of Mackintosh. 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.
Varon is a designer and manufacturer of girl's and boy's underwear and
girl's daywear; Mackintosh is a designer, manufacturer and distributor of
women's and children's wool coats and active outerwear; and M&L is a designer,
manufacturer, and distributor of infant's, toddler's, 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, 1997, two customers
represented approximately 22% of total sales. These customers, Target and
Mervyn, divisions of Dayton Hudson Corporation ("Target" and "Mervyn") and
Sears, Roebuck and Co. ("Sears"), each represented 11% of total sales. For the
year ended December 31, 1996, three customers represented approximately 34% of
total sales. These customers, Target and Mervyn, Wal-Mart Stores, Inc. and 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.
<PAGE> 3
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 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 outerwear design, merchandising, production and sales organization
to better service its customer base at a lower cost, and (iv) identify the sale
or closure of non-strategic assets and facilities.
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 and 1997 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.
IMPLEMENTATION OF COST REDUCTION PROGRAM TARGETING BOTH FIXED AND
VARIABLE COSTS. Throughout 1996 and 1997, 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 and 1997, 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 lower selling, general and
administrative costs in 1996 and 1997.
THE RECONFIGURATION OF 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 1997.
During this same timeframe, the Company improved its 1996 and 1997 women's
outerwear sales and marketing effort with the addition of new and proven
personnel. In addition, the Company expanded its licensing partnerships in 1997
with long-term agreements with several well-known children's and junior/women's
brand names, including:
. Starter Corporation (NYSE:STA) to manufacture girl's
activewear, swimwear, and outerwear in sizes 4-6x and 7-16.
. Healthtex, a division of VF Corporation (NYSE:VFC), to
manufacture a new collection of children's outerwear
under the Healthtex brand name in sizes newborn through
<PAGE> 4
16 for girls and newborn through 7 for boys. The outerwear
products include jackets, pramsuits, windsuits, one- and
two-piece snowsuits, and padded vests.
. XOXO, a division of privately-held Lola, Inc., to manufacture
a line of junior/women's outerwear. The XOXO outerwear line
will focus on the upscale contemporary junior customer for
distribution through major department and better specialty
stores.
Initial shipments for these new licenses are targeted for delivery in
Fall 1998.
Additionally, during 1996 and 1997, 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
FACILITIES. During the first quarter of 1996 the Company sold its 20% interest
in Hartwell Sports, Inc. for $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. Also, during the fourth
quarter of 1997 the Company gave notice that it was closing its remaining
domestic children's underwear manufacturing facility in the first quarter of
1998. This production has been moved to the Company's new manufacturing facility
in Honduras and to outside contractors in the Caribbean Basin.
Products and Customers: Mackintosh's and M&L's principal products and
customers are:
O WOMEN'S AND CHILDREN'S OUTERWEAR: Mackintosh includes
four compatible outerwear lines, as follows:
. Andy Johns(R)
. Judy Simon(R)
. Mackintosh of New England(R)
. XOXO Outerwear(R)
Andy Johns(R), 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.
Andy Johns produces a broad Fall and Spring 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
<PAGE> 5
to customer preferences, yet has a consistency to its
appeal.
To expand its product lines, Andy Johns Kids(R) was begun in
mid-1987, and sells outerwear targeted for children in the 4
to 14 age range. Andy Johns also markets its outerwear under
the KAOS(R) and KAOTIC(TM) labels. In 1998 Andy Johns
introduced its Judy Simon(R) brand of outerwear, which
initially is being offered on an exclusive basis to one
customer. In August of 1997, BAII entered into a license
agreement to manufacture a line of junior/women's outerwear
under the XOXO(R) brand name. The XOXO outerwear line will
focus on the upscale contemporary junior customer for
distribution through major department and better specialty
stores. Andy Johns, Andy Johns Kids, KAOS, KAOTIC, Judy Simon,
and XOXO share showroom space in New York.
Andy Johns and XOXO Outerwear imports the majority of its
inventory, primarily from Asian manufacturers. Although not
foreseen, should import quotas be substantially tightened,
Andy Johns and XOXO outerwear may need to import products from
alternate overseas sources, or to engage in increased domestic
production, which could increase costs.
Mackintosh markets spring and fall lines of women's wool and
active outerwear products. Mackintosh also markets its active
outerwear under the All Outdoors(R) 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.
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 continues to expand.
Mackintosh primarily markets its products through a New York
showroom.
M&L is one of the largest U.S. based manufacturers of
children's outerwear. M&L markets its outerwear products under
the Weather Tamer(R) brand name, which it owns, and the
OshKosh B'Gosh(R) and Bon Jour(R), Healthtex(R) and Starter(R)
Girls brand names, which it licenses. M&L also produces
children's sportswear and swimwear products, which are
marketed under its Eclipse(R) brand name, and the Starter(R)
Girls brand, which it licenses. M&L markets spring and fall
lines.
M&L has showrooms in Chicago and New York, 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
<PAGE> 6
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, 1997, 1996, and 1995,
Mackintosh's and M&L's combined net sales represented 79%,
79%, and 76%, respectively, of the Company's total net sales.
O CHILDREN'S UNDERWEAR AND DAYWEAR: Varon has been
operating for approximately 70 years as a manufacturer of
girl's 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
girl's daywear sets and boy's 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, 1997, 1996, and 1995,
Varon's net sales represented 21%, 21%, and 24%, 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.
Mackintosh's imported inventory are warehoused in Washington.
Mackintosh manufactures and warehouses wool inventories in Massachusetts, Varon
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, 1997
and 1996 were $15,601,000 and $19,139,000, respectively. The dollar amounts of
backlog orders as of March 13, 1998 and March 14, 1997 were $52,480,000 and
$63,470,000, respectively.
<PAGE> 7
COMPETITION
The women's and children's outerwear business is highly competitive.
The principal areas of competition in this industry are product quality,
delivery, style, and price. Mackintosh's and M&L's products are primarily sold
to department stores, specialty stores, and mass merchandisers. Many major
retailers produce their own outerwear. 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 and M&L
allocate their resources to produce contemporary and timely merchandise, rather
than trying to become a fashion leader, which could result in loss of sales.
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 historically resulted in a
broadening of its customer base.
TRADEMARKS
The Company has registered the Andy Johns(R), KAOS(R), KAOTIC(R),
Weather Tamer(R), Lee Lipton(R), Judy Simon(R) and Eclipse(R) 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, Mackintosh and M&L market their outerwear under the XOXO(R),
Healthtex(R) and Starter(R) brand names, which they license.
SEASONALITY
Sales of women's and children's outerwear and thermal underwear are
seasonal. Historically, 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 historically 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,
<PAGE> 8
and is not expected to have a material effect on the Company's future
operations.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 843
persons. None of the Company's employees are represented by a labor union. The
Company considers its relations with employees to be satisfactory.
IMPACT OF YEAR 2000
Based on a review of its current computer software, the Company has
determined that no modifications will be required in order for its computer
systems to function properly with respect to the dates in the year 2000 and
thereafter. Therefore, this issue will not have a material impact on its
business, operations, or financial condition.
ITEM 2. PROPERTIES
The following table describes, as of December 31, 1997, the operating
facilities owned or leased by the Company containing an aggregate of
approximately 498,400 square feet. Management believes that all of the Company's
facilities are adequate for their respective purposes.
<PAGE> 9
<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
Auburn, WA 191,200 $694,000 April 2002 Warehousing facilities for
M&L
Bristol, WI 3,000 $7,000 May 1998 Retail outlet for M&L
Chicago, IL 27,100 $293,000 December 1998 Administrative office and
and April 2002 retail outlet for M&L
Clifton, NJ 8,600 $118,000 July 1998 Administrative offices
Colombo, Sri Lanka 5,500 $ 12,000 July 2000 Administrative office
for M&L
Hialeah, FL 40,300 $178,000 December 1999 Administrative office and
distribution facility for Varon
Hong Kong 8,000 $158,000 February 2000 Administrative office for M&L
New Bedford, MA 48,700 $91,000 June 1998 Manufacturing and administration
facilities for Mackintosh
New York, NY 22,000 $402,000 December 2003 Showrooms
and July 2005
San Pedro Sula, Honduras 44,000 $239,000 July 2000 Manufacturing facility for
Varon
</TABLE>
(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.
<PAGE> 10
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 1997.
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
---- ---
1997
----
First Quarter $1 3/8 $ 7/8
Second Quarter 1 1/8 7/8
Third Quarter 1 1/8 11/16
Fourth Quarter 1 9/16
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
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The Company had 1,231 holders of record of Common stock as of February
27, 1998.
<PAGE> 11
DIVIDENDS
The Company did not pay cash dividends on its common equity during the
fiscal years ended 1997, 1996 and 1995. 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, 1997, 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.
<PAGE> 12
BISCAYNE APPAREL, INC.
Selected Financial Data
(In Thousands, Except Per Share Data)
At and For the Years Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Financial Data
Net sales ...................................... $ 93,206 $ 105,425 $ 100,294 $ 72,350 $ 65,258
Operating income (loss) ........................ 513 (6,182) (5,261) 4,960 4,053
Earnings (loss) from continuing operations,
less applicable income taxes ................. (3,871) (8,724) (6,127) 2,048 3,687
Cumulative effect of change in
accounting for income taxes .................. -- -- -- -- 208
Net earnings (loss) ............................ (3,871) (8,724) (6,127) 2,048 3,895
Working capital ................................ $ 13,944 $ 19,540 $ 19,559 $ 23,167 $ 16,148
Total assets ................................... 34,817 36,110 61,742 60,578 34,791
Long-term debt ................................. 8,944 10,944 12,694 7,944 6,444
Stockholders' equity ........................... 7,658 11,178 19,835 25,881 19,560
Book value per common share .................... $ 0.71 $ 1.04 $ 1.85 $ 2.41 $ 2.18
Basic earnings (loss) per common share:
Net earnings (loss) from continuing
operations ................................... $ (0.36) $ (0.81) $ (0.57) $ 0.22 $ 0.44
Cumulative effect of change in
accounting for income taxes .................. -- -- -- -- 0.02
--------- --------- --------- --------- ---------
Basic earnings (loss) per common share ......... $ (0.36) $ (0.81) $ (0.57) $ 0.22 $ 0.46
========= ========= ========= ========= =========
Shares used in computing basic earnings
(loss) per common share ...................... 10,765 10,742 10,734 9,179 8,475
Diluted earnings (loss) per common share:
Net earnings (loss) from continuing
operations ................................... $ (0.36) $ (0.81) $ (0.57) $ 0.21 $ 0.41
Cumulative effect of change in accounting
for income taxes ............................. -- -- -- -- $ 0.02
--------- --------- --------- --------- ---------
Diluted earnings (loss) per common share ....... $ (0.36) $ (0.81) $ (0.57) $ 0.21 $ 0.43
========= ========= ========= ========= =========
Shares used in computing diluted earnings
(loss) per common share ....................... 10,765 10,742 10,734 9,652 9,049
</TABLE>
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
OPERATIONS
Net sales were $93,206,000, $105,425,000 and $100,294,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. The 1997 decrease of
$12,219,000 includes decreases of $6,798,000, $2,585,000 and $2,836,000 in the
Company's women's outerwear sales, children's outerwear sales and children's
underwear sales, respectively.
The decrease in 1997 women's outerwear sales is due to 1996 sales
including approximately $3,000,000 more sales of carryover goods, compared to
1997, and due to the negative impact on sales resulting from the unseasonably
warm 1997 fall/winter weather. The decrease in 1997 children's outerwear sales
is due to cancellation of orders resulting from late deliveries and due to the
negative impact on sales from the unseasonably warm 1997 fall/winter weather.
The decrease in 1997 children's underwear sales is due to cancellation of orders
resulting from late deliveries. The lower 1997 sales due to the unseasonably
warm fall/winter weather and cancellations of orders due to late deliveries
resulted in higher levels of inventories and related markdowns in 1997.
The 1996 increase in sales of $5,131,000 includes increases of
$2,791,000 and $4,419,000 in the Company's women's and children's outerwear
sales, respectively, offset by a decrease in sales of $2,079,000 in the
Company's children's underwear sales.
The increase in 1996 women's outerwear sales resulted from higher sales
of carryover goods, investments made in product development and marketing
efforts and strong sell-through at retail. The increase in 1996 children's
outerwear sales came from increased market share and strong sell-through at
retail. The decrease in 1996 children's underwear sales results from consciously
eliminating sales of products with unacceptably low gross margins.
Cost of goods sold was $70,045,000 (75% of net sales), $78,112,000 (74%
of net sales) and $80,121,000 (80% of net sales) for the years ended December
31, 1997, 1996 and 1995, respectively.
Cost of goods sold, as a percentage of sales, increased in 1997 due to
increased production costs and lower efficiencies at the Company's children's
underwear operations, offset by lower production costs in children's outerwear.
Cost of goods sold decreased significantly in 1996 as a result of lower
production costs in children's outerwear and lower markdowns in women's
outerwear, offset by increased raw material and labor costs and production
inefficiencies in children's underwear.
<PAGE> 14
The Company recorded inventory markdowns of $1,758,000 during the 1997
fourth quarter, $638,000, during the 1996 fourth quarter, and $4,374,000 during
the 1995 fourth quarter. The 1997 and 1995 fourth quarters reflect more
significant inventory markdowns as a result of outerwear sales below
expectations and warm weather in the 1996/1997 and 1994/1995 fall/winter period,
which prompted retailers to reduce their Fall 1997 and 1995 outerwear programs.
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.
Selling, general and administrative ("S,G&A") expenses, before
restructuring expense and impairment of long-lived assets, were $22,183,000 (24%
of net sales), $24,394,000 (23% of net sales) and $25,434,000 (25% of net
sales), for the years ended December 31, 1997, 1996 and 1995, respectively. In
1997 and 1996 S,G&A expenses were reduced by $2,211,000 and $1,040,000,
respectively from the previous year, 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.
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.
During 1997, the Company recorded restructuring charges of $465,000
relating to salary and separation costs. During 1996, the Company 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).
<PAGE> 15
During the fourth quarter of 1996, the Consumer Product Safety
Commission ("CPSC") issued 1998 rules for the manufacturing of 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. In the 1997 second quarter,
the CPSC announced that the March 1998 implementation date for the above changes
would be extended to June 1998. However, the specter of such implementation
caused delays in 1997 orders of, and/or reductions of orders for, some of
Varon's cotton thermal and long underwear 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.
OshKosh B'Gosh, Inc. ("OshKosh") notified M&L during the second quarter
of 1997 that it will not renew its outerwear license with M&L after May 31,
1998. As part of a strategy adopted over the last several years, OshKosh will
sell its outerwear directly to retailers. For the years ended December 31, 1997,
1996 and 1995, M&L's sales of OshKosh outerwear were $19,888,000, $17,063,000
and $13,678,000, respectively. M&L's strategy is to replace the OshKosh brand
sales of outerwear with several well-known brand name children's outerwear and
activewear licenses. It is unknown whether M&L's strategy will be successful in
replacing such levels of OshKosh sales and related margins in the future.
In July, 1997, M&L announced the signing of a licensing agreement with
the Starter Corporation to manufacture girls' activewear, swimwear, and
outerwear in sizes 4-6X and 7-16. Initial shipments of Starter girls' activewear
and outerwear are targeted for delivery in Fall 1998.
Additionally, in November, 1997, M&L announced the signing of a
licensing agreement with Healthtex, a division of VF Corporation, to manufacture
a new collection of children's outerwear under the Healthtex brand name in sizes
newborn through 16 for girls and newborn through 7 for boys. Initial shipments
are targeted for delivery in Fall 1998.
In September, 1997, Biscayne Apparel, Inc. announced the signing of a
licensing agreement with Lola, Inc., the parent company of XOXO, to manufacture
a line of junior/women's outerwear. The XOXO outerwear line will focus on the
upscale contemporary
<PAGE> 16
junior customer for distribution through major department and better specialty
stores. Initial shipments are targeted for delivery in Fall 1998.
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. 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 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 were $3,270,000, $3,643,000, and $3,805,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
The 1997 decrease of $373,000 and 1996 decrease of $162,000 are the
result of lower bank borrowings.
Interest and other income was $43,000, $246,000, and $109,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. The higher level of
interest and other income in 1996 relates to the closedown of M&L's Philippine
operations.
On March 27, 1996, the Company sold its 20% interest in Hartwell
Sports, Inc., a manufacturer of casual shirts and jackets, for $1,750,000, which
resulted in a 1996 gain of $123,000. Proceeds were used to reduce notes payable
to banks.
INCOME TAXES
The Company's effective tax rates during 1997 and 1996 were affected by
valuation allowances related to deferred tax debits and Federal and State net
operating loss carryforwards and the non-deductibility of the impairment of
long-lived assets (primarily goodwill) (see Note 11 to the consolidated
financial statements).
<PAGE> 17
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,
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 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 $268,000 and $327,000 at December 31,
1997 and 1996, respectively. At December 31, 1997, the Company's working capital
was $13,944,000, representing a current ratio of 1.77 to 1.00. This compares to
working capital of $19,540,000 and a current ratio of 2.45 to 1.00 at December
31, 1996. The negative change results from losses sustained and increased
inventory levels.
The Consolidated Statement of Cash Flows for the year ended December
31, 1997 reflects net cash used in operations of $3,117,000, compared to cash
provided by operations of $16,210,000 in 1996. The change results primarily from
1997 losses, the 1997 $2,704,000 increase in inventory, compared to 1996
reductions in inventory. The 1997 use of cash was primarily funded through
borrowings under notes payable to banks.
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 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.
<PAGE> 18
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.
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.
On March 25, 1998, the Loan Agreement was amended to reduce the
Revolver Agreement to $39,000,000, adjust the interest rate for the Revolver
Agreement borrowings to prime plus 1.5%, require fees of $350,000 for March 1998
to March 1999 and waive violations of certain covenants during 1997.
Additionally, if certain Revolver borrowing levels are exceeded beginning in the
1998 fourth quarter, the interest rates for the Revolver are increased to prime
plus 3% and the interest rate for the Term Loan is increased to prime plus 3% or
LIBOR plus 5.5%.
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, 1997, increased to
$506,000 from $257,000 in 1996, which remains below the 1997 depreciation
expense of $618,000.
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.
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-26 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.
<PAGE> 20
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.
<PAGE> 21
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.
<PAGE> 22
*10.1 Management Agreement, dated as of January 1, 1998, by
and between the Registrant and Trivest, Inc. (1).
10.2 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.
*10.3 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.
*10.4 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).
*10.5 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).
*10.6 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).
*10.7 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).
*10.8 1997 Stock Option Plan of Registrant, incorporated by
reference to Exhibit A filed with the Registrant's
Schedule 14A on April 28, 1997.
*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,
incorporated by reference to Exhibit 10.10 filed with
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
<PAGE> 23
*10.11 Salary Deferral Agreement between the Registrant and
Peter Vandenberg, Jr., incorporated by reference to
Exhibit 10.11 filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1996.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
<PAGE> 24
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 License Agreement dated as of June 30, 1997 among the
Registrant, Starter Corporation and Soundview
Licensing, Inc., incorporated by reference to Exhibit
10.1 filed with the Registrant's Quarterly Report on
Form 10-Q, for the quarter ended September 30, 1997.
10.24 License Agreement dated as of August 26, 1997 among
the Registrant and Lola Inc., incorporated by
reference to Exhibit 10.2 filed with the Registrant's
Quarterly Report on Form 10-Q, for the quarter ended
September 30, 1997.
10.25 License Agreement dated as of November 1, 1997
between Healthtex Apparel, Corp. and M&L
International, Inc. (1)
*10.26 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.
*10.27 First Amendment to Employment Agreement, dated as of
February 4, 1998, between Kurt C. Gutfreund and M&L
International, Inc. (1)
10.28 Second Amended and Restated Credit Agreement and
Guaranty dated as of March 24, 1997 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, incorporated by reference to Exhibit
<PAGE> 25
10 filed with the Registrant's Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1997.
10.29 First Amendment to Second Amended and Restated Credit
Agreement and Guaranty dated as of May 22, 1997 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, incorporated by reference to Exhibit
10 filed with the Registrant's Quarterly Report on
Form 10-Q, for the quarter ended June 30,1997.
10.30 Second Amendment to Second Amended and Restated
Credit Agreement and Guaranty dated as of February
18, 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. (1)
10.31 Third Amendment to Second Amended and Restated Credit
Agreement and Guaranty dated as of March 6, 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. (1)
10.32 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.
10.33 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.
21 Subsidiaries of the Registrant. (1)
23 Consent of Coopers and Lybrand L.L.P. (1)
27 Financial Data Schedule (for SEC use only).
- ---------------------
(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.
<PAGE> 26
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 26, 1998 By: /s/ Peter Vandenberg, Jr.
--------------------------
Peter Vandenberg, Jr.
President, Chief Operating Officer,
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 26, 1998 By: /s/ Earl W. Powell
---------------------------------
Earl W. Powell
Chairman and Chief
Executive Officer
Date: March 26, 1998 By: /s/ Peter Vandenberg, Jr.
---------------------------------
Peter Vandenberg, Jr.
President, Chief Operating Officer,
Treasurer, and Chief Financial
Officer (Principal Financial and
Accounting Officer)
Date: March 26, 1998 By: /s/ Kurt C. Gutfreund
---------------------------------
Kurt C. Gutfreund
Vice Chairman
Date: March 26, 1998 By: /s/ Harold E. Berritt
---------------------------------
Harold E. Berritt
Director
Date: March 26, 1998 By: /s/ Phillip T. George, M.D.
---------------------------------
Phillip T. George, M.D.
Director
Date: March 26, 1998 By: /s/ Joseph B. Gildenhorn
---------------------------------
Joseph B. Gildenhorn
Director
Date: March 26, 1998 By: /s/ R. Stephen Lefler
---------------------------------
R. Stephen Lefler
Director
Date: March 26, 1998 By: /s/ James J. Pinto
---------------------------------
James J. Pinto
Director
<PAGE> 27
BISCAYNE APPAREL, INC.
INDEX TO FINANCIAL STATEMENTS
(ITEM 14 (a))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BISCAYNE APPAREL, INC.
Report of Independent Accountants F-2
Consolidated balance sheets at December 31, 1997 F-3
and 1996
Consolidated statements of operations for each of the F-4
three years in the period ended December 31, 1997
Consolidated statements of stockholders' equity for F-5
each of the three years in the period ended
December 31, 1997
Consolidated statements of cash flows for each of the F-6
three years in the period ended December 31, 1997
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
</TABLE>
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> 28
REPORT OF INDEPENDENT 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 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years ended December 31, 1997, 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.
Parsippany, New Jersey
March 6, 1998, except for Note 7, for which
the date is March 25, 1998.
F-2
<PAGE> 29
BISCAYNE APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 268 $ 327
Trade accounts receivable, less allowances of $2,278 in 1997 and
$2,018 in 1996 ..................................................... 13,509 14,374
Inventories ......................................................... 17,258 14,554
Prepaid expenses and other .......................................... 962 2,261
Federal income tax receivable ....................................... -- 1,455
-------- --------
Total current assets ............................................. 31,997 32,971
Property, plant and equipment, net .................................... 2,739 2,864
Other assets, net ..................................................... 81 275
-------- --------
$ 34,817 $ 36,110
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 4,320 $ 4,024
Accrued liabilities ................................................. 4,878 6,184
Notes payable to banks .............................................. 6,855 1,473
Current portion of long-term debt ................................... 2,000 1,750
-------- --------
Total current liabilities ........................................ 18,053 13,431
Subordinated notes .................................................... 6,444 6,444
Long-term debt ........................................................ 2,500 4,500
Other liabilities ..................................................... 162 557
Commitments and contingencies ......................................... -- --
Stockholders' Equity:
Preferred stock - par value $0.01, 5,000,000 shares authorized;
no shares issued
Common stock - par value $0.01, 25,000,000 shares authorized;
10,771,308 and 10,741,748 shares outstanding at
December 31, 1997 and 1996, respectively ........................... 108 107
Additional paid-in capital .......................................... 26,610 26,311
Accumulated deficit ................................................. (19,060) (15,240)
-------- --------
Total stockholders' equity ........................................ 7,658 11,178
-------- --------
$ 34,817 $ 36,110
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 30
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ............................................. $ 93,206 $ 105,425 $ 100,294
Operating costs and expenses:
Cost of goods sold ................................... 70,045 78,112 80,121
Selling, general and administrative .................. 22,183 24,394 25,434
Restructuring charges ................................ 465 2,039 --
Impairment of long-lived assets ...................... -- 7,062 --
------------ ------------ ------------
92,693 111,607 105,555
------------ ------------ ------------
Operating income (loss) ............................... 513 (6,182) (5,261)
Other income and (expenses):
Interest and other expenses .......................... (3,270) (3,643) (3,805)
Interest and other income ............................ 43 246 109
Gain on sale and equity in net income of investee .... -- 123 122
------------ ------------ ------------
Loss before provision (benefit)
for income taxes ..................................... (2,714) (9,456) (8,835)
Provision (benefit) for income taxes .................. 1,157 (732) (2,708)
------------ ------------ ------------
Net loss .............................................. $ (3,871) $ (8,724) $ (6,127)
============ ============ ============
Basic and diluted loss per common share ............... $ (0.36) $ (0.81) $ (0.57)
============ ============ ============
Shares used in computing basic and diluted
loss per common share ................................ 10,764,632 10,741,748 10,733,551
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 31
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Paid-in (Accumulated
Stock Capital Deficit) Total
-------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 ....................... $ 102 $ 25,225 $ 554 $ 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 (6,581) 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 (15,240) 11,178
Issuance of 625,000 warrants ....................... -- 265 -- 265
Issuance of 6,131 shares of common stock due to
stock dividend .................................... 1 16 (17) --
Exercise of employee stock options ................. -- 18 -- 18
Amortization of unearned stock award ............... -- -- 68 68
Net loss ........................................... -- -- (3,871) (3,871)
-------- -------- -------- --------
Balance at December 31, 1997 ....................... $ 108 $ 26,610 $(19,060) $ 7,658
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 32
BISCAYNE APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................................. $ (3,871) $ (8,724) $ (6,127)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation expense ............................................... 618 544 584
Amortization expense ............................................... 83 95 (35)
Amortization of unearned stock award compensation .................. 109 -- --
Noncash stock compensation expense ................................. 68 67 68
Loss (gain) on disposition of assets ............................... 3 (11) 91
Gain on sale and equity in net income of investee .................. -- (123) (122)
Provision for losses and sales allowances on receivables ........... 4,615 5,158 4,584
Impairment of long-lived assets .................................... -- 7,062 --
(Increase) decrease in operating assets:
Trade accounts receivable .......................................... (3,750) (951) (1,846)
Inventories ........................................................ (2,704) 11,588 (3,737)
Prepaid expenses and other ......................................... 1,299 (360) (410)
Federal income tax receivable ...................................... 1,455 514 (1,969)
Other assets ....................................................... 277 1,516 (499)
Increase (decrease) in operating liabilities:
Accounts payable ................................................... 296 60 (2,398)
Accrued liabilities ................................................ (1,302) (511) (1,178)
Other liabilities .................................................. (313) 286 (501)
-------- -------- --------
Net cash (used in) provided by operating activities .............. (3,117) 16,210 (13,495)
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures ................................................. (506) (257) (941)
Proceeds from net sale of assets ..................................... -- 11 9
Proceeds on sale of Hartwell Sports, Inc. ............................ -- 1,750 --
-------- -------- --------
Net cash (used in) provided by investing activities ............... (506) 1,504 (932)
-------- -------- --------
FINANCING ACTIVITIES:
Payments under notes payable to banks ................................ (30,599) (87,402) (72,155)
Borrowings under notes payable to banks .............................. 35,981 71,025 81,505
Proceeds from term loan .............................................. -- -- 7,500
Repayment of subordinated notes ...................................... -- -- (6,276)
Principal payments of long-term debt and capital leases .............. (1,836) (1,322) (26)
Proceeds from exercise of employee stock options ..................... 18 -- 13
-------- -------- --------
Net cash provided by (used in) financing activities .............. 3,564 (17,699) 10,561
-------- -------- --------
Net (decrease) increase in cash and cash equivalents .................. (59) 15 (3,866)
Cash and cash equivalents at beginning of year ........................ 327 312 4,178
-------- -------- --------
Cash and cash equivalents at end of year .............................. $ 268 $ 327 $ 312
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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"), 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 (U.K.) Limited and Amy Industries De Honduras, S.A. de
C.V., which was organized in 1995. 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 in the 1996 and 1995 financial statements and related notes have been
reclassified to conform with the 1997 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> 34
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, as
follows:
Buildings and Building Improvements..... 1 to 30 years
Machinery and Equipment................. 3 to 10 years
Maintenance and repair costs are charged to expense as incurred, and
renewals and improvements are capitalized. When capital assets are retired or
disposed of, 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
Negative goodwill, which relates to the acquisition of M&L, is being
amortized on a straight line basis over 40 years. Accumulated amortization of
negative goodwill was $47,000 and $29,000 at December 31, 1997 and 1996,
respectively, and is included in Other assets, net.
Goodwill had 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.
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).
F-8
<PAGE> 35
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, 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.
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers'
financial condition. Generally, the Company does require collateral against its
trade accounts receivable. For the year ended December 31, 1997, two customers
represented 11% each, or 22% of total sales. 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" which establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
The Company is required to adopt this standard in 1998 and is currently
evaluating the impact of this standard.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" which establishes standards for
F-9
<PAGE> 36
the way that public business enterprises report information about operating
segments, geographic areas, products and major customers. The Company is
required to adopt this standard in 1998 and is currently evaluating the impact
of this standard.
DISPOSITIONS
On March 27, 1996, the Company sold its 20% interest in Hartwell
Sports, Inc. for $1,750,000. Proceeds from the sale were used to reduce notes
payable to banks.
2. EARNINGS PER COMMON SHARE
The Company has 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):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Numerator: Net Loss $(3,871) $(8,724) $(6,127)
Denominator: Shares
Outstanding 10,764,632 10,741,748 10,733,551
Basic and Dilutive
Net Loss Per Share $(0.36) $(0.81) $(0.57)
</TABLE>
The Company has not included potential common shares in the Diluted EPS
computation as the result is antidilutive.
Options and warrants to purchase 1,064,537, 1,231,216 and 1,238,630
shares of common stock at prices ranging from $0.75 to $2.44 per share were
outstanding during 1997, 1996 and 1995, 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,
which expire on various dates from June, 1997 to November, 2007, were still
outstanding at the end of each respective fiscal year (see Note 10).
F-10
<PAGE> 37
3. INVENTORIES
Inventories at December 31, 1997 and 1996 are comprised of the
following:
(In thousands) 1997 1996
------- -------
Raw materials $ 4,067 $ 3,684
Work-in-process 1,944 785
Finished goods 11,247 10,085
------- -------
$17,258 $14,554
======= =======
Included in inventory at December 31, 1997 and 1996 respectively, is
$7,120,000 and $5,739,000 relating to M&L's inventory, which is valued under the
LIFO method. M&L's inventory at December 31, 1997 and 1996 would have been
$76,000 and $220,000 higher, respectively, had the inventory been valued under
FIFO.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1996 is as
follows:
(In thousands) 1997 1996
------- -------
Land $ 17 $ 17
Buildings and building
improvements 1,066 972
Machinery and equipment 4,173 3,787
------- -------
5,256 4,776
Less accumulated depreciation
and amortization (2,517) (1,912)
------- -------
$ 2,739 $ 2,864
======= =======
5. WRITEDOWN OF GOODWILL, IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING
CHARGES
During 1997 and 1996, the Company recorded restructuring charges of
$465,000 and $2,039,000, respectively. Approximately $465,000 in 1997 and
$1,159,000 in 1996 relate to salary and separation costs, primarily relating to
senior and middle managers, and approximately $880,000 in 1996 related to
termination of long-term contracts and leases and facility closing costs. As of
December 31, 1997, $124,000 of the Company's restructuring charges have not yet
been paid.
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
F-11
<PAGE> 38
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.
Also 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.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1997 and
1996:
(In thousands) 1997 1996
------ ------
Wages, commissions and bonus $2,882 $3,071
Other 1,996 3,113
------ ------
$4,878 $6,184
====== ======
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, 1997 and 1996 of $6,855,000 and $1,473,000, respectively.
Additionally, at December 31, 1997 and 1996, the Company had letters of credit
outstanding of $9,455,000 and $10,650,000 respectively.
At December 31, 1997, the Company was at its available credit limits.
At December 31, 1996, the Company had $9,398,000 of available credit under the
Revolver Agreement. The interest rate was prime plus 1.0% at December 31, 1997
and 1996 on the Revolver Agreement. The prime rate was 8.5% and 8.25% at
December 31, 1997 and 1996, respectively.
The weighted average interest rate on outstanding short-term borrowings
and the term loan at December 31, 1997 and 1996 was 9.86% and 9.91%,
respectively.
F-12
<PAGE> 39
Principal payments of the Term Loan are payable on March 31 in each of
the following years:
1998 $2,000,000
1999 2,500,000
----------
Total $4,500,000
==========
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. The Company is amortizing the capitalized valuation of
these warrants (approximately $156,000) through the period ending March 31, 1999
and accordingly recognized expense, associated with the warrants, of
approximately $70,000 in 1997.
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.
On March 25, 1998, the Loan Agreement was amended to reduce the
Revolver Agreement to $39,000,000, adjust the interest rate for the Revolver
Agreement borrowings to prime plus 1.5%, require fees of $350,000 for March 1998
to March 1999 and waive violations of certain covenants during 1997.
Additionally, if certain Revolver borrowing levels are exceeded beginning in the
1998 fourth quarter, the interest rates for the Revolver are increased to prime
plus 3% and the interest rate for the Term Loan is increased to prime plus 3% or
LIBOR plus 5.5%.
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 $3,199,000, $3,688,000, and $3,715,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
F-13
<PAGE> 40
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 $2,203,000 in 1997, $2,279,000 in 1996, and $2,385,000 in
1995.
Future minimum operating lease payments at December 31, 1997 are as
follows (in thousands):
1998 $1,960
1999 1,828
2000 1,522
2001 1,412
2002 672
Thereafter 611
------
$8,005
======
At December 31, 1997, the present value of future minimum capital lease
payments was $223,000, which is included in other liabilities on the balance
sheet. 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 2001 in the amount of approximately $2,988,000.
9. SUBORDINATED DEBT
At December 31, 1997, 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 65% ($3,544,000 to $4,188,000) of face amount at December 31, 1997, based
on nominal trading activity during the year.
F-14
<PAGE> 41
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, 1997 and 1996, the Company had 10,771,308 and
10,741,748 shares of common stock, issued and outstanding, respectively. No
shares of preferred stock have been issued.
In March 1995, 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 received one share of common stock for every 20
shares held, with cash being paid in lieu of issuing fractional shares. The
distribution date was May 31, 1995. 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 dividend.
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 200,000 shares, at an exercise price of $0.75 per share, to Trivest as
part of the amendment to the Company's management agreement (see Note 13). These
warrants are fully exercisable effective January 1, 1997 and expire December 31,
2001.
In October, 1997, the Company issued a warrant to purchase 36,383
shares of the Company's common stock at an exercise price of $1.62 per share,
which is exercisable from October 1997 through December 2000.
The Company has four nonqualified stock option plans; the 1987 Stock
Option Plan ("1987 SOP"), the 1990 Stock Option Plan ("1990 SOP"), the 1994
Stock Option Plan ("1994 SOP") and the 1997 Stock Option Plan ("1997 SOP").
Under the terms of the 1987 SOP, 1990 SOP, 1994 SOP and 1997 SOP, 550,000
shares, 650,000 shares, 150,000 shares, and 306,695 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> 42
The following table summarizes the activity of the Company's stock
option plans:
1997 1996 1995
----------- ----------- -----------
Balance outstanding at
beginning of year 1,202,610 1,225,637 1,248,403
Granted 140,000 45,000 5,250
Canceled (491,027) (68,027) (16,991)
Exercised (23,429) -- (11,025)
----------- ----------- -----------
Balance outstanding at
December 31 828,154 1,202,610 1,225,637
=========== =========== ===========
Price range per share $0.75-$2.44 $0.75-$2.44 $0.79-$2.44
=========== =========== ===========
Exercisable at December 31 699,669 928,367 751,465
=========== =========== ===========
Available for grant at
December 31 709,119 110,417 87,401
=========== =========== ===========
Weighted-average fair value
of options granted during
the year $ 0.8572
===========
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- AT DECEMBER 31, 1997
REMAINING AVERAGE -------------------------------------
EXERCISE CONTRACTUAL EXERCISE OPTIONS OPTIONS
PRICE LIFE PRICE OUTSTANDING EXERCISABLE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$0.7500 8 yrs $0.7500 33,750 33,750
$0.7936 4 yrs $0.7936 55,678 55,678
$0.8125 5 yrs $0.8125 100,000 100,000
$0.8750 5 yrs $0.8750 25,000 25,000
$1.1250 5 yrs $1.1250 15,000 --
$1.2471 1-3 yrs $1.2471 206,997 206,997
$1.9274 6 yrs $1.9274 235,386 188,309
$2.2619 7 yrs $2.2619 5,250 3,150
$2.2675 6 yrs $2.2675 2,756 2,205
$2.3810 7 yrs $2.3810 96,075 57,645
$2.4376 7 yrs $2.4376 52,262 36,385
------- -------
828,154 709,119
======= =======
</TABLE>
F-16
<PAGE> 43
The Company applies the provisions of Opinion 25 ("APB 25") and related
interpretations in accounting for its stock based compensation plans.
Accordingly, compensation expense has been recognized in the financial
statements with respect to the above plans to the extent required by APB 25. Had
compensation costs for the above plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation", the Company's net loss and net loss per share would have been
increased to the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
(In thousands of dollars,
except per share data)
Pro forma net loss $ (3,944) $ (8,749) $ (6,128)
======== ======== =========
Pro forma net loss
per share $ (0.37) $ (0.81) $ (0.57)
======== ======== =========
</TABLE>
As options vest over a varying number of years, and awards are generally
made each year, the pro forma impacts shown here may not be representative of
future pro forma expense amounts due to the annual grant of options by the
Company. The pro forma additional compensation expense of $73,000, $25,000 and
$1,000 for 1997, 1996 and 1995, respectively, was calculated based on the fair
value of each option grant using the Black-Scholes model with the following
weighted-average assumptions used for grants:
1997 1996 1995
---- ---- ----
Dividend yield 0% 0% 0%
Expected volatility 50% - 52% 56% 61%
Risk free interest
rate 5.81% - 6.42% 6.34% 7.09%
Expected option lives 3.25 - 5 9 9.33
(in years)
11. INCOME TAXES
The components of the provision (benefit) for income taxes for each of the
three years in the period ended December 31, 1997 are as follows:
1997 1996 1995
(In thousands) ------- ------- -------
Current $ (61) $(1,577) $(2,039)
Deferred 1,218 845 (669)
------- ------- -------
$ 1,157 $ (732) $(2,708)
======= ======= =======
The total Federal and state provision (benefit) for income taxes is as
follows:
1997 1996 1995
(In thousands) ------- ------- -------
Federal $ 844 $ (498) $(2,712)
State 313 (234) 4
------- ------- -------
$ 1,157 $ (732) $(2,708)
======= ======= =======
F-17
<PAGE> 44
A reconciliation of the statutory provision and the effective provision
for income taxes is as follows:
(In thousands) 1997 1996 1995
------- ------- -------
Income tax at statutory rate $ (923) $(3,215) $(3,004)
State income taxes, net of
federal benefit 195 7 200
Impairment of goodwill -- 2,173 --
Amortization expense 54 45 70
Refund of prior year's income
taxes and related adjustments -- (473) (37)
Other, net (17) (157) 63
------- ------- -------
(691) (1,620) (2,708)
Valuation allowance 1,848 888 --
------- ------- -------
$ 1,157 $ (732) $(2,708)
======= ======= =======
The components of the net deferred tax (assets) and liabilities recorded on
the balance sheets at December 31, 1997 and 1996 are as follows:
(In thousands) 1997 1996
------- -------
Deferred Tax Liabilities:
LIFO inventory adjustments $ 1,157 $ 1,167
Depreciation 49 --
------- -------
Total deferred tax liabilities 1,206 1,167
Deferred Tax (Assets):
Federal net operating loss
carryovers (3,159) (1,855)
State net operating loss
carryover (1,188) (900)
State jobs credit carryover (237) (237)
Alternative minimum tax credit carryover (199) --
Accounts receivable and sales
allowances (1,022) (870)
Capitalized trademarks (599) (590)
Capitalized inventory (236) (310)
Deferred compensation (73) (260)
Employee benefit reserves (140) (121)
Operating leases (90) (100)
Depreciation -- (16)
Other (63) (71)
------- -------
(7,006) (5,330)
Valuation allowance on deferred
tax (assets) 5,800 2,922
------- -------
Total deferred tax (assets) (1,206) (2,408)
------- -------
Net Deferred Taxes $ -- $(1,241)
======= =======
As of December 31, 1997, the Company had approximately $8,948,000 of
net operating loss carryforwards for U.S. Federal income tax purposes. These
carryforwards expire through the year 2012. The timing and manner in which
$2,147,000 of these loss carryforwards may be utilized in any year by the
Company will be limited in accordance with Internal Revenue Code Section 382 and
other provisions of the Internal Revenue Code and its applicable regulations.
F-18
<PAGE> 45
The Company has valuation allowances of $5,800,000 and $2,922,000 in
1997 and 1996, respectively, to reflect management's estimate of the total
amount of deferred tax assets and net operating loss carryforwards, which may
not be realized depending on future operating results of the Company. The
increase in the valuation allowance in 1997 is due to continuing operating
losses.
Income taxes paid during 1997, 1996 and 1995 were $2,000, $82,000, and
$215,000, 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,
1997, 1996 and 1995.
13. RELATED PARTY TRANSACTIONS
As of January 1, 1987, the Company entered into a management agreement
with Trivest, Inc. ("Trivest"). Trivest and the Company have certain common
shareholders, officers and directors. Pursuant to the management agreement,
Trivest provides corporate finance, financial relations, strategic and capital
planning and other management advice to the Company. The term of the management
agreement was 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 management 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 $68,000, $67,000, and $68,000 of management fee expense
for the years ended December 31, 1997, 1996, and 1995, respectively.
Effective December 1, 1994, the management agreement was amended and
restated due to the acquisition of M&L. 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
F-19
<PAGE> 46
for the issuance of a warrant to purchase 200,000 shares of the Company's stock.
The Company recognized expense of approximately $109,000 in 1997 relating to the
valuation of this warrant.
Effective January 1, 1998, the Company entered into a new management
agreement with Trivest (the "New Agreement"). The New Agreement requires an
annual cash management fee of $200,000, payable in advance in equal quarterly
installments and expires December 31, 1998.
The Company expensed approximately $186,000, $180,000, and $366,000 for
services rendered under the management agreement during the years ended December
31, 1997, 1996, and 1995 respectively.
Certain former 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 (of which $125,000 was paid out in 1997), and has
been included as part of restructuring expenses in 1996 (see Note 5.) During the
years ended December 31, 1996 and 1995, actual warehousing and shipping expenses
to this vendor totaled approximately $884,000 and $633,000, respectively.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited consolidated quarterly financial data for fiscal years 1997
and 1996 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1997 1997 1997 1997
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Net sales $ 14,849 $ 12,845 $ 41,798 $ 23,714
========== ========== ========= ========
Gross profit $ 3,812 $ 3,021 $ 11,682 $ 4,646
========== ========== ========= ========
Net earnings (loss) $ (1,110) $ (1,458) $ 2,504 $ (3,807)
========== ========== ========= ========
Basic and diluted
earnings (loss)
per common share $ (0.10) $ (0.14) $ 0.23 $ (0.35)
========== ========== ========= ========
<CAPTION>
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)
========== ========== ========= ========
Basic and diluted
earnings (loss)
per common share $ (0.13) $ (0.20) $ 0.26 $ (0.74)
========== ========== ========= ========
</TABLE>
F-20
<PAGE> 47
The 1997 fourth quarter includes restructuring charges of $465,000
relating to salary and separation costs and $1,069,000 of tax expense relating
to the valuation of deferred tax assets for a total effect of $0.14 per common
share, net of taxes. The 1997 fourth quarter also includes the adverse effects
on the outerwear industry of higher levels of carryover inventory, at both the
retail and manufacturer/importer level, from 1996 to 1997, due to the effects of
the 1996/1997 warm Fall/Winter season. This caused retailers to delay and reduce
ordering Fall 1997 merchandise. These factors caused the Company to sustain
losses in the fourth quarter due to the sale of inventory during the 1997 fourth
quarter at low margins and markdown of remaining Fall 1997 inventory. During the
1997 fourth quarter, the Company expensed inventory markdowns of $1,758,000,
compared to $638,000 during the 1996 fourth quarter.
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 $9,101,000, 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 principally 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.
F-21
<PAGE> 48
Schedule I
BISCAYNE APPAREL, INC.
(PARENT COMPANY ONLY)
BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ -- $ 29
Accounts receivable..................................... 7 25
Intercompany accounts receivable........................ 1,095 4,191
Federal income tax receivable........................... -- 1,455
Prepaid expenses and other.............................. 5 31
-------- --------
Total current assets...................... 1,107 5,731
Investments in subsidiaries.............................. 13,220 12,346
Property, plant and equipment, net....................... 32 18
Other assets, net........................................ 88 69
-------- --------
$ 14,447 $ 18,164
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 110 $ 49
Accrued liabilities.................................... 214 455
-------- --------
Total current liabilities................ 324 504
Subordinated notes...................................... 6,444 6,444
Other liabilities....................................... 21 38
Stockholders' Equity:
Common stock........................................... 108 107
Additional paid-in capital............................. 26,610 26,311
Accumulated deficit.................................... (19,060) (15,240)
-------- --------
Total stockholders' equity............... 7,658 11,178
-------- --------
$ 14,447 $ 18,164
======== ========
</TABLE>
F-22
<PAGE> 49
Schedule I
Cont'd
BISCAYNE APPAREL, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Expenses:
General and administrative expenses.............. $ 200 $ 67 $ 35
Management fee to Trivest, Inc................... 186 180 366
------- ------- -------
Operating expenses................................. (386) (247) (401)
Other income and (expenses):
Interest and other expenses...................... (883) (838) (954)
Intercompany interest income..................... 495 519 551
Interest and other income........................ 11 37 40
Equity in and gain on sale of investee........... -- 123 122
Equity in loss of subsidiaries, net of
applicable income taxes......................... (2,089) (8,673) (5,826)
Management fee from subsidiaries................. 186 180 366
------- ------- -------
Loss before provision (benefit) for income taxes... (2,666) (8,899) (6,102)
Provision (benefit) for income taxes............... 1,205 (175) 25
------- ------- -------
Net loss........................................... $(3,871) $(8,724) $(6,127)
======= ======= =======
</TABLE>
F-23
<PAGE> 50
Schedule I
BISCAYNE APPAREL, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(3,871) $(8,724) $(6,127)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Noncash stock compensation expense 68 67 68
Equity in loss of subsidiaries 2,089 8,673 5,826
Gain on sale and equity in net income of investee -- (123) (122)
Depreciation expense 5 6 5
Amortization expense 69 -- --
Amortization of debt issuance costs 109
(Increase) decrease in operating assets:
Trade accounts receivable 17 3 36
Prepaid expenses and other 26 -- 54
Federal income tax receivable 1,455 514 (1,969)
Other assets 68 (42) 49
Increase (decrease) in operating liabilities:
Accounts payable 62 49 (45)
Accrued liabilities (242) 74 (536)
Other liabilities (17) (10) (6)
------- ------- -------
Net cash (used in) provided by operating activities (162) 487 (2,767)
INVESTING ACTIVITIES:
Capital expenditures (19) (1) (6)
Proceeds on sale of Hartwell Sports, Inc. -- 1,750 --
------- ------- -------
Net cash (used in) provided by investing activities (19) 1,749 (6)
FINANCING ACTIVITIES:
Repayments (advances) of intercompany loans 134 (2,236) 6,761
Payment on subordinated notes -- -- (4,776)
Proceeds from exercise of employee stock options 18 -- 13
------- ------- -------
Net cash provided (used in) by financing activities 152 (2,236) 1,998
------- ------- -------
Net (decrease) increase in cash and cash equivalents (29) 0 (775)
Cash and cash equivalents at beginning of year 29 29 804
------- ------- -------
Cash and cash equivalents at end of year $ 0 $ 29 $ 29
======= ======= =======
</TABLE>
(Continued on following page)
F-24
<PAGE> 51
Schedule I
Cont'd
BISCAYNE APPAREL, INC.
PARENT COMPANY ONLY
STATEMENTS OF CASH FLOWS (Cont'd)
Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Supplemental disclosure:
Interest paid $ 838 $ 838 $ 957
Income taxes paid $ 2 $ 1 $ 10
Supplemental schedule of noncash financing
activities:
Net changes in investments in subsidiaries $2,963 $ 500 $ --
</TABLE>
F-25
<PAGE> 52
Schedule II
BISCAYNE APPAREL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COLUMN A | COLUMN B | COLUMN C | COLUMN D | COLUMN E |
- ----------------------------------------------------------------------------------------------------------------------------------
Description | Balance at | Additions | Deductions | Balance |
| beginning | Charged to Charged to | at end |
| of year | costs and other | | of year |
| | expenses accounts | | |
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts $ 169 $ 204 $ 205 $ 168
Allowance for sales discounts 96 456 452 100
Reserve for sales allowance 300 566 339 527
Reserve for advertising allowance 123 248 203 168
Reserve for freight and warehouse discounts 105 272 254 123
Reserve for returns 1,225 3,075 3,108 1,192
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
</TABLE>
F-26
<PAGE> 1
Exhibit 10.1
MANAGEMENT AGREEMENT
This Agreement is made and entered into as of January 1, 1998, by and
between BISCAYNE APPAREL, INC., a Florida corporation (the "COMPANY"), and
TRIVEST, INC., a Delaware corporation or its successors (the "MANAGER").
PRELIMINARY STATEMENTS:
A. The Manager and the Company are parties to that certain Amended and
Restated Management Agreement, dated as of November 30, 1994, as amended (the
"PRIOR AGREEMENT").
B. The Prior Agreement terminated on January 1, 1998 and the Company
desires to continue to engage the services of the Manager on the terms and
subject to the conditions contained in this Agreement.
In consideration of the premises and the respective mutual agreements,
covenants, representations and warranties contained in this Agreement, the
parties agree as follows:
AGREEMENT:
1. CONTINUATION OF MANAGER. The Company continues the engagement of the
Manager and the Manager accepts such continuation on the terms and conditions
provided in this Agreement as the sole and exclusive manager and consultant of
the Company's business, including without limitation, the business of the
Company's subsidiaries, as well as any other corporations or entities now
existing or hereafter formed or acquired by the Company or any of its
subsidiaries to engage in any business. The Manager's duties hereunder shall
include, but shall not be limited to, identifying executive personnel for the
Company (including a President, a Chief Financial Officer and/or Controller and
such additional officers approved by the Board of Directors of the Company (the
"BOARD")), whose compensation shall be the responsibility of the Company.
2. BOARD OF DIRECTORS SUPERVISION. The activities of the Manager to be
performed under this Agreement shall be subject to the supervision of the Board
to the extent required by applicable law or regulation and subject to reasonable
policies not inconsistent with the terms of this Agreement adopted by the Board
and in effect from time to time. Where not required by applicable law or
regulation, the Manager shall not require the prior approval of the Board to
perform its duties under this Agreement.
3. AUTHORITY OF MANAGER. Subject to any limitations imposed by
applicable law or regulation, the Manager shall render management, consulting
and financial services to the Company and its subsidiaries which services shall
include advice and assistance concerning any and all aspects of the operations,
planning and financing of the Company and its subsidiaries as needed from time
to time. In addition, the Manager shall render advice and expertise in
connection with an acquisition
<PAGE> 2
program for the Company and shall from time to time bring to the attention of
the Company and its subsidiaries, such investment and business opportunities as
the Manager, in its sole discretion, deems appropriate.
4. REIMBURSEMENT OF EXPENSES; INDEPENDENT CONTRACTOR. All obligations
or expenses incurred by the Manager in the performance of its duties under this
Agreement shall be for the account of, on behalf of, and at the expense of the
Company and/or its subsidiaries, as the case may be. The Manager shall not be
obligated to make any advance to or for the account of the Company (or any
subsidiary) or to pay any sums, except out of funds held in accounts maintained
by the Company (or a subsidiary) nor shall the Manager be obligated to incur any
liability or obligation for the account of the Company or any subsidiary without
assurance that the necessary funds for the discharge of such liability or
obligation will be provided. The Manager shall be an independent contractor, and
nothing contained in this Agreement shall be deemed or construed (i) to create a
partnership or joint venture between the Company and/or any subsidiary of the
Company and the Manager, or (ii) to cause the Manager to be responsible in any
way for the debts, liabilities or obligations of the Company or any of its
subsidiaries, or any other party, or (iii) to constitute the Manager or any of
its employees as employees, officers, or agents of the Company or any of its
subsidiaries.
5. OTHER ACTIVITIES OF MANAGER; INVESTMENT OPPORTUNITIES. The Company
and its subsidiaries acknowledge and agree that the Manager shall not devote the
Manager's (or any employee, officer, director, affiliate or associate of the
Manager) full time and business efforts to the duties of the Manager specified
in this Agreement, but only so much of such time and efforts as the Manager
reasonably deems necessary. The Company and its subsidiaries further acknowledge
and agree that the Manager and its affiliates are engaged in the business of
investing in, acquiring and/or managing businesses for the Manager's own
account, for the account of the Manager's affiliates and associates and for the
account of other unaffiliated parties, and plans to continue to be engaged in
such business (and any other business or investment activities) during the term
of this Agreement. No aspect or element of such activities shall be deemed to be
engaged in for the benefit of the Company or any of its subsidiaries nor to
constitute a conflict of interest. The Manager shall be required to bring only
such investments and/or business opportunities to the attention of the Company
and its subsidiaries as the Manager, in its sole discretion, deems appropriate.
6. COMPENSATION OF MANAGER.
6.1 MANAGEMENT FEE. During the term of this Agreement, the
Manager will receive annually with respect to the management of the business
operations of the Company, a cash consulting and management fee in the amount of
$200,000 ("BASE COMPENSATION"). The Base Compensation will be paid to the
Manager by the Company in advance in equal quarterly installments.
6.2 ADDITIONAL BUSINESS OPERATIONS. If the Company or its
subsidiaries acquire or enter into any additional business operations after the
date of this Agreement (each an "ADDITIONAL
2
<PAGE> 3
BUSINESS"), the Board and the Manager will, prior to the acquisition or prior to
entering into the business operations, in good faith, determine whether and to
what extent the Base Compensation should be increased as a result thereof. Any
increase will be evidenced by a written supplement to this Agreement signed by
the Company and the Manager.
6.3 ADDITIONAL COMPENSATION. As additional compensation, the
Manager will be entitled to a one-time fee with respect to the acquisition or
disposition of any business operation by the Company or its subsidiaries
introduced or negotiated by the Manager or its affiliates or with respect to any
other transaction not in the ordinary course of business, including any public
or private debt or equity financing or unusual efforts extended or results
obtained by the Manager on behalf or for the benefit of the Company or its
subsidiaries ("ADDITIONAL INCENTIVE COMPENSATION"). The Additional Incentive
Compensation will be paid at the closing of any such transaction. The amount of
any Additional Incentive Compensation will be determined through good faith
negotiations between the Board and the Manager. If the Board and the Manager are
unable to agree upon the amount of Additional Incentive Compensation, the
Additional Incentive Compensation amount will be determined by arbitration in
Miami, Florida in accordance with the rules of the American Arbitration
Association, which determination will be final. The parties will share equally
the cost of arbitration.
7. TERM. This Agreement shall commence as of the date hereof and shall
remain in effect until December 31, 1998, unless terminated earlier in
accordance with the provisions of this Agreement.
8. TERMINATION.
8.1 BY SHAREHOLDER ACTION. The Board may terminate the
Manager's engagement under this Agreement at any time upon a majority vote of
all of the then outstanding voting shares of capital stock of the Company at the
time of such vote (including capital stock held by the Manager, its officers,
directors and affiliates, each of whom shall be entitled to vote).
8.2 UPON BREACH. Either the Company or the Manager may
terminate the Manager's engagement under this Agreement in the event of the
breach of any of the material terms or provisions of this Agreement by the other
party, which breach is not cured within 10 business days after notice of the
same is given to the party alleged to be in breach by the other party. In the
event this Agreement is terminated by the Manager because of the breach of any
of the material terms or provisions hereof by the Company, the Manager shall be
entitled to recover damages from the Company and shall not be required to
mitigate or reduce damages by seeking or undertaking other management
arrangements or business opportunities.
9. STANDARD OF CARE. The Manager (including any person or entity acting
for or on behalf of the Manager) shall not be liable for any mistakes of fact,
errors of judgment, for losses sustained by the Company or any subsidiary or for
any acts or omissions of any kind, unless caused by intentional misconduct of
the Manager engaged by the Manager in bad faith.
3
<PAGE> 4
10. INDEMNIFICATION OF MANAGER. The Company and its present and future
subsidiaries agree to indemnify and hold harmless the Manager and its present
and future officers, directors, affiliates, employees and agents ("INDEMNIFIED
PARTIES") to the fullest extent permitted by corporate law as if any of the
Indemnified Parties were an officer or director to the Company and/or its
subsidiaries. The Company and its subsidiaries agree to reimburse the
Indemnified Parties on a monthly basis for any cost of defending any action or
investigation (including attorney's fees and expenses) subject to an undertaking
from such Indemnified Party to repay the Company or its subsidiaries if such
party is determined not to be entitled to such indemnity.
11. NO ASSIGNMENT. Without the consent of the Manager, the Company
shall not assign, transfer or convey any of its rights, duties or interest under
this Agreement, nor shall it delegate any of the obligations or duties required
to be kept or performed by it hereunder. Without the prior written consent of
the Company, the Manager shall not assign, transfer or convey any of its rights,
duties or interests under this Agreement, nor shall it delegate any of the
obligations or duties required to be kept or performed by the Manager under this
Agreement; provided, however, that the Manager may assign its rights, duties,
obligations hereunder to any affiliate of the Manager so long as George or
Powell are affiliates or executive officers of the assignee.
12. NOTICES. All notices, demands, consents, approvals and requests
given by either party to the other hereunder shall be in writing and shall be
personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses:
If to the Company: Biscayne Apparel, Inc.
1373 Broad Street
3rd Floor
Clifton, New Jersey 07013
Attention: President
If to the Manager: Trivest, Inc.
2665 South Bayshore Drive
Suite 800
Miami, Florida 33133
Attention: Chief Executive Officer
Any party may at any time change its respective address by sending written
notice to the other party of the change in the manner hereinabove prescribed.
13. SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or enforceable, shall not be affected thereby, and each term
and provision of this Agreement shall be valid and be enforced to the fullest
extent permitted by law.
4
<PAGE> 5
14. NO WAIVER. The failure of the Company or the Manager to seek
redress for any violation of, or to insist upon the strict performance of, any
term or condition of this Agreement shall not prevent a subsequent act by the
Company or the Manager, which would have originally constituted a violation of
this Agreement by the Company or the Manager, from having all the force and
effect of any original violation. The failure by the Company or the Manager to
insist upon the strict performance of any one of the terms or conditions of the
Agreement or to exercise any right, remedy or elections herein contained or
permitted by law shall not constitute or be construed as a waiver or
relinquishment for the future of such term, condition, right, remedy or
election, but the same shall continue and remain in full force and effect.
Except as the Company's rights of termination are limited herein, all rights and
remedies that the Company or the Manager may have at law, in equity or otherwise
upon breach of any term or condition of this Agreement, shall be distinct,
separate and cumulative rights and remedies and no one of them, whether
exercised by the Company or the Manager or not, shall be deemed to be in
exclusion of any other right or remedy of the Company or the Manager.
15. ENTIRE AGREEMENT; CERTAIN TERMS. This Agreement contains the entire
agreement between the parties hereto with respect to the matters herein
contained and supersedes all prior agreements between the parties hereto with
respect to such matters. Any agreement hereafter made shall be ineffective to
effect any change or modification to this Agreement, in whole or in part, unless
such agreement is in writing and signed by the party against whom enforcement of
the change or modification is sought.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without reference to the laws
of any other state.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly exercised by their authorized representatives as of the date first above
written.
BISCAYNE APPAREL, INC.
By: /s/ Peter Vandenberg, Jr.
----------------------------------
Peter Vandenberg, Jr.
President
TRIVEST, INC.
By: /s/ Earl W. Powell
----------------------------------
Earl W. Powell
President and Chief Executive Officer
5
<PAGE> 1
Exhibit 10.25
LICENSE AGREEMENT
HEALTHTEX APPAREL CORP.
LICENSOR
AND
M & L INTERNATIONAL, INC.
LICENSEE
Distribution and Sale in: United States of America, its territories and
possessions and military exchanges
Manufacture in: Bangladesh, China, Egypt, Hong Kong,
India, Indonesia, Pakistan, Philippines, South Korea,
Sri Lanka and Thailand
<PAGE> 2
INDEX
ARTICLE 1 - Definitions
ARTICLE 2 - Trademark License
ARTICLE 3 - Trademark Ownership and License Recordation
ARTICLE 4 - Infringement by Third Parties
ARTICLE 5 - Royalty Fee, Minimum Net Sales and Advertising Expenditure
ARTICLE 6 - Accounting and Reporting
ARTICLE 7 - Quality Control
ARTICLE 8 - Product Approvals and Related Issues
ARTICLE 9 - Aid and Assistance; Non-Competition by Licensor
ARTICLE 10 - Termination
ARTICLE 11 - Products on Hand at Termination and Payments
ARTICLE 12 - Records after Termination
ARTICLE 13 - Relinquishment of Licensed Matter
ARTICLE 14 - Fair Practices
ARTICLE 15 - No Joint Venture; Indemnification; Maintenance of Insurance
ARTICLE 16 - Binding Nature; Assignment
ARTICLE 17 - Notices
ARTICLE 18 - Compliance and Operation of Law
ARTICLE 19 - Consent to Jurisdiction; Waiver of Jury Trial
ARTICLE 20 - Arbitration
ARTICLE 21 - Licensor's Representative
ARTICLE 22 - Entire Agreement
ARTICLE 23 - Term
ARTICLE 24 - Governing Law
ARTICLE 25 - Confidentiality
ARTICLE 26 - Equitable Relief
ARTICLE 27 - Prohibition Against Use of Illegal Child Labor and Against Prison
or Forced Labor
Schedule I - Description of Licensed Products
Schedule II - Registered Trademarks
Schedule III - Letter to Subcontractor
Schedule IV - List of Manufacturers
Schedule V - Quality Standards
Schedule VI - Approved Distribution
Schedule VII - Financial Reporting Forms
<PAGE> 3
LICENSE AGREEMENT
THIS LICENSE AGREEMENT dated and effective as of November 1, 1997, is
made in the State of Delaware by and between:
HEALTHTEX APPAREL CORP., a corporation organized under the laws of the
State of Delaware, United States of America, with principal offices at 200
Weldin Building, Concord Plaza, 3411 Silverside Road, Wilmington, Delaware
19810, United States of America (hereinafter referred to as "Licensor");
and
M & L INTERNATIONAL, INC. a corporation, organized under the laws of
the State of Illinois, with principal offices at 1333 North Kingsbury Street,
Chicago, Illinois 60622, United States of America (hereinafter referred to as
"Licensee");
W I T N E S S E T H :
WHEREAS, Licensor, through one or more related companies, is engaged in
the business of making, selling and distributing children's apparel, and
in connection therewith uses or licenses for use in commerce the trademark
HEALTHTEX and other trademarks, all of which are used in the sale of such
articles in the United States of America and elsewhere throughout the world; and
WHEREAS, Licensee is engaged in the business of making, having made,
selling and distributing children's outerwear; and
WHEREAS, Licensee desires to acquire from Licensor, and Licensor is
willing to grant to Licensee, a license to use the trademark HEALTHTEX in the
manufacture, distribution, sale and promotion of children's outerwear,
subject to the terms and conditions of this Agreement;
<PAGE> 4
NOW, THEREFORE, in consideration of the mutual terms, agreements and
conditions herein contained, and for other good and valuable consideration, it
is agreed as follows:
ARTICLE 1 - DEFINITIONS
In this Agreement, the following terms are defined as:
1.1 "Advertising": any and all brochures, catalogs, point-of-sale
materials, consumer and trade media, sales promotion and support
materials and marketing support funds .
1.2 "Affiliate": any person or entity directly or indirectly controlling,
controlled by or under common control with another person or entity.
1.3 "Licensed Products": children's outerwear, more particularly described
on Schedule I hereto, bearing the Licensed Trademarks. Such items shall
be expressly designed for or selected by Licensee, and approved in
writing by Licensor for manufacture by Licensee under this Agreement,
such approval to have been received by Licensee before commencement of
such manufacture, as specified in the provisions of Article 8 (herein
incorporated by reference).
1.4 "Licensed Territory": (a) for the purpose of manufacture, the locations
specified in Schedule IV hereto (incorporated herein by reference);
(b) for the purpose of distribution and sale, the territory consisting
of the United States of America, its territories and possessions and
military exchanges. Licensee may expand the territory solely for the
purpose of manufacturing Licensed Products only upon Licensor's prior
written consent, which shall not be unreasonably withheld or delayed.
1.5 "Licensed Trademarks": Licensor's trademarks enumerated on Schedule II
attached hereto and all derivatives based thereon that are created by
Licensee.
1.6 "Licensor's Representative": Licensor's Affiliate, Healthtex, Inc.
2
<PAGE> 5
1.7 "Termination" of License: extinguishing of this Agreement at any time
before its expiration the end of its initial term.
ARTICLE 2 - TRADEMARK LICENSE
2.l Licensor is the owner of the trademarks enumerated on Schedule II.
Licensor hereby grants to Licensee, subject to the terms and conditions
herein contained, the exclusive and non-assignable right and license to
use the Licensed Trademarks within the Licensed Territory, upon
Licensed Products manufactured, sold and distributed by Licensee in
accordance with this Agreement.
2.2 Licensee agrees and undertakes that it will not sublicense the rights
herein granted and that it will not, without the prior written consent
of Licensor, authorize other persons, firms, corporations or other
entities to use any of the Licensed Trademarks (except as provided
herein), or any trademarks or trade names confusingly similar thereto.
2.3 All Licensed Products manufactured, sold or distributed by Licensee
shall bear one or more of the Licensed Trademarks as prescribed by
Licensor. No Licensed Trademark, including specifically the trademark
HEALTHTEX, shall be used by Licensee or its third party manufacturers
except on and in connection with the Licensed Products. No product
bearing a Licensed Trademark shall bear any trademarks or trade names
other than Licensed Trademarks except with the prior written
authorization of Licensor. Licensee covenants on behalf of itself, its
Affiliates and related parties, and such third party manufacturers with
which it may contract, that during the term of this Agreement and
thereafter it will refrain from using any trademark or trade name
confusingly similar to any of the Licensed Trademarks, or confusingly
similar to any other trademarks or trade names of Licensor, except upon
such terms and conditions as may be approved in advance, in writing, by
Licensor. During the term of this Agreement, Licensee shall promptly
terminate its manufacturing relationship with any third party
manufacturer that uses any trademark or trades names confusingly
similar to any of the Licensed Trademarks or confusingly similar to any
other trademarks or trade names of Licensor.
3
<PAGE> 6
2.4 Licensee shall submit, for prior written approval by Licensor,
specimens of all labels and advertising copy that Licensee intends to
use in identifying, selling or advertising Licensed Products bearing
the Licensed Trademarks. Licensor shall provide Licensee with written
notice of approval or disapproval within ten (10) business days from
the date that Licensor receives such a request for approval; if no
notice of approval or disapproval is provided by Licensor to Licensee,
then the request will be deemed to have been disapproved.
2.5 Nothing herein shall entitle Licensee to use the Licensed Trademarks in
combination with other marks not owned by Licensor, which Licensee
expressly agrees not to do, nor to include any of the Licensed
Trademarks in its corporate or trading name irrespective of whether
registered or not. During the term of this Agreement, with respect to
Licensed Products, Licensee must include on its stationery, business
cards, invoices and packing slips and the phrase "Authorized Healthex
Apparel Corp. licensee" or such other words to that effect as have been
previously approved, in writing, by Licensor.
ARTICLE 3 - TRADEMARK OWNERSHIP AND LICENSE RECORDATION
3.1 Licensor at its own cost will, insofar as possible and as reasonably
requested by Licensee, register and/or renew relevant trademarks in the
Licensed Territory and will cooperate in registering or recording
Licensee as a registered user or recorded Licensee of the Licensed
Trademarks in the Licensed Territory if appropriate and necessary in
Licensor's sole judgment. Licensee agrees to execute and deliver to
Licensor such lawful documents as Licensor may request for this
purpose. Licensee shall not register or attempt to register any of the
Licensed Trademarks or marks similar thereto in its own name or in any
other name in or outside the Licensed Territory unless so authorized by
Licensor in writing.
3.2 Licensee acknowledges that Licensor is the owner of all the Licensed
Trademarks, whether registered or unregistered. All trademarks
subsequently adopted and used by Licensee under the provisions of this
Agreement shall be deemed to be Licensed Trademarks and owned by
Licensor (except as otherwise expressly provided in writing by
Licensor). Licensee acknowledges that Licensor is entitled to all of
the rights in and to the Licensed Trademarks, including the sole and
exclusive right to register said
4
<PAGE> 7
trademarks in the Licensed Territory and elsewhere throughout the
world, and Licensee shall assist Licensor in so doing at Licensor's
expense.
3.3 Licensee further agrees never to contest, deny or dispute the validity
of the Licensed Trademarks or Licensor's title therein; agrees never,
either directly or indirectly, or in any other way, to encourage or
assist others in doing so; and agrees never to take any action of any
kind inconsistent with Licensor's holding of all such trademark rights.
Nothing in this Agreement shall confer upon Licensee a proprietary
interest of any kind in and to any of the Licensed Trademarks or any
trademarks or trade names confusingly similar thereto. Any and all use
of the Licensed Trademarks by Licensee shall inure to the benefit of
Licensor.
ARTICLE 4 - INFRINGEMENT BY THIRD PARTIES
4.1 Licensee shall, insofar as possible, report immediately in writing to
Licensor any and all infringements of the Licensed Trademarks, or of
Licensor's trade names and/or trade dress and any and all attempts by
any third party to use, copy, register, infringe upon or otherwise
imitate the Licensed Trademarks or Licensor's trade names or trade
dress, or any design features of the Licensed Products.
4.2 Except upon the written request and authorization of Licensor, Licensee
shall not take any action to prevent infringements, imitation or
illegal use of the Licensed Trademarks, trade dress associated with the
Licensed Products or trade name of Licensor. However, Licensee shall
render to Licensor all assistance reasonably requested, fully and
without reservation, in connection with any matter pertaining to
protection or enforcement of the Licensed Trademarks before
administrative and quasi-judicial agencies and the courts, and shall
make available to Licensor, its representatives, agents and attorneys,
all of Licensee's records, files and other information pertaining to
the Licensed Trademarks, including the purchase, manufacture, sale,
distribution and advertising of the Licensed Products sold and
distributed under said trademarks.
5
<PAGE> 8
4.3 Licensor, at its cost, shall take such steps and institute such legal
proceedings as shall be reasonably necessary to protect the Licensed
Trademarks and Licensee's license therein as set forth in this
Agreement.
4.4 Licensor shall indemnify and defend Licensee and hold it harmless from
and against any claims, suits and expenses (including reasonable
attorney's fees) arising solely from Licensee's use of the Licensed
Trademarks in accordance with the terms of this Agreement on or in
connection with Licensed Products sold in the Licensed Territory.
Licensor's indemnification and defense obligations are expressly
conditioned upon (a) Licensee's giving Licensor prompt written notice
of such claim or suit against Licensee after assertion thereof and (b)
Licensee's full and prompt cooperation and assistance, to the extent
reasonably requested by Licensor, in connection with the defense of
such claim or suit. Licensor shall have the right, at its own expense,
to undertake and conduct the defense and/or negotiation of any
settlement of any such suit or claim.
ARTICLE 5 - ROYALTY FEE, MINIMUM NET SALES AND ADVERTISING EXPENDITURE
5.1 In consideration of the licenses herein granted and of the other
benefits that accrue to Licensee hereunder, Licensee agrees to use its
best commercial efforts to promote the sale of the Licensed Products in
the Licensed Territory and Licensee further agrees to pay to Licensor,
for use of the Licensed Trademarks, a royalty fee (the "Royalty Fee")
or a minimum royalty (the "Minimum Royalty"), whichever is greater, on
the Net Sales of Licensed Products sold by Licensee for each period
stated below (a "Contract Year") as follows:
FIRST CONTRACT YEAR ROYALTY FEE MINIMUM ROYALTY
------------------- ----------- ---------------
11/1/97 - 5/31/99 5% $ 160,000
SECOND CONTRACT YEAR ROYALTY FEE MINIMUM ROYALTY
-------------------- ----------- ---------------
6/1/99 - 5/31/00 5% $ 180,000
THIRD CONTRACT YEAR ROYALTY FEE MINIMUM ROYALTY
------------------- ----------- ---------------
6/1/00 - 5/31/01 5% $ 200,000
6
<PAGE> 9
Said Royalty Fee shall be calculated on actual Net Sales of
Licensed Products. "Net Sales" means (a) the total number of units of
Licensed Products sold or otherwise transferred by Licensee to
Affiliates or non-Affiliates, multiplied by Licensee's published unit
list price (excluding shipping/freight charges separately listed as
payable by the customer) charged by Licensee to its customers who are
not its Affiliates, LESS (b) trade discounts and allowances given by
Licensee and returns. If Licensee's actual price to its non-Affiliate
customers is higher than as calculated above, the actual price shall
replace the list price in the calculation. Net Sales shall be computed
without deducting uncollectible accounts, anticipations or financial
discounts and shall include all transactions of Licensed Products
distributed by or for Licensee.
5.2 Licensee and Licensor have established the following minimum Net Sales
("Minimum Net Sales") for the sales of Licensed Products in the
Licensed Territory:
CONTRACT YEAR MINIMUM NET SALES
------------- -----------------
November 1, 1997 - May 31, 1999 $ 4,000,000
June 1, 1999 - May 31, 2000 $ 4,500,000
June 1, 2000 - May 31, 2001 $ 5,000,000
Licensor may terminate this Agreement in accordance with Article
10.1(i) if Licensee fails to achieve Net Sales of at least the Minimum
Net Sales for each Contract Year specified above
5.3 With respect to the business done by Licensee under this Agreement,
Licensee shall pay said Royalty Fee and Minimum Royalties to Licensor
quarter-annually for the quarters ending on the last days of March,
June, September and December of each year, payment for each said
quarter to be made to Licensor within twenty-five (25) days after the
end of the quarter for which such payment is made. On the date payment
is due for the last quarter of each Contract Year, Licensee shall also
pay to Licensor the deficiency, if any, from the minimum royalty
payable for the applicable Contract Year.
5.4 Payment of the Royalty Fee shall be made either by check made payable
to Healthtex Apparel Corp., mailed to the address for Licensor set
forth in Article 17 or to such other
7
<PAGE> 10
address as Licensor may subsequently designate in writing or by wire
transfer to Licensor in United States Dollars at the following address:
PNC Bank
Wilmington, Delaware 19899
ABA No.: 0311-000-89
Credit to: Healthtex Apparel Corp.
Account No.: 56-8427-6940
5.5 Time is of the essence with regard to the Royalty Fees and Minimum
Royalties due under this Agreement and Licensee shall make each of said
payments on time. Each and every late payment shall, for each day the
payment is late, bear interest at two percent (2%) over the Morgan
Guaranty Trust Company of New York prime rate in effect on the
twenty-sixth (26th) day following the quarter for which such payment is
due. Licensor shall have the right to terminate this Agreement upon
notice to Licensee if Licensee fails to cure a payment default within
five (5) business days after receiving written notice of such default
from Licensor.
5.6 Licensee agrees to expend each Contract Year in advertising Licensed
Products a sum not less than two percent (2%) of its Net Sales thereof,
one percent (1%) of which shall be paid directly to Licensor's
Representative, which sum shall be expended for advertising, consumer
and trade media, production cost, consumer and promotional materials,
point-of-sale materials, sales aids and Licensee's share of marketing
support funds as approved by Licensor. In trade advertising and under
any marketing support fund, Licensee shall closely follow the
advertising image and copy concepts indicated by Licensor in
advertising its products for sale under the Licensed Trademarks.
Licensee is obliged to provide Licensor with proof of performance
pursuant to this paragraph for each Contract Year by the twenty-fifth
(25th) day following the end of the applicable Contract Year. Licensee
also agrees to pay to Licensor's Representative Licensee's
proportionate share of expense, as agreed between Licensor's
Representative and Licensee, of showroom display and trade show space
owned by Licensor's Representative and utilized by Licensee with
Licensor's Representative's consent.
8
<PAGE> 11
5.7 If Licensor or any of its Affiliates (including VF Factory Outlet,
Inc.) wishes to purchase available Licensed Products, Licensee agrees
to sell such Products to Licensor or any of its Affiliates at a price
equal to the then lowest wholesale price at which Licensee sells such
Licensed Products. Licensee shall pay royalties and promotional fees
with respect to such sales.
5.8 Termination or expiration of this Agreement for any reason whatsoever
shall not relieve Licensee of its accrued payment obligations or such
obligations incurred by sale of Licensed Products after the effective
date of such termination or expiration.
ARTICLE 6 - ACCOUNTING AND REPORTING
6.1 Licensee shall submit to Licensor's Representative an Annual Marketing
Plan in the format approved by Licensor's Representative within sixty
(60) days of the execution of this Agreement and at least sixty (60)
days before the start of each Contract Year thereafter.
6.2 Licensee shall keep a true and accurate account of all Licensed
Products manufactured, ordered, received, sold and distributed under
this Agreement, and render to Licensor a just and true account in
writing, sworn to and verified by an officer of Licensee, specifying:
(a) the number of Licensed Products manufactured by or for Licensee in
the preceding three (3) month period, (b) the number of such Licensed
Products distributed or sold in said three (3) month period and (c) the
list prices and sales prices of all such Licensed Products, within
twenty-five (25) days of the last day of March, June, September and
December (the "Quarterly Sales Report").
6.3 The Quarterly Sales Report shall be submitted by Licensee to Licensor
in the format prescribed by Schedule VII. Said Quarterly Sales Report
shall be sent to:
Chief Accountant
Healthtex Apparel Corp.
200 Weldin Building
Concord Plaza
3411 Silverside Road
Wilmington, Delaware 19810
9
<PAGE> 12
with a copy to:
Anne Garvey, Licensing Director
Healthtex, Inc.
2303 West Meadowview Road
Suite 200, Kinston Building
Greensboro, North Carolina 27407
6.4 Licensee shall submit to Licensor monthly sales reports, in the format
and containing the information prescribed in Schedule VII, within
fifteen (15) days after the first (1st) day of each month of each
calendar year (the "Monthly Sales Report"). Licensee shall also submit
such other reports, as specified by Licensor and within a reasonable
time after Licensor so specifies, as will enable Licensor to evaluate
the success of Licensee's marketing , sales and activities relating to
this Agreement. Such reports shall be sent to the addresses set forth
in Article 6.3.
6.5 Licensor, its agents, attorneys and accountants shall have the right to
audit and investigate once each calendar year during normal business
hours, at Licensor's expense, the books, accounts, audits, and other
things and matters showing or reflecting all business conducted by
Licensee pertaining to the manufacture, sale or distribution of the
Licensed Products under this Agreement. In the event that an audit of
Licensee's books and records reveals that Licensee's Royalty Fees were
underpaid by an amount equal to five percent (5%) or more in any year,
Licensee shall bear Licensor's reasonable direct costs of said audit.
Licensee shall provide Licensor annually with audited financial
statements of Licensee as soon as possible, and in any event within
ninety (90) days, after the close of Licensee's fiscal year. In the
absence of actual fraud by Licensee, all reports shall become final two
(2) years after they are submitted to Licensor.
ARTICLE 7 - QUALITY CONTROL
Licensee further covenants and agrees as follows:
7.1 Licensee may have Licensed Products manufactured for it by third party
manufacturers for sale only within the Licensed Territory. For purposes
of this Agreement, "third party manufacturers" shall mean such
manufacturers as are listed on Schedule IV. No changes
10
<PAGE> 13
may be made to Schedule IV without the prior written approval of
Licensor. The third party manufacturers shall be subject to the quality
control requirements stipulated in this Article 7. For purposes only of
understanding reference to "manufacture," "manufacturing" and
"manufactured" as these words may be used hereafter in this Agreement,
Licensed Products made for Licensee by third party manufacturers in
accordance herewith shall be deemed manufactured by Licensee. Not less
than ten (10) days prior to engaging any third party manufacturer,
Licensee shall advise Licensor of the specific Licensed Products to be
so manufactured. Licensee shall provide Licensor with the name and
address of such manufacturer, and shall cause such manufacturer to
execute ANNUALLY, in duplicate, a letter agreement in the form set
forth in Schedule III, shall forthwith provide a duplicate original
thereof to Licensor by registered or certified mail, and shall
guarantee such manufacturer's compliance with the quality standards of
Licensor and the terms of such letter agreement. Licensee shall
strictly prohibit any such third party manufacturer from
sub-contracting the manufacture of Licensed Products. Licensee shall
remain primarily and completely responsible to Licensor for the acts of
such third party manufacturers under all of the provisions of this
Agreement and the acts of such third party manufacturers shall be
deemed to be the acts of Licensee. To the extent requested by Licensor,
Licensee shall assist representatives of Licensor in visiting and
inspecting such third party manufacturers from time to time. Licensee
further covenants to obtain in writing from any such manufacturers,
undertakings in form satisfactory to Licensor, regarding the
disposition of unused branded materials and defective finished products
to Licensee. Licensee shall, upon request of Licensor, cease using any
third party manufacturer whose activities would be in violation of any
of the terms of this Agreement or the provisions of Schedule III,
whether or not such third party manufacturer has actually executed a
letter in the form of Schedule III. Upon the request of Licensor,
Licensee shall take reasonable action in conjunction with Licensor
against any such manufacture that violates the provisions of this
Agreement or of Schedule III.
7.2 All Licensed Products manufactured by or for Licensee and sold or
distributed by Licensee under the Licensed Trademarks shall conform to
the standards set forth in Schedule V and shall as all times be at
least equal in quality to the quality of children's apparel
manufactured, sold and distributed by Licensor's Representative in the
United States of America under the trademarks licensed herein.
Licensor, its agents, attorneys
11
<PAGE> 14
and representatives are hereby authorized, at any reasonable time
during normal working hours, to inspect the physical manufacturing and
storage facilities used by Licensee or under its direction to ascertain
whether such products conform to Licensee's standards of quality.
Repeated failure on the part of Licensee to meet Licensor's quality
standards shall be grounds for Licensor to terminate this Agreement by
giving Licensee written notice of termination under the provision of
Article 10.1(b).
7.3 Licensee shall at all times keep Licensor currently informed as to the
price and discount structure employed by Licensee in the sale of
Licensed Products under this Agreement. Licensee's prices of Licensed
Products shall be made official by the publication of a price list (or
lists), and each such price list shall be submitted to Licensor in
advance of publication.
7.4 Licensee agrees to sell its production of Licensed Products under the
Licensed Trademarks directly to approved retailers and approved
wholesalers for resale within the Licensed Territory only. Licensee
shall send written notice to all approved wholesalers, with a copy of
such notice to Licensor, advising them of the Licensed Territory.
Retail and wholesale outlets approved as of the date of this Agreement
are listed on Schedule VI. Schedule VI may be amended from time to time
by Licensor upon fifteen (15) business days' written notice to
Licensee.
7.5 Licensee shall not, during the term of this Agreement or thereafter,
manufacture, have manufactured, sell or distribute the Licensed
Products outside the Licensed Territory, nor shall Licensee sell
Licensed Products to any person who it knows, should know, has reason
to believe or should have reason to believe intends to export Licensed
Products outside the Licensed Territory.
7.6 Licensee agrees to mark each Licensed Product manufactured by it with
the country of origin permanently affixed at the time of manufacture to
each Licensed Product. Country of origin shall be affixed to all
Licensed Products regardless of the country in which the Licensed
Product will be sold. Licensee warrants that the genuine and true
origin of all merchandise subject to this Agreement will be the origin
as stated on invoice, visa, country of origin declaration or other
document made in conjunction with the importation
12
<PAGE> 15
of the merchandise into the United States of America, and further
warrants that no shipment has been or will be illegally transshipped
from any other country.
7.7 Solely for the benefit of Licensor, Licensee shall guarantee to its
ultimate consumer the quality, materials and workmanship of the
Licensed Products sold under the provisions of this Agreement. If the
ultimate consumer is dissatisfied with any such product and Licensee
fails to make an adjustment satisfactory to such consumer, Licensor may
at its option either replace the product at Licensee's expense and
without cost to the purchaser or refund the purchase price and charge
Licensee for such refund.
7.8 Licensee agrees not to sell more than ten percent (10%) of its annual
sales volume as branded seconds or irregulars bearing the Licensed
Trademark. Licensee has the option to re-label such products and remove
all Licensed Trademarks prior to sale.
ARTICLE 8 - PRODUCT APPROVALS AND RELATED ISSUES
Licensee and Licensor agree to the following with respect to Licensor's
rights of approval of the product to be developed, manufactured and marketed by
Licensee:
8.1 On or before November 1st of each year, Licensee shall provide to
Licensor its annual product planning calendar for the forthcoming year.
This annual product planning calendar will indicate the dates by which
Licensor is required to approve or disapprove any item which is to be
included in the relevant product line. In no event will such date be
less than seven (7) business days from the date on which Licensor is
provided with product samples. In the event that Licensee submits
additional product samples at a time which is outside the submitted
product planning calendar, then Licensor will have seven (7) business
days from the date on which Licensor is provided with product samples
to approve such product. Approval or disapproval shall be at Licensor's
discretion and any product on or in connection with which the Licensed
Trademarks are to be used that is not approved by Licensor in writing
shall be deemed unlicensed and shall not be manufactured or sold. If
the product to be produced by Licensee is a simple extension of
previously approved products, (i.e., the pattern, fabric, threads,
buttons, embroidery, colors and material components have all been
previously approved by Licensor for use in
13
<PAGE> 16
Licensed Products), then no additional approvals will be required. For
purposes of this Agreement, "product planning" shall include the review
of current in-line products. After approval has been given, Licensee
shall provide to Licensor, at no cost to Licensor, one (1) production
sample from the first production run. Licensee shall also from time to
time apply to Licensor for approval of concepts and designs for
Licensed Product to be manufactured hereunder. Such approval shall not
be unreasonably withheld.
8.2 If any Licensed Product to be included in the product line is to
include "innovative" elements or components, Licensor shall have the
right to require the testing of the Licensed Product and/or the
innovative element or component. For purposes of this Agreement,
"innovative" elements or components is defined as those elements or
components that have not previously been used in the manufacture of
items comparable to the Licensed Products.
8.3 Licensor shall have the right to approve the items set forth below,
with respect to the Licensed Products to be developed, manufactured and
marketed by Licensee. Licensor shall provide written notice of approval
or disapproval to Licensee within ten (10) business days from the date
that Licensor receives such a request for approval; if no notice of
approval or disapproval is provided by Licensor to Licensee, such
request will be deemed to have been disapproved:
(a) Retail outlets, in addition to those listed on Schedule VI (as
may be amended from time to time), that will purchase Licensed
Products directly from Licensee or its manufacturing sources;
(b) Wholesale distributors, in addition to those listed on
Schedule VI (as may be amended from time to time), that will
purchase licensed products directly from Licensee or its
manufacturing sources;
(c) Point of purchase displays;
(d) Advertising, as more fully described in Article 5;
14
<PAGE> 17
(e) Any and all methods of distribution to be used by Licensee in
order to dispose of manufacturers' "seconds" and "irregulars"
and any product overruns that are to be disposed of outside
previously approved retail or wholesale distribution outlets.
Licensee may dispose of seconds, irregulars and overruns
outside the Licensed Territory provided all trademarked
labels, hang tags and HEALTHTEX adornments are completely
removed. The neck labels of all "irregulars" must be stamped
"irregular"; and
(f) The labels, hang tags and other packaging to be included with
or on the Licensed Products.
8.4 Licensee warrants that each Licensed Product and component thereof
shall comply with all applicable laws, regulations and voluntary
industry standards and shall conform to the samples thereof approved by
Licensor.
ARTICLE 9 - AID AND ASSISTANCE; NON-COMPETITION BY LICENSOR
9.1 So long as this Agreement remains in full force and effect, Licensor
agrees to provide to Licensee available material and information on
merchandising, planning of Licensor's products, including colors,
merchandising, sales promotion and advertising, as appropriate to
Licensed Products.
9.2 So long as Licensee is not in default under this Agreement, Licensor
agrees not to sell or distribute Licensed Products bearing its
trademark HEALTHTEX or any other trademark licensed under this
Agreement within the Licensed Territory.
ARTICLE 10 - TERMINATION
10.1 In addition to the provisions contained in Article 5.5 for the
termination of this Agreement, this Agreement may be terminated as
follows:
(a) If, at any time during the term of this Agreement, either
party thereto is unable to pay its debts when due, becomes
insolvent, or there is filed by or against it in any
15
<PAGE> 18
court a petition for bankruptcy , insolvency, reorganization,
or the appointment of a receiver or trustee for all or a
portion of its property; or if either party makes an
assignment for the benefit of creditors, this Agreement may be
canceled and terminated at the option of the non-acting party
upon written notice to the acting party; such cancellation to
be effective immediately if the act giving rise to
cancellation be voluntary; otherwise such cancellation to be
effective upon adjudication of bankruptcy or insolvency or
upon a court of competent jurisdiction taking and retaining
jurisdiction over the acting party and/or its assets for a
period of sixty (60) days or more;
(b) Except as to a monetary default, which shall be governed by
Article 5.5, by either party by giving thirty (30) days'
written notice to the other party for any breach or default by
the other party in its obligations under this Agreement, such
termination to be effective unless the other party remedies
the breach or default specified in the notice before the end
of such thirty (30) days;
(c) By Licensor by giving thirty (30) days' written notice if
there is a change in control of Licensee by way of merger,
sale of assets or stock, consolidation or otherwise unless
such change has been approved in writing by Licensor;
(d) By Licensor upon written notice to Licensee if production
samples submitted by Licensee fail to meet Licensor's quality
standards for three (3) consecutive months;
(e) By Licensor upon written notice to Licensee if Licensee
discontinues manufacture, distribution, product development or
sale of the Licensed Products for any three (3) consecutive
months during the term of this Agreement;
(f) By Licensor upon written notice to Licensee if Licensee fails
to submit reports as and when due under paragraph 6.4 on three
(3) or more consecutive occasions;
(g) By Licensor upon written notice to Licensee if Licensee
exhibits a pattern of failing to make "timely delivery" of
sufficient quantities of the Licensed Products
16
<PAGE> 19
to its retail accounts. For purposes of this provision,
"timely delivery" means 75% of deliveries (by volume) are made
within customer delivery windows, excluding cancellations
prior to the expiration of the delivery window;
(h) By Licensor upon written notice to Licensee should Licensee
become an Affiliate of any competitor of Licensor or
Licensor's Representative without Licensor's prior written
approval;
(i) By Licensor, upon written notice to Licensee, if Licensee does
not achieve the Minimum Net Sales for any Contract Year. If,
however, Licensee shall develop and submit to Licensor,
simultaneously with the submission of the Annual Marketing
Plan for a Contract Year, (a) an explanation of why the
Minimum Net Sales were not attained for the prior Contract
Year and (b) a plan of action as to how the Minimum Net Sales
for the current Contract Year will be achieved, which
explanation and plan are accepted by Licensor in its sole
discretion, the default shall be waived; or
(j) By Licensor should there occur any change of corporate control
or ownership of a majority interest in Licensor or Licensor's
Representative, by way of merger, sale or consolidation.
In addition to Licensor's other rights and remedies hereunder,
at law or inequity, upon termination of this Agreement by Licensor pursuant to
Article 5.5 hereof or clauses (a) and (b) and (d) through (i) above, Licensee
shall pay to Licensor, within thirty (30) days of such termination of this
Agreement, the total Minimum Royalties that would have been payable over the
remaining term of this Agreement had such termination not occurred.
10.2 At any time within six (6) months before the date of termination of
this Agreement, Licensor may appoint a new Licensee or distributor for
the Licensed Products in the Licensed Territory. Licensor directly or
its newly appointed Licensee or distributor may sell Licensed Products
in the Licensed Territory at any time within six (6) months of the date
of expiration for shipment subsequent to the date of expiration.
17
<PAGE> 20
10.3 Failure of either party to exercise any right or option to terminate
this Agreement shall not constitute a waiver of such right or any other
right.
ARTICLE 11 - PRODUCTS ON HAND AT TERMINATION AND PAYMENTS
11.1 Termination or cancellation or expiration of this Agreement for any
reason shall not relieve Licensee of its obligation to pay to Licensor
the Royalty Fee specified in Article 5.1 with respect to Licensed
Products manufactured and/or sold by Licensee prior to such termination
or cancellation. Licensee further agrees to pay Licensor, at the same
royalty rate in effect at the date of termination, for all Licensed
Products sold by Licensee after termination of this Agreement that
Licensee has on hand or are in process of manufacture at the effective
date of termination of this Agreement. For Licensed Products sold after
the termination or cancellation of this Agreement, Royalty Fees shall
be payable not later than the twenty-fifth (25th) day after the end of
the month in which the Licensed Products were sold.
11.2 Within twenty (20) days after termination of this Agreement, Licensee
shall provide Licensor with a complete inventory of all remaining
Licensed Products and all Licensed Products on order from third party
manufacturers, as well as the anticipated delivery date(s) thereof.
Licensor shall have the right to purchase all or any portion of
Licensee's remaining inventory of Licensed Products at a price equal to
seventy percent (70%) of Licensee's list price, in which case no
Royalties thereon shall be payable. Such right shall be exercisable by
giving written notice to Licensee within ten (10) business days after
Licensor receives Licensee's inventory listing. Such purchase shall be
completed and the purchase price for the inventory Licensor elects to
purchase shall be paid within ten (10) business days after Licensor
exercises its purchase option.
11.3 To the extent that Licensor does not exercise its right to purchase
Licensee's remaining inventory, Licensee shall have six (6) months from
the date of termination of this Agreement in which to sell unsold
Licensed Products through previously approved retail and wholesale
distribution outlets only. As to any Licensed Products on order on the
date of termination, Licensee shall have six (6) months from the last
date on which such Licensed Products are received in which to sell such
goods through previously-approved
18
<PAGE> 21
retail and wholesale distribution outlets only. However, such six (6)
month sell-off periods shall be available to Licensee if, and only if,
(a) Licensee has paid all Royalty Fees and Minimum Royalties and all
plans and reports in accordance with Articles 5 and 6, and (b) an audit
during the current Contract Year in accordance with the terms of
Article 6.5 has been completed by or on behalf of Licensor to its
satisfaction.
ARTICLE 12 - RECORDS AFTER TERMINATION
Upon termination or expiration of this Agreement, Licensee agrees to
permit Licensor, its agents, attorneys and accountants to inspect, upon
reasonable notice, the records and books of account of Licensee referred to in
Article 6.5, and to investigate generally all business transactions carried on
by Licensee under and pursuant to this Agreement from time to time for a period
of twelve (12) months following the last sale of Licensed Products, and Licensee
agrees not to destroy any of such records prior to the expiration of said twelve
(12) months.
ARTICLE 13 - RELINQUISHMENT OF LICENSED MATTER
13.1 At the expiration or termination of this Agreement for any reason,
Licensee shall not have acquired and will not claim any right to use
the trademark HEALTHTEX or any other trademark licensed hereunder, or
any other trademark of Licensor, or any trade name containing the term
HEALTHTEX or any part thereof, and Licensee agrees that it will not
thereafter use or adopt any such trademark or trade name or any related
trade dress, or any trademark, trade name, or trade dress confusingly
similar thereto. Licensee further agrees that, after termination or
expiration of this Agreement, except as provided in Article 11, it will
refrain from using any trade dress or distinctive features of the
Licensed Products' labeling or design theretofore employed by Licensee
in carrying out the provisions of this Agreement.
13.2 Further, upon expiration or termination of this Agreement for any
reason whatsoever, Licensee shall return to Licensor any and all
materials furnished to Licensee by Licensor (including, but not limited
to, promotional and product development materials), as such material
remains the property of Licensor.
19
<PAGE> 22
ARTICLE 14 - FAIR PRACTICES
Licensor and Licensee each covenants and agrees that during the term of
this Agreement or thereafter it will not encourage, induce or assist any third
party in doing any act or thing which, were it done by Licensor or Licensee, as
applicable, would be contrary to the provisions of this Agreement.
ARTICLE 15 - NO JOINT VENTURE; INDEMNIFICATION; MAINTENANCE OF INSURANCE
15.1 This Agreement shall not in any way be deemed or construed to establish
any relationship between the parties by way of agency, distributorship,
partnership or joint venture. Neither party will nor will have the
authority, directly or indirectly, to contract or purport to contract
any bills or other obligations of any kind in the name of, or
chargeable against the other party, its agents or employees, or in any
way, directly or indirectly, involve the other party in any expense or
liability.
15.2 Except for claims for which Licensor is obligated to indemnify Licensee
under Article 4.4, Licensee shall indemnify, defend, and hold harmless
Licensor, its officers, directors, affiliates, employees and agents
from any and all claims, liabilities and expenses which may be imposed
or sought to be imposed upon it or them by virtue of any
representation, act or agency, made by or on the part of Licensee or
any of Licensee's agents or employees including, without limitation,
any of the foregoing arising out of any defect (whether obvious or
hidden and whether or nor present in any sample approved by Licensor)
in a Licensed Product, or any packaging or promotional materials or
arising from personal injury or from any failure on the part of
Licensee or its agents or affiliates to comply with applicable laws,
regulations and standards. Any and all such claims made or suits
brought by anyone in connection with the products manufactured by
Licensee under this Agreement shall be the sole responsibility of
Licensee, and Licensor shall be held harmless by Licensee in all
respects from any and all loss, damage, expense, claim or liability of
any kind by reason thereof, including reasonable attorney's fees. In
the event that a judgment, levy, attachment or other seizure is entered
against Licensor arising from any claim as to which indemnification is
provided hereunder, Licensee shall promptly post the necessary bond to
prevent execution against any property of Licensor.
20
<PAGE> 23
The provisions of this Article 15.2 shall survive termination or
expiration of this Agreement. Licensor will endeavor to give Licensee
prompt written notice of any claim or suit which may give rise to a
claim for indemnification hereunder.
15.3 Licensee shall procure and maintain in full force and effect, at its
sole cost and expense, at all times during which Licensed Products are
being sold and for three (3) years thereafter, a product liability
insurance policy (on an occurrence rather than a claims-made basis)
with respect to the Licensed Products with a limit of liability of not
less than $5,000,000. Such insurance policy shall include Licensor as
an additional insured thereunder and shall provide for at least thirty
(30) days' prior written notice to Licensor of the cancellation or
substantial modification thereof. Such insurance may be obtained by
Licensee in conjunction with a policy of products liability insurance
which covers products other than the Licensed Products. Licensee will
deliver a certificate of such insurance to Licensor promptly upon
issuance of said insurance policy and shall, from time to time upon
reasonable request by Licensor, promptly furnish to Licensor evidence
of the maintenance of said insurance policy. Nothing contained in this
Article 15.3 shall be deemed to limit in any way the indemnification
provisions of Article 15.2.
ARTICLE 16 - BINDING NATURE; ASSIGNMENT
This Agreement is binding upon and for the benefit of Licensee and
Licensor, their respective legal successors and permitted assigns. The rights
and license given to Licensee by this Agreement are strictly personal. Neither
this Agreement nor any interest in it may be transferred, pledged, mortgaged or
hypothecated by Licensee (including by assignment, sublicense, operation of law
or otherwise) without the prior written consent of Licensor. Any attempted
assignment, sublicense, transfer, encumbrance or other disposal without such
consent shall be void and shall constitute a material default of this Agreement.
Nothing herein shall be deemed to prevent or restrict Licensor's ability to
sell, transfer or assign the Licensed Trademarks or this Agreement to any party,
subject only to Licensee's rights to continue use thereof as provided herein,
subject to the terms and conditions of this Agreement in all respects.
21
<PAGE> 24
ARTICLE 17 - NOTICES
All notices given or required to be given hereunder shall be deemed to
be given and received (a) as of the date sent if sent by telecopier, promptly
confirmed by United States registered mail, postage paid, return receipt
requested, or (b) three (3) business days after being sent by United States
registered mail, postage paid, return receipt requested and addressed as
follows:
LICENSOR: Healthtex Apparel Corp.
200 Weldin Building
Concord Plaza
3411 Silverside Road
Wilmington, Delaware 19810
Telephone: 302/477-3930
Fax: 302/477-3932
with a copy to: Anne Garvey, Licensing Director
Healthtex, Inc.
2303 West Meadowview Road
Suite 200, Kinston Building
Greensboro, North Carolina 27407
LICENSEE: M & L International, Inc.
1333 North Kingsbury Street
Chicago, Illinois 60622
Telephone: 312/944-3800
Fax: 312/944-3895
unless another address for either party is substituted by prior written notice.
ARTICLE 18 - COMPLIANCE WITH AND OPERATION OF LAW
18.1 Licensee shall comply in all material respects with all applicable
laws, rules and regulations. Licensee shall use all reasonable efforts
to determine that each manufacturer of Licensed Products complies in
all material respects with all applicable laws, rules and regulations,
including applicable wage, hour, child labor and other employment laws
and shall deal only with manufacturers who so comply and shall, from
time to time as requested by Licensor, certify that to the best of
Licensee's knowledge, after reasonable inquiry, such is the case.
22
<PAGE> 25
18.2 Nothing in this Agreement shall require, encourage or oblige a party to
perform any act or make any payment which is illegal or in
contravention of any applicable statute, law or regulation.
18.3 If any provision of this Agreement is in violation of the present or
future law of any relevant jurisdiction in such a way that it is void
or voidable, the validity of the remaining provisions shall not be
affected thereby unless such invalidity is of an essential and material
part of this Agreement, in which event either party shall have the
right to terminate this Agreement.
ARTICLE 19 - CONSENT TO JURISDICTION: WAIVER OF JURY TRIAL
19.1 Licensee hereby irrevocably submits to the jurisdiction of any Delaware
state court sitting in Wilmington, Delaware or the United States
District Court for the District of Delaware over any action or
proceeding arising out of or relating to this Agreement. Service of
process in any such action or proceeding arising out of or relating to
this Agreement may be made to Licensee by mailing or delivering a copy
of such process to Licensee at Licensee's address as specified in
Article 17 hereof. Nothing in this Article 19 shall affect the right of
Licensor to serve legal process in any other manner permitted by law or
affect the right of Licensor to bring any action or proceeding against
Licensee or its property in the courts of any other jurisdictions.
19.2 Licensee hereby irrevocably agrees that any action or proceeding
arising out of or relating to this Agreement may be brought against
Licensor solely in Delaware state court sitting in Wilmington, Delaware
or the United States District Court for the District of Delaware.
19.3 LICENSEE AND LICENSOR HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER AGREEMENT, INSTRUMENT OR OTHER DOCUMENT
EXECUTED IN CONNECTION HEREWITH.
23
<PAGE> 26
ARTICLE 20 - ARBITRATION
At the election of Licensor, any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, except any claim or
controversy relating to the performance of a third party manufacturer, may be
finally settled by arbitration before three (3) arbitrators in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). Each party to this Agreement shall appoint one (1) arbitrator, and a
third shall be appointed by agreement of the named arbitrators. If any party
fails to appoint an arbitrator within thirty (30) days after demand for
arbitration is filed with the AAA, or if the named arbitrators are unable to
agree on the appointment of a third arbitrator within sixty (60) days after the
first two arbitrators have been appointed, the AAA shall select such unnamed or
unappointed arbitrators in accordance with its standard procedures. Arbitration
shall be conducted in the English language at Wilmington, Delaware. The award of
the arbitrators shall be final and enforceable, and judgment upon any award
rendered thereby may be entered in any Court having jurisdiction, or application
may be made to such Court for a judicial acceptance of the award and an order of
enforcement, as the case may be. Anything herein to the contrary
notwithstanding, the arbitration provided for herein shall in no way limit,
affect, hinder or become a precondition to or a qualification upon the rights of
either party hereto to obtain immediate equitable relief to which it may be
entitled.
ARTICLE 21 - LICENSOR'S REPRESENTATIVE
Licensor has appointed Licensor's Representative to perform Licensor's
rights and obligations under Articles 2.4, 7, 8, 9, and 21 of this Agreement,
and Licensee shall cooperate with Licensor's Representative under this Agreement
with respect to such Articles and otherwise as Licensor may direct from time to
time.
ARTICLE 22 - ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties
hereto, relating to the subject matter hereof, and supersedes any prior
agreement or understanding. There are no terms, obligations, covenants,
representations, statements or conditions other than those
24
<PAGE> 27
contained herein. No variation or modification of this Agreement nor waiver of
any of the terms and provisions hereof shall be deemed valid unless in a writing
signed by both parties hereto.
ARTICLE 23 - TERM
23.1 This Agreement shall be effective as of November 1, 1997, and shall
expire on May 31, 2001, unless sooner terminated as herein provided.
23.2 If Licensee has complied in all material respects with the terms of
this Agreement, and if its Net Sales of Licensed Products are in excess
of $5,000,000 for the third Contract Year of this Agreement, Licensee
may request that Licensor renew this Agreement for a single additional
period of three (3) years commencing June 1, 2001, and terminating May
31, 2004 (the "Renewal Term"), with a royalty rate not to exceed eight
percent (8%) a year, upon terms and conditions to be set by Licensor.
Such request must be made in writing on or before January 1, 2001.
ARTICLE 24 - GOVERNING LAW
This Agreement shall be governed and construed in accordance with the
internal laws of the State of Delaware, United States of America, without regard
to its provisions governing conflicts of law.
ARTICLE 25 - CONFIDENTIALITY
Each party hereto agrees that the terms of this Agreement will be kept
confidential by it and its representatives (which term shall include its
directors, members, officers, employees, agents, banks, advisors, and in the
case of Licensee, factors). Each party shall be responsible for any breach of
this agreement of confidentiality by it or its representatives, and the other
party shall be entitled to directly enforce such agreement. The foregoing to the
contrary notwithstanding, disclosure of this Agreement may be made in a public
announcement or filing with the Securities and Exchange Commission or a national
securities exchange if and to the extent, in the written opinion of either
party's counsel, such disclosure is required.
25
<PAGE> 28
ARTICLE 26 - EQUITABLE RELIEF
Licensee acknowledges that Licensor will have no adequate remedy at law
if Licensee continues to manufacture, sell, advertise, promote or distribute the
Licensed Products upon the expiration or termination of this Agreement. Licensee
acknowledges and agree that, in addition to any and all other remedies available
to Licensor, Licensor shall have the right to have any such activity by Licensee
restrained by equitable relief, including, but not limited to, a temporary
restraining order, a preliminary injunction, a permanent injunction, or such
other alternative relief as may be appropriate, without the necessity of posting
any bond.
ARTICLE 27 - PROHIBITION AGAINST USE OF ILLEGAL CHILD LABOR AND
AGAINST USE OF PRISON OR FORCED LABOR
Licensee warrants that it and, to the best of its knowledge after
reasonable investigation, each manufacturer, vendor or supplier utilized by
Licensee in connection with the manufacture of Licensed Products, is in
compliance with and will remain in compliance with all applicable laws governing
the use of child labor and the importation of merchandise produced with child
labor into the Licensed Territory. Licensee also warrants that to the best of
its knowledge after reasonable investigation, no prison or forced labor is
utilized in the production of any of the Licensed Products. Licensee shall
certify to Licensor from time to time upon request its continued compliance with
the terms of Article 18.1 and this Article 27.
26
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers in two (2) or more counterparts, each
of which shall for all purposes be deemed an original, as of the day and year
first above written.
LICENSOR
HEALTHTEX APPAREL CORP.
By: /s/ Sharon A. Beard
------------------------------
Title: Authorized Signatory
----------------------------
Date: February 11, 1998
----------------------------
LICENSEE
M & L INTERNATIONAL, INC.
By: /s/ Kurt C. Gutfreund
------------------------------
Title: President
----------------------------
Date: February 10, 1998
----------------------------
27
<PAGE> 1
Exhibit 10.27
M & L INTERNATIONAL INC.
1333 NORTH KINGSBURY ST.
CHICAGO, IL 60622
February 4, 1998
Mr. Kurt C. Gutfreund
President and Chief Executive Officer
M&L International, Inc.
1333 North Kingsbury St.
Chicago, IL 60622
Re: First Amendment to Employment Agreement
Dear Kurt:
Reference is made to the Employment Agreement, dated as of November 30,
1994, between M&L International, Inc., an Illinois corporation (the "COMPANY")
and yourself (the "EMPLOYMENT AGREEMENT"). Except as set forth herein,
capitalized terms used in this letter agreement have the meanings ascribed to
them in the Employment Agreement.
This letter agreement shall be deemed to be a Written Supplement
contemplated by Section 2.2 of the Employment Agreement and shall otherwise
amend the Employment Agreement as set forth herein.
1. The Initial Term and your employment under the Employment
Agreement are hereby renewed and extended for a three-year
period commencing January 1, 1998 and terminating December 31,
2000.
2. Your Base Salary shall be as follows for the periods set forth
below:
1/1/98 - 12/31/98 $330,000
1/1/99 - 12/31/99 $340,000
1/1/00 - 12/31/00 $350,000
3. Section 5.6 of the Employment Agreement is hereby deleted in
its entirety.
4. The definition of "NONCOMPETITION PERIOD" appearing in the
last sentence of Section 6.1 of the Employment Agreement is
hereby modified by (i) DELETING clause (b) thereof, (ii)
REDESIGNATING clause (c) thereof as clause (b) and (iii)
DELETING clause (a) thereof and SUBSTITUTING the following
clause (a) in its place:
<PAGE> 2
Kurt C. Gutfreund
February 4, 1998
Page 2
"(a) in the event the Executive's employment is
terminated pursuant to Section 5.4, a period of six
months following the effective date of such
termination, unless the Company shall specify a
longer period in its notice of termination to the
Executive (PROVIDED, HOWEVER, that any such longer
period shall not exceed a period of six months)..."
5. The first sentence of Section 5.4 of the Employment Agreement
is hereby DELETED and the following sentence is SUBSTITUTED in
its place:
"The Company shall have the right at any time to
terminate the Executive's employment hereunder
without cause upon at least 90 days' prior written
notice to the Executive, PROVIDED, HOWEVER, that the
Company shall pay to the Executive (i) on the
effective date of termination specified in the
notice, any unpaid Base Salary accrued through the
effective date of termination, (ii) his
then-effective Base Salary, in equal installments
consistent with the Company's normal payroll
practices, from the termination date until the end of
the Non-Competition Period, and (iii) in accordance
with Section 3.2(b), an amount equal to any earned
but unpaid Incentive Compensation payable with
respect to the prior calendar year plus the Incentive
Compensation, if any, payable in respect of the
calendar year in which such termination occurs,
prorated for the period of service by the Executive
from the beginning of such year through the date of
termination."
If the foregoing accurately reflects our agreement with respect to the
foregoing modification to the Employment Agreement, kindly sign the duplicate
copy of this letter agreement enclosed herewith and return it to me.
Sincerely,
/s/ Peter Vandenberg, Jr.
-------------------------------
Peter Vandenberg, Jr.
Vice President
ACCEPTED AND AGREED:
/s/ Kurt C. Gutfreund
- ---------------------------
KURT C. GUTFREUND
<PAGE> 1
Exhibit 10.30
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND
GUARANTY (the "SECOND AMENDMENT") dated as of February 18, 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
(as so amended, the "CREDIT AGREEMENT"); and
WHEREAS, 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;
NOW, THEREFORE, 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 3 hereof, hereby amended as follows:
(a) The definition of "Andy Johns" is hereby amended in
its entirety as follows:
"'Andy Johns' means Andy Johns Fashions International, a
division of BAI during the period prior to January 1, 1998,
and from and after January 1, 1998 a division of Mackintosh".
(b) The definition of "Revolving Credit Loans Maximum
Outstanding" is hereby amended by (i) deleting the amount "$7,000,000" contained
therein and inserting in lieu thereof the amount "$9,300,000" and (ii) deleting
the amount "9,000,000" contained therein and inserting in lieu thereof the
amount "11,300,000".
<PAGE> 2
(c) Section 3.01 of the Credit Agreement is hereby amended by
amending and restating clause (b) contained in the first paragraph thereof in
its entirety as follows:
"(b) the Revolving Credit Commitment minus the Revolving
Credit Loans and minus all unreimbursed obligations on Letters
of Credit and minus any and all overdrafts created as a result
of or in connection with the satisfaction of a reimbursement
obligation under a Letter of Credit and minus the aggregate
face amount of all outstanding Letters of Indemnity; provided
that Chase will not be required to issue a Letter of Credit
with an expiration date more than 180 days from the date of
issuance of such Letter of Credit; it being understood that
Chase will not be required to issue any Letter of Credit which
permits the beneficiary of such Letter of Credit to make a
drawing under such Letter of Credit without the presentation
of documents or documents of title where the aggregate unused
face amount of all such Letters of Credit outstanding at any
time is greater than One Hundred Fifty Thousand Dollars
($150,000)."
(d) Section 3.01 of the Credit Agreement is hereby further
amended by deleting the last line of the chart that is set forth in the second
paragraph of such Section and inserting in lieu thereof the following:
"January 1, 1998 to and
including March 6, 1998 $12,500,000"
(e) Section 3.01 of the Credit Agreement is hereby further
amended by (x) inserting immediately following the reference to "Andy Johns"
appearing in the third and fourth lines of the third paragraph of such Section
the parenthetical clause "(or, from and after January 1, 1998, Mackintosh,
including, without limitation, Andy Johns and Mackintosh's other divisions)" and
(y) deleting the last line of the chart that is set forth in such paragraph and
inserting in lieu thereof the following:
"January 1, 1998 to and
including March 6, 1998 $1,500,000"
SECTION 2. INTERCOMPANY ADVANCES. Each of the Borrowers agree that no
further intercompany loans or advances shall be made by any Borrower from and
after the date hereof and that intercompany loans and advances by and among the
Borrowers outstanding as of the date hereof shall not be repaid or reduced by
any amounts, other than reductions or repayments arising from non-cash offsets
of federal income tax provisions among Apparel, BAI, Mackintosh and M&L
conducted in the ordinary course of business in accordance with GAAP.
SECTION 3. CONDITIONS OF EFFECTIVENESS TO THIS SECOND AMENDMENT. This
Second Amendment shall become effective on the date on which each of the
following conditions have been
2
<PAGE> 3
satisfied: (i) the Borrowers, the Lenders and the Agents shall each have
executed and delivered this Second Amendment; (ii) payment by the Borrower of a
$50,000 amendment fee; (iii) payment by the Borrower of all costs and expenses
of the Agents and the Lenders (including, without limitation, reasonable
attorneys' fees and expenses) incurred in connection with this Second Amendment
and the Credit Agreement; and (iv) receipt of such other documents, opinions or
agreements as either of the Agents or any of the Lenders may reasonably request.
SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. 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. 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. The execution, delivery and effectiveness of this
Second 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. 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
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 Second Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 7. 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 8. 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.
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:
3
<PAGE> 4
BISCAYNE APPAREL INTERNATIONAL, INC.
By: /s/ Peter Vandenberg, Jr.
------------------------------------
Name: Peter Vandenberg, Jr.
Title:
MACKINTOSH OF NEW ENGLAND CO.
By: /s/ Peter Vandenberg, Jr.
------------------------------------
Name: Peter Vandenberg, Jr.
Title:
M & L INTERNATIONAL, INC.
By: /s/ Peter Vandenberg, Jr.
------------------------------------
Name: Peter Vandenberg, Jr.
Title:
THE CHASE MANHATTAN BANK,
as Lender
By: /s/ John Murphy
------------------------------------
Name: John Murphy
Title: Vice President
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/ C.B. Cook
------------------------------------
Name: C.B. Cook
Title: Vice President
4
<PAGE> 5
BANKBOSTON, N. A., as Lender
By: /s/ David F. Eusden
------------------------------------
Name: David F. Eusden
Title: Director
FLEET BANK, N.A., as Lender
By: /s/ Amy H. Witryol
------------------------------------
Name: Amy H. Witryol
Title: Vice President
THE CHASE MANHATTAN BANK, 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
5
<PAGE> 1
Exhibit 10.31
THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND
GUARANTY (the "THIRD AMENDMENT") dated as of March 6, 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
and a Second Amendment, dated as of February 18, 1998 (as so amended, the
"CREDIT AGREEMENT"); and
WHEREAS, the terms defined in the Credit Agreement are used in this
Third Amendment as in the Credit Agreement unless otherwise defined in this
Third Amendment;
NOW, THEREFORE, 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) Section 3.01 of the Credit Agreement is hereby
amended by deleting the last line of the chart that is set forth in the
second paragraph of such Section and inserting in lieu thereof the
following:
"January 1, 1998 to and
including March 31, 1998 $13,000,000"
(b) Section 3.01 of the Credit Agreement is hereby
further amended by deleting the last line of the chart that is set
forth in third paragraph of such Section and inserting in lieu thereof
the following:
"January 1, 1998 to and
including March 31, 1998 $1,750,000"
1
<PAGE> 2
SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS THIRD AMENDMENT. This
Third Amendment shall become effective on the date on which each of the
following conditions have been satisfied: (i) the Borrowers, the Lenders and the
Agents shall each have executed and delivered this Third Amendment; (ii) payment
by the Borrower of all costs and expenses of the Agents and the Lenders
(including, without limitation, reasonable attorneys' fees and expenses)
incurred in connection with this Third Amendment and the Credit Agreement; and
(iii) 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 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. 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. The execution, delivery and effectiveness of this
Third 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. 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 Third 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.
SECTION 5. GOVERNING LAW. This Third 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 Third Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Third Amendment for any other purpose.
SECTION 7. COUNTERPARTS. This Third 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 Third Amendment by
signing any such counterpart.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Third 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:
BISCAYNE APPAREL INTERNATIONAL, INC.
By: /s/ Peter Vandenberg, Jr.
------------------------------------
Name: Peter Vandenberg, Jr.
Title:
MACKINTOSH OF NEW ENGLAND CO.
By: /s/ Peter Vandenberg, Jr.
------------------------------------
Name: Peter Vandenberg, Jr.
Title:
M & L INTERNATIONAL, INC.
By: /s/ Peter Vandenberg, Jr.
------------------------------------
Name: Peter Vandenberg, Jr.
Title:
THE CHASE MANHATTAN BANK,
as Lender
By: /s/ John Murphy
------------------------------------
Name: John Murphy
Title: Vice President
MILBERG FACTORS, INC., as Lender
By: /s/ David J. Milberg
------------------------------------
Name: David J. Milberg
Title: Vice President
3
<PAGE> 4
CORESTATES BANK, N.A., as Lender
By: /s/ C.B. Cook
------------------------------------
Name: C.B. Cook
Title: Vice President
BANKBOSTON, N. A., as Lender
By: /s/ David F. Eusden
------------------------------------
Name: David F. Eusden
Title: Director
FLEET BANK, N.A., as Lender
By: /s/ Amy H. Witryol
------------------------------------
Name: Amy H. Witryol
Title: Vice President
THE CHASE MANHATTAN BANK, 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
4
<PAGE> 1
EXHIBIT 21
Biscayne Apparel, Inc.
Subsidiaries of the Registrant
For the Year Ending December 31, 1997
Biscayne Apparel International, Inc., a Delaware corporation
d/b/a: Andy Johns Fashions International
Andy Johns Kids
KAOS
KAOTIC
Judy Simon
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
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Biscayne Apparel, Inc. and Subsidiaries on Form S-8 and S-3 of our report dated
March 6, 1998, except for Note 7, for which the date is March 25, 1998, on our
audits of the consolidated financial statements and financial statement
schedules of Biscayne Apparel, Inc. and Subsidiaries as of December 31, 1997
and 1996, and for the years ended December 31, 1997, 1996 and 1995, which report
is included in this Annual Report on Form 10-K.
Parsippany, New Jersey
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 268
<SECURITIES> 0
<RECEIVABLES> 15,787
<ALLOWANCES> (2,278)
<INVENTORY> 17,258
<CURRENT-ASSETS> 31,997
<PP&E> 5,256
<DEPRECIATION> (2,517)
<TOTAL-ASSETS> 34,817
<CURRENT-LIABILITIES> 18,053
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> 7,550
<TOTAL-LIABILITY-AND-EQUITY> 34,817
<SALES> 93,206
<TOTAL-REVENUES> 93,206
<CGS> 70,045
<TOTAL-COSTS> 70,045
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,270
<INCOME-PRETAX> (2,714)
<INCOME-TAX> 1,157
<INCOME-CONTINUING> (3,871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,871)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
