SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended February 3, 1996.
Commission File Number 0-22102
CYGNE DESIGNS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2843286
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1372 BROADWAY, NEW YORK, NEW YORK 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 354-6474
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 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. [X]
Aggregate market value of the Registrant's Common Stock held by non-affiliates
at April 24, 1996 (based on the closing sale price for such shares as reported
by the National Association of Securities Dealers Automated Quotation System):
$15,172,626. Common Stock outstanding as of April 24, 1996: 12,438,038 shares.
Documents incorporated by reference: None
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The financial statements are included herein commencing on page F-1.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors:
The directors of the Company are as follows:
<TABLE>
<CAPTION>
Year First
Became
Director Age Director Principal Occupation During the Past Five Years
- - -------- --- -------- -----------------------------------------------
<S> <C> <C> <C>
Irving Benson 57 1984 President of the Company since the Company's incorporation in October
1984 and Vice Chairman since April 1994; founder of the
Company's predecessor in 1975.
James G. Groninger 52 1993 President of The Bay South Company since January 1995; Managing
Director of PaineWebber Incorporated from April 1988 through
December 1994.
Stuart B. Katz 41 1993 Senior Managing Director of Furman Selz Incorporated since January
1994; various other positions with Furman Selz Incorporated,
including Managing Director and Senior Vice President, since 1985.
Bernard M. Manuel 48 1988 Chief Executive Officer of the Company since October 1988 and Chairman of
the Board since December 1989.
Trevor J. Wright 51 1994 Executive Vice President--Design of the Company since June 1995;
Group Executive Design Director of the Company from April 1995 through June
1995; Design Director of Fenn, Wright and Manson, Incorporated, which was
acquired by the Company in April 1994, and its predecessors
since 1973.
</TABLE>
Mr. Wright was appointed a director of the Company upon the consummation of
the Company's acquisition of Fenn, Wright and Manson, Incorporated ("FWM") in
April 1994 (the "FWM Acquisition") pursuant to the terms of the Purchase
Agreement, dated as of December 7, 1993, as amended, by and among the Company,
FWM and Fenn Wright and Manson (Antilles) N.V. ("FWM N.V."). Pursuant to the
terms of the Purchase Agreement, so long as Mr. Wright remains a director of the
Company, he will be consulted regarding future additions to the Company's Board
of Directors, but will have no veto rights over any such appointment. See "Item
1. Business--Company History," "Item 11. Executive Compensation-Employment
Agreements" and "Item 13. Certain Relationships and Related Transactions."
Mr. Groninger is a director of Designs, Inc. and NPS Pharmaceuticals. Mr.
Manuel is a director of Designs, Inc.
In September 1993 the Company established an Audit Committee and a
Compensation Committee, each consisting of Messrs. Groninger and Katz. The Audit
Committee is charged with reviewing the Company's annual audit and meeting with
the Company's independent accountants to review the Company's internal controls
and
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<PAGE>
financial management practices, and the Compensation Committee reviews
compensation practices, recommends compensation for the Company's executives and
key employees and functions as the Committee under the Company's 1993 Stock
Option Plan. The Compensation Committee met once and acted five times by
unanimous written consent during the year ended February 3, 1996. The Audit
Committee met three times during the year ended February 3, 1996.
During the fiscal year ended February 3, 1996, the Board of Directors held
eight meetings and acted twice by unanimous written consent in lieu of a
meeting. Each director attended at least 75% of the meetings of the Board of
Directors and of all committees of the Board of Directors on which he served
during the fiscal year ended February 3, 1996.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of the Company's Common Stock, to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission ("SEC"). Executive officers, directors and
greater than ten percent beneficial owners are required by the SEC to furnish
the Company with copies of all Section 16(a) forms they file.
Based upon a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
the Company believes that during the fiscal year ended February 3, 1996 all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten percent beneficial owners were complied with.
Executive Officers:
See "Item 1. Business - Executive Officers of the Registrant."
Item 11. EXECUTIVE COMPENSATION.
The following table shows all the cash compensation paid or to be paid by
the Company or its subsidiaries as well as certain other compensation paid or
accrued during the fiscal years indicated to the Chief Executive Officer of the
Company and each of the four other most highly compensated executive officers of
the Company for such period in all capacities in which they served.
3
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<CAPTION>
Securities
Other Annual Underlying All Other
Year Salary Bonus Compensation Options/SARs Compensation (1)
---- ------ ----- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Bernard M. Manuel 1995 $458,429 - - - $ -
Chairman of the Board 1994 $452,115 - - 55,000 355
and Chief Executive 1993 $385,011 - - 55,000 348
Officer
Irving Benson 1995 $503,500 - $11,705(2) - $900
Vice Chairman and 1994 $452,115 - $11,705(2) 55,000 917
President 1993 $381,101 - $10,965 55,000 900
W. Glynn Manson 1995 $362,200 - $12,000(2) - -
Formerly Vice Chairman of 1994 $102,300 - $26,231(4) 40,000 -
the Company and Chief
Operating Officer of the
GJM Group(3)
Trevor J. Wright 1995 $292,207 - - - $3,648(6)
Executive Vice President 1994 $247,920(5) - $ 5,013(2) 21,500 $6,555(6)
- - --Design
Gary C. Smith 1995 $273,995 - - 78,750(7) $361
Senior Vice President-- 1994 $253,846 - - 30,000 208
Manufacturing 1993 $228,172 - - 30,000 204
</TABLE>
(1) Consists of certain insurance premiums on term life insurance paid by the
Company for the benefit of the named individuals.
(2) Represents a car allowance provided to the executive.
(3) Compensation amounts reflected for 1994 are for the period beginning
October 7, 1994, the date Mr. Manson commenced his employment with the
Company, through January 28, 1995, the last day of the Company's 1994
fiscal year. Mr. Manson resigned as an officer of the Company and its
subsidiaries on February 9, 1996 and as a director of the Company on
April 17, 1996.
(4) Represents a housing allowance provided to Mr. Manson.
(5) Compensation amounts reflected for 1994 are for the period beginning April
7, 1994, the date Mr. Wright commenced his employment with the Company,
through January 28, 1995, the last day of the Company's 1994 fiscal year.
(6) Includes $3,295 and $6,234 for 1995 and 1994, respectively, representing
the Company's matching contribution pursuant to its 401(k) defined
contribution plan.
(7) Consists of 58,750 shares issuable upon the exercise of options that were
granted during 1994 and 1993 which were repriced during 1995 and 20,000
shares issuable upon the exercise of options that were both granted and
repriced during 1995. See "--Ten Year Option Repricings."
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<PAGE>
The following table sets forth information with respect to option grants
during the fiscal year ended February 3, 1996 to the persons named in the
Summary Compensation Table.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Number of
Securities % of Total Exercise Market Potential Realizable Value at
Underlying Options Granted or Base Price on Assumed Annual Rates of
Options to Employees in Price Date Date Stock Price Appreciation for
Granted (#)(1) Fiscal Year (2) ($/Sh) of Grant Expiration Option Term (3)
-------------- -------------- -------- --------- ---------- ------------------------------
5% ($) 10% ($)
------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Bernard M. Manuel - - - - - - -
Irving Benson - - - - - - -
W. Glynn Manson - - - - - - -
Trevor J. Wright - - - - - - -
Gary C. Smith 28,750(4) 2.1% $2.00 $2.00 4/14/03 $23,431 $54,539
Gary C. Smith 30,000(5) 2.2% $2.00 $2.00 5/30/04 $28,680 $68,610
Gary C. Smith 20,000(6) 1.5% $2.00 $2.00 3/19/05 $22,080 $54,320
</TABLE>
(1) Options granted under the Company's 1993 Stock Option Plan become
immediately exercisable upon a change in control of the Company.
(2) Based upon options to purchase 1,341,500 shares granted to all employees in
the fiscal year ended February 3, 1996 (including options to purchase
shares that were granted in prior years and were reprived during the Fiscal
year ended February 3, 1996). See "--Ten Year Option Repricings."
(3) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations. Actual gains,
if any, on stock option exercises will depend on the future price of the
Common Stock and overall stock market conditions. There is no
representation that the rates of appreciation reflected in this table will
be achieved.
(4) These options are presently exercisable as to 21,250 shares and these
options will become exercisable as to an additional 7,500 shares on April
15, 1997.
(5) These options are presently exercisable as to 15,000 shares and these
options will become exercisable as to an additional 7,500 shares on each of
May 31, 1997 and May 31, 1998.
(6) These options are presently exercisable as to 5,000 shares and these
options will become exercisable as to an additional 5,000 shares on each of
March 21, 1997, March 21, 1998 and March 21, 1999.
5
<PAGE>
The following table sets forth information with respect to (i) stock
options exercised in the fiscal year ended February 3, 1996 by the persons named
in the Summary Compensation Table and (ii) unexercised stock options held by
such individuals on February 3, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised,
Options Held at In-the-Money Options at
Fiscal Year End (#) Fiscal Year End (1)
------------------------------- -----------------------------
Shares
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bernard M. Manuel ... - - 41,250 68,750 $ 0 $ 0
Irving Benson ....... - - 41,250 68,750 $ 0 $ 0
W. Glynn Manson ..... - - 10,000 30,000 $ 0 $ 0
Trevor J. Wright .... - - 5,375 16,125 $ 0 $ 0
Gary C. Smith ....... - - 21,250 57,500 $ 0 $ 0
</TABLE>
- - ------------------
(1) Based on a closing stock price of the Company's Common Stock on February 2,
1996 of $1.1875.
TEN-YEAR OPTION REPRICINGS
The following table sets forth information related to each option
repricing during the last ten years of options to purchase the Company's Common
Stock held by any Executive Officer of the Company. The vesting terms and
expiration dates were not amended at the time of repricing.
<TABLE>
TEN-YEAR OPTION REPRICINGS
<CAPTION>
Length of
Original Option
Term
Number of Market Price of Exercise Price Remaining at
Options Stock at Time at Time of New Date of
Repriced or or Repricing or Repricing or Exercise Repricing or
Name Date Amended Amendment Amendment Price Amendment
---- ---- ----------- --------------- -------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Paul D. Baiocchi 10/11/95 10,000 $2.00 $20.50 $2.00 102 months
Paul D. Baiocchi 10/11/95 5,000 $2.00 $18.50 $2.00 104 months
Paul D. Baiocchi 10/11/95 10,000 $2.00 $10.00 $2.00 113 months
Roy E. Green 10/11/95 30,000 $2.00 $ 4.00 $2.00 90 months
Roy E. Green 10/11/95 30,000 $2.00 $18.50 $2.00 104 months
Roy E. Green 10/11/95 20,000 $2.00 $10.00 $2.00 113 months
Gary C. Smith 10/11/95 28,750 $2.00 $ 4.00 $2.00 90 months
Gary C. Smith 10/11/95 30,000 $2.00 $18.50 $2.00 104 months
Gary C. Smith 10/11/95 20,000 $2.00 $10.00 $2.00 113 months
</TABLE>
6
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, effective as of May 1,
1993, with Irving Benson, Roy Green and Gary Smith for initial three-year terms
ending April 30, 1996 and has entered into an amended and restated employment
agreement with Bernard Manuel, effective as of January 1, 1995, for an initial
term ending April 30, 1996. Each of such employment agreements have been
automatically renewed for a one year term ending April 30, 1997. The Company has
also entered into an employment agreement, effective as of April 4, 1994, with
Paul Baiocchi, the Company's Vice President, General Counsel and Secretary,
which has been automatically renewed until April 3, 1997. In connection with the
FWM Acquisition, the Company entered into an employment agreement, effective as
of April 7, 1994, with Trevor Wright for a three-year term ending April 6, 1997.
See "Certain Transactions."
Each of the foregoing agreements (collectively, the "Employment
Agreements") provides for automatic renewal for successive one year terms unless
either party notifies the other to the contrary at least 90 days prior to its
expiration. The Employment Agreements require each employee to devote
substantially all of his time and attention to the business of the Company as
necessary to fulfill his duties. Pursuant to the Employment Agreements Messrs.
Manuel, Benson, Wright, Green, Smith and Baiocchi are currently entitled to an
annual salary at a rate of $494,000, $494,000, $306,000, $234,612, $271,656 and
$195,000, respectively, subject to annual cost of living increases. The
Employment Agreements also provide for the payment of bonuses in such amounts as
may be determined by the Board. Under the Employment Agreements, the employee
may terminate his employment upon 30 days' notice. The Employment Agreements
provide that in the event the employee's employment is terminated by the Company
at any time for any reason other than justifiable cause, disability or death, or
the Company shall fail to renew the agreement at any time within two years
following a "Change of Control of the Company," the Company shall pay the
employee the employee's base salary and permit participation in benefit programs
for the greater of (i) the remaining term of the agreement or (ii) two years (in
the case of Messrs. Manuel, Benson and Wright), one year (in the case of Messrs.
Green and Smith) or six months (in the case of Mr. Baiocchi). In the event the
Company elects not to renew the agreement (other than within two years following
a "Change in Control of the Company"), the Company will, (a) in the case of
Messrs. Manuel, Benson and Wright, pay the employee a severance payment equal to
the lesser of (i) two months' salary plus one sixth of the employee's most
recently declared bonus for each year the employee has been employed by the
Company or (ii) one year's annual salary, (b) in the case of Messrs. Green and
Smith, pay the employee a severance payment equal to the lesser of (i) one
month's salary plus one-twelfth of the employee's most recently declared bonus
for each year the employee has been employed by the Company or (ii) six months'
salary, and (c), in the case of Mr. Baiocchi, pay him a severance payment equal
to the lesser of (i) one month's salary plus one-twelfth of his most recently
declared bonus for each year he has been employed by the Company or (ii) three
months' salary. Each agreement contains confidentiality provisions, whereby each
executive agrees not to disclose any confidential information regarding the
Company, as well as non-competition covenants. The non-competition covenants
survive the termination of an employee's employment for the greater of (i) the
remaining term of the agreement or (ii) two years (in the case of Messrs.
Manuel, Benson and Wright),
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<PAGE>
one year (in the case of Messrs. Green and Smith), and six months (in the case
of Mr. Baiocchi) except in the event the Company elects not to renew the
agreement, terminates the employee's employment within two years following a
"Change in Control of the Company" or fails to make required severance payments.
For purposes of the Employment Agreements, a "Change in Control of the
Company" shall be deemed to occur if (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other property, other
than a merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (y) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company, or (ii) the stockholders of the Company shall approve any plan or
proposal for liquidation or dissolution of the Company, or (iii) any person (as
such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), shall
become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of 40% or more of the Company's outstanding Common Stock other than
pursuant to a plan or arrangement entered into by such person and the Company,
or (iv) during any period of two consecutive years, individuals who at the
beginning of such period constitute the entire Board of Directors shall cease
for any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
The Employment Agreements also provide that if, in connection with a change
of ownership or control of the Company or a change in ownership of a substantial
portion of the assets of the Company (all within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), an
excise tax is payable by the employee under Section 4999 of the Code, then the
Company will pay to the employee additional compensation which will be
sufficient to enable the employee to pay such excise tax as well as the income
tax and excise tax on such additional compensation, such that, after the payment
of income and excise taxes, the employee is in the same economic position in
which he would have been if the provisions of Section 4999 of the Code had not
been applicable.
During October 1994 the Company acquired the business operations of GJM
International Limited (the "GJM Acquisition"). In connection with the GJM
Acquisition, the Company and Mr. Manson entered into an employment agreement for
a three year term commencing on October 7, 1994, having terms substantially
similar to the terms of the employment agreement between the Company and Mr.
Benson, except that Mr. Manson's salary was $395,000 per annum. During February
1996 the Company sold substantially all of the assets relating to its GJM
operations (the "GJM Disposition"). Mr. Manson ceased to be employed as an
officer of the Company on February 9, 1996 and as a director of the Company on
April 17, 1996.
In connection with the FWM Acquisition, Mr. Wright was granted, pursuant to
the Company's 1993 Stock Option Plan, options to purchase 21,500 shares of
Common
8
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Stock at an exercise price of $22.75, the fair market value of the Common Stock
on the date of grant (April 7, 1994), such options to become exercisable in four
equal annual installments commencing on the first anniversary of the date of
grant. In connection with the GJM Acquisition, Mr. Manson was granted options to
purchase 40,000 shares of Common Stock at an exercise price of $20.50, the fair
market value of the Common Stock on the date of grant (October 7, 1994), such
options to become exercisable in four equal installments commencing on the first
anniversary of the date of grant. In connection with the GJM Disposition, the
term of such options were extended to October 7, 1999 and options to purchase an
additional 40,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share (the fair market value on the date of grant) for a period of
five years were granted on February 9, 1996; however, such options immediately
terminate if the value of certain assets sold in the GJM Disposition as finally
determined in the post-closing audit of the net assets is substantially less
than the initial estimated value.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives $3,500 for each Board of
Directors meeting attended, and $1,500 for each meeting of any committee of the
Board of Directors attended. In addition, directors who are not employees of the
Company are compensated through stock options.
The Company has adopted a Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), pursuant to which options to acquire a maximum of an
aggregate of 100,000 shares of Common Stock may be granted to non-employee
directors. Options granted under the Directors' Plan do not qualify as incentive
stock options within the meaning of Section 422 of the Code. The Directors' Plan
provides for the automatic grant to each of the Company's non-employee directors
of (1) an option to purchase 10,000 shares of Common Stock on the date of such
director's initial election or appointment to the Board of Directors, and (2) an
option to purchase 2,000 shares of Common Stock on each annual anniversary of
such election or appointment, provided that such individual is on such
anniversary date a non-employee director. The options will have an exercise
price of 100% of the fair market value of the Common Stock on the date of grant,
have a ten-year term and become exercisable in four equal annual installments
commencing on the first anniversary of the grant thereof, subject to
acceleration in the event of a change of control (as defined in the Directors'
Plan). The options may be exercised by payment in cash, check or shares of
Common Stock. On April 15, 1993 Mr. Groninger was elected as a director of the
Company and was granted an option to purchase 10,000 shares of Common Stock at a
purchase price of $4.00 per share, the fair market value of the Common Stock on
the date of grant. On September 28, 1993 Mr. Katz was elected as a director of
the Company and was granted an option to purchase 10,000 shares of Common Stock
at a purchase price of $16.875 per share, the fair market value of the Common
Stock on the date of grant. On each of April 15, 1994, April 15, 1995 and April
15, 1996, the anniversary dates of his initial election to the Board of
Directors, Mr. Groninger was granted options to purchase 2,000 shares of Common
Stock at a purchase price of $23.50, $11.75 and $1.75 per share, respectively,
the fair market values of the Common Stock on the dates of grant. On each of
September 28, 1994 and September 28 1995, the anniversary dates of his initial
election to the Board of Directors, Mr. Katz was granted options to purchase
2,000
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shares of Common Stock at a purchase price of $22.50 and $3.25 per share,
respectively, the fair market values of the Common Stock on the dates of grant.
10
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of April 30, 1996 (except as
otherwise noted in the footnotes) regarding the beneficial ownership (as defined
by the SEC) of the Company's Common Stock by (i) each person known by the
Company to own beneficially more than five percent of the Company's outstanding
Common Stock; (ii) each director of the Company; (iii) each executive officer
named in the Summary Compensation Table (see "Item 11. Executive Compensation");
and (iv) all directors and executive officers of the Company as a group. Except
as otherwise specified, the named beneficial owner has the sole voting and
investment power over the shares listed.
Amount and Nature of
Beneficial Ownership Percentage of
Name and Address of Common Stock (1) Common Stock
---------------- --------------------- -------------
Limited Direct Associates, L.P.
c/o The Limited, Inc.
Three Limited Parkway
Post Office Box 16000
Columbus, Ohio 43230 (2).................... 854,319 6.9%
Cleveland Investment Limited
5/F Ho Lee Commercial Building
38-44 D'Aguilar Street Central
Hong Kong (3)................................ 622,285 5.0%
Irving Benson and Dianne Benson (4).......... 1,452,650 11.6%
James G. Groninger (5)....................... 29,000 *
Stuart B. Katz (6)........................... 5,500 *
Bernard M. Manuel and
Isabelle Manuel (7).......................... 1,823,804 14.6%
W. Glynn Manson (8).......................... 503,181 4.0%
Trevor J. Wright (9)......................... 151,479 1.2%
Roy E. Green (10)............................ 365,178 2.9%
Gary C. Smith (11)........................... 41,250 *
Directors and executive officers as a group
(9 persons) (4)(5)(6)(7)(9)(10)(11)(12)...... 3,843,861 30.3%
- - ----------
* Less than one percent.
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(1) Beneficial ownership is determined in accordance with the rules of the SEC,
which generally attribute beneficial ownership of securities to persons who
possess sole or shared voting power and/or investment power with respect to
those securities.
(2) This figure is based upon information set forth in an amended Schedule 13D
dated October 13, 1994, filed by Limited Direct Associates, L.P. (the
"Limited Partnership") with the SEC. The Limited Partnership, a limited
partnership consisting of a wholly-owned subsidiary and certain operating
divisions of The Limited, Inc., has granted each of Messrs. Benson and
Manuel the right to vote 382,500 shares for a period of three years ending
July 29, 1996.
(3) It is anticipated that Cleveland Investment Limited will enter into a
voting agreement pursuant to which it will agree to vote all shares of
Common Stock owned by it in favor of the Ann Taylor Disposition.
(4) Consists of 885,061 shares owned by Irving Benson, 116,339 shares owned by
Mr. Benson's wife, Dianne Benson, 68,750 shares issuable pursuant to
options which are exercisable within 60 days of April 30, 1996, and 382,500
shares purchased by the Limited Partnership on July 29, 1993 but with
respect to which Mr. Benson has been granted the right to vote for a period
of three years ending July 29, 1996. Mr. and Mrs. Benson, however, each
disclaim any beneficial ownership of the other's shares. Mr. Benson
disclaims beneficial ownership of the shares owned by the Limited
Partnership that he has the right to vote. Does not include an aggregate of
123,839 shares owned by Mr. and Mrs. Benson's two children nor an aggregate
of 41,250 shares which are the subject of options granted to Mr. Benson
which are not exercisable within 60 days of April 30, 1996. It is
anticipated that Mr. and Mrs. Benson will enter into a voting agreement
pursuant to which they will agree to vote all shares of Common Stock owned
by them in favor of the Ann Taylor Disposition. Mr. Benson's address is c/o
the Company, 1372 Broadway, New York, New York 10018.
(5) Includes 9,000 shares issuable pursuant to options which are exercisable
within 60 days of April 30, 1996. Does not include 7,000 shares which are
the subject of options which are not exercisable within 60 days of April
30, 1996.
(6) Consists of shares issuable pursuant to options which are exercisable
within 60 days from April 30, 1996. Does not include 8,500 shares which are
the subject of options which are not exercisable within 60 days of April
30, 1996.
(7) Includes 1,147,215 shares owned by Bernard M. Manuel, 161,339 shares owned
by Mr. Manuel's wife, Isabelle Manuel, 64,000 shares owned by The Bernard
M. Manuel Foundation (the "Foundation"), of which Mr. Manuel is the sole
trustee, 68,750 shares issuable pursuant to options which are exercisable
within 60 days of April 30, 1996, and 382,500 shares purchased by the
Limited Partnership on July 29, 1993 but with respect to which Mr. Manuel
has been granted the right to vote for a period of three years ending July
29, 1996. Mr. and Mrs. Manuel, however, each disclaim any beneficial
ownership of the other's shares. Mr. Manuel disclaims beneficial ownership
of the shares owned by the Limited Partnership which he has the right to
vote and the shares owned by the Foundation which he has the right to vote.
Does not include 322,678 shares owned by The Bernard M. Manuel 1992
Irrevocable Trust for Children established by Mr. Manuel for the benefit of
his children nor an aggregate of 41,250 shares which are the subject of
options granted to Mr. Manuel which are not exercisable within 60 days of
April 30, 1996. It is anticipated that Mr. and Mrs. Manuel will enter into
a voting agreement pursuant to which they will agree to vote all shares of
Common Stock owned by them in favor of the Ann Taylor Disposition. Mr.
Manuel's address is c/o the Company, 1372 Broadway, New York, New York
10018.
(8) Includes 493,181 shares owned by G.J.M. International Limited ("GJM
International"), a corporation of which Mr. Manson is the beneficial sole
shareholder. In connection with the GJM Acquisition, GJM International has
granted to six individuals options to purchase an aggregate of 80,730
shares of the Company's Common Stock owned by GJM International at a
purchase price of $.01 per share. Also includes 10,000 shares issuable
pursuant to options exercisable within 60 days of April 30, 1996. It is
anticipated that GJM International will enter into a voting agreement
pursuant to which it will agree to vote all shares of Common Stock owned by
it in favor of the Ann Taylor Disposition. Does not include 70,000 shares
which are subject to options which are not exercisable within 60 days of
April 30, 1996.
12
<PAGE>
(9) Consists of 140,729 shares of Common Stock owned by FWM N.V. which Mr.
Wright may be deemed to beneficially own by reason of his ownership of
23.41% of the outstanding shares of the indirect sole stockholder of FWM
N.V. and 10,750 shares issuable pursuant to options which are exercisable
within 60 days of April 30, 1996. It is anticipated that FWM N.V. will
enter into to a voting agreement pursuant to which it will agree to vote
all 601,148 shares of Common Stock owned by it in favor of the Ann Taylor
Disposition. Does not include 10,750 shares which are the subject of
options which are not exercisable within 60 days of April 30, 1996. See
"Certain Relationships and Related Transactions."
(10) Consists of 322,678 shares owned by The Bernard M. Manuel 1992 Irrevocable
Trust for Children, of which Mr. Green is Trustee, and 42,500 shares
issuable pursuant to options which are exercisable within 60 days of April
30, 1996. Mr. Green disclaims beneficial ownership of the shares owned by
the trust. Does not include 37,500 shares which are the subject of options
granted to Mr. Green which are not exercisable within 60 days of April 30,
1996. It is anticipated that Mr. Green individually and in his capacity as
trustee of the Bernard M. Manuel 1992 Irrevocable Trust for Children will
enter into a voting agreement pursuant to which he will agree to vote all
shares of Common Stock owned by him in favor of the Ann Taylor Disposition.
(11) Consists of shares issuable pursuant to options which are exercisable
within 60 days of April 30, 1996. Does not include 37,500 shares which are
the subject of options which are not exercisable within 60 days of April
30, 1996.
(12) Includes 10,000 shares issuable pursuant to options granted to an executive
officer not listed above which are exercisable within 60 days of April 30,
1996, but does not include 15,000 shares which are subject to options
granted to such executive officer which are not exercisable within 60 days
of April 30, 1996. Does not include shares owned by W. Glynn Manson, who
ceased to be employed as an officer of the Company on February 9, 1996.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the fiscal year ended February 3, 1996, the Company sold to The
Limited, Inc. approximately $184,228,000 of merchandise. From time to time The
Limited, Inc. has provided financing to or purchased fabric on behalf of the
Company. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
On April 7, 1995, the Company sold all of the outstanding shares of Fenn,
Wright and Manson Limited, a United Kingdom corporation which produces women's
and men's sportswear for sale in the United Kingdom ("FWM U.K.") and certain
brand name rights to FWM N.V. in exchange for 600,000 shares of the Company's
Common Stock owned by FWM N.V. (the "FWM U.K. Sale"). On April 7, 1995, the
closing sale price of the Common Stock was $11.25. In connection with the FWM
U.K. Sale, Mr. Fenn resigned as an officer and director of the Company in order
to pursue the business of FWM U.K. Messrs. Fenn and Wright beneficially own
26.58% and 23.41%, respectively, of FWM N.V. through their ownership of Plymouth
Holdings Limited, the indirect sole shareholder of FWM N.V. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management."
FWM leased approximately 50,000 square feet of warehouse and office space
in Melville, New York from Plymouth Properties Inc. ("PPI") under a lease
entered into on December 31, 1991. PPI is a wholly-owned subsidiary of Plymouth
Holdings Limited, the indirect sole shareholder of FWM N.V. Such lease provided
for annual rental payments (exclusive of escalation adjustments) of
approximately $312,000 and
13
<PAGE>
a termination date of December 31, 1996. Messrs. Fenn and Wright own 26.58%
and 23.41%, respectively, of the outstanding shares of Plymouth Holdings
Limited. In connection with the FWM U.K. Sale, the lease was amended and the
Company terminated the lease of the Melville warehouse effective October 31,
1995.
During February 1996 the Company sold substantially all of the assets
relating to its GJM operations. In connection with the GJM Disposition, W. Glynn
Manson, a former director and executive officer of the Company, entered into an
agreement with the Company (the "Manson Agreement"), pursuant to which each of
the Company and Mr. Manson agreed to release the other in respect of any or all
actions arising out of the GJM Acquisition, Mr. Manson's employment, the GJM
Disposition or any other matter. In addition, among other things, the Manson
Agreement provided that (i) Mr. Manson's employment with the Company was
terminated; (ii) the term of the options to purchase 40,000 shares of the
Company's Common Stock at an exercise price of $20.50 per share (the fair market
value on the date of grant) that were granted on October 7, 1994 in connection
with the GJM Acquisition and would have expired on May 9, 1996 as a result of
the termination of Mr. Manson's employment, were extended to October 7, 1999;
however said options immediately terminate if the value of certain assets sold
in the GJM Disposition as finally determined in the post-closing audit of the
net assets is substantially less than the initial estimated value; and (iii)
options to purchase 40,000 shares of the Company's Common Stock at an exercise
price of $1.00 per share (the fair market value on the date of grant) for a
period of five years were granted on February 9, 1996; however said options
immediately terminate if the value of certain assets sold in the GJM Disposition
as finally determined in the post-closing audit of the net assets is
substantially less than the initial estimated value.
The law firm of Fulbright & Jaworski L.L.P. performed legal services for
the Company during the Company's past and present fiscal years and is expected
to continue to perform legal services during the present fiscal year. Paul
Jacobs, a former director of the Company, is a partner in the firm of Fulbright
& Jaworski L.L.P.
14
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Financial Statements
Index to Consolidated Financial Statements
Financial Statements
Report of Independent Auditors..............................................F-2
Consolidated Balance Sheets as of February 3, 1996 and January 28, 1995.....F-3
Consolidated Statements of Operations for Each of the Three
Years in the Period Ended February 3, 1996...............................F-4
Consolidated Statements of Stockholders' Equity
for Each of the Three Years in the Period Ended February 3, 1996.........F-5
Consolidated Statements of Cash Flow for Each of the Three Years
in the Period Ended February 3, 1996.....................................F-6
Notes to Consolidated Financial Statements..................................F-8
Schedule
Schedule II--Valuation and Qualifying Accounts..............................F-32
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Cygne Designs, Inc.
We have audited the accompanying consolidated balance sheets of Cygne Designs,
Inc. and Subsidiaries as of February 3, 1996 and January 28, 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 3, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cygne
Designs, Inc. and Subsidiaries at February 3, 1996 and January 28, 1995 and the
consolidated results of their operations, changes in their stockholders' equity
and their cash flows for each of the three years in the period ended February 3,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
April 15, 1996
except for Note 7,
as to which the date is
May 15, 1996
F-2
<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
February January
3, 1996 28, 1995
-------------------------------------
($ In thousands, except
per share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash (includes restricted cash of $6,644 at January 28, 1995) $ 5,487 $ 14,202
Trade accounts receivable, net 35,117 64,921
Inventory 29,999 57,570
Other receivables and prepaid expenses 8,150 15,966
Assets held for sale 15,200 -
Deferred income taxes 4,066 2,602
-------------------------------------
Total current assets 98,019 155,261
Fixed assets, net 13,533 14,652
Other assets including intangibles 803 6,075
Deferred income taxes 2,000 881
Goodwill, net 2,790 76,659
-------------------------------------
Total assets $ 117,145 $ 253,528
=====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 1,593 $ 1,045
Bank facility 35,860 37,844
Trade facility 8,945 3,562
Accounts payable 32,928 42,429
Accrued expenses 14,083 13,440
Income taxes payable 5,677 7,081
Current portion of long-term debt 2,047 1,829
-------------------------------------
Total current liabilities 101,133 107,230
Long-term debt 1,562 1,460
Deferred rent credits 1,386 635
-------------------------------------
Total liabilities 104,081 109,325
Minority interests in subsidiaries 4,018 2,511
Stockholders' equity:
Preferred Stock, $0.01 par value; 4,000,000 shares authorized,
none issued and outstanding - -
Common Stock, $0.01 par value; 75,000,000 shares authorized;
12,438,038 (February 3, 1996) and 12,979,750 (January 28, 1995)
shares issued and outstanding 124 130
Paid-in-capital 120,918 127,716
(Accumulated deficit) retained earnings (111,999) 14,059
Foreign currency translation adjustment 3 (213)
-------------------------------------
Total stockholders' equity 9,046 141,692
-------------------------------------
Total liabilities and stockholders' equity $ 117,145 $ 253,528
=====================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
Year ended
---------------------------------------------------
February January January
3, 1996 28, 1995 29, 1994
---------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $ 540,063 $516,105 $220,201
Cost of goods sold 510,761 433,700 181,326
---------------------------------------------------
Gross profit 29,302 82,405 38,875
Selling, general and administrative expenses 72,182 54,261 23,794
Gain on sale of subsidiary (4,742) - -
Loss on sale of GJM business, net 31,239 - -
Write-off of goodwill 48,949 - -
Amortization of intangibles 3,425 2,505 137
---------------------------------------------------
(Loss) income from operations (121,751) 25,639 14,944
Interest expense 8,813 7,620 4,272
---------------------------------------------------
(Loss) income before income taxes and
minority interests (130,564) 18,019 10,672
(Benefit) provision for income taxes (6,216) 5,568 3,897
---------------------------------------------------
(Loss) income before minority interests (124,348) 12,451 6,775
Income attributable to minority interests 1,710 1,642 631
---------------------------------------------------
Net (loss) income $(126,058) $ 10,809 $ 6,144
===================================================
Net (loss) income per share $ (10.04) $ 0.93 $ 0.92
===================================================
Weighted average number of common and common equivalent
shares outstanding 12,550 11,658 6,705
See accompanying notes.
</TABLE>
F-4
<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Common Stock
-----------------------
Number Paid-in
Of Shares Amount Capital
----------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at January 30,1993 3,025 $ 30 $ 3,738
Exchange of Company Common Stock for
common stock of affiliates 2,075 21 (3)
Issuance of Common Stock in initial public offering 2,760 27 24,515
Issuance of Common Stock to purchase companies 150 2 2,923
Foreign currency translation adjustment
Net income for year ended January 29, 1994
----------------------------------------
Balance at January 29, 1994 8,010 80 31,173
Issuance of Common Stock for purchases of companies 2,650 26 57,298
Issuance of Common Stock in public offering 2,300 23 39,113
Issuance of Common Stock upon exercise of stock
options 16 1 62
Issuance of Common Stock for services rendered 4 70
Foreign currency translation adjustment
Net income for year ended January 28, 1995
----------------------------------------
Balance at January 28, 1995 12,980 130 127,716
Receipt and retirement of common stock from sale
of subsidiary (600) (6) (7,494)
Issuance of Common Stock for purchases of companies 53 675
Issuance of Common Stock upon exercise of stock
options 5 21
Foreign currency translation adjustment
Net loss for year ended February 3, 1996
----------------------------------------
Balance at February 3, 1996 12,438 $ 124 $120,918
========================================
<CAPTION>
Common Stock Foreign Retained
And Paid-in Currency Earnings
Capital of Translation (Accumulated
Affiliates Adjustment Deficit) Total
----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at January 30,1993 $ 18 $ $ (2,894) $ 892
Exchange of Company Common Stock for
common stock of affiliates (18)
Issuance of Common Stock in initial public offering 24,542
Issuance of Common Stock to purchase companies 2,925
Foreign currency translation adjustment (6) (6)
Net income for year ended January 29, 1994 6,144 6,144
---------------------------------------------------------------
Balance at January 29, 1994 (6) 3,250 34,497
Issuance of Common Stock for purchases of companies 57,324
Issuance of Common Stock in public offering 39,136
Issuance of Common Stock upon exercise of stock
options 63
Issuance of Common Stock for services rendered 70
Foreign currency translation adjustment (207) (207)
Net income for year ended January 28, 1995 10,809 10,809
---------------------------------------------------------------
Balance at January 28, 1995 (213) 14,059 141,692
Receipt and retirement of common stock from sale
of subsidiary (7,500)
Issuance of Common Stock for purchases of companies 675
Issuance of Common Stock upon exercise of stock
options 21
Foreign currency translation adjustment 216 216
Net loss for year ended February 3, 1996 (126,058) (126,058)
---------------------------------------------------------------
Balance at February 3, 1996 $ $ 3 $(111,999) $ 9,046
===============================================================
</TABLE>
F-5
<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Year ended
---------------------------------------------------
February January January
3, 1996 28, 1995 29, 1994
---------------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (126,058) $ 10,809 $ 6,144
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Net gain from sale of subsidiary, net (4,742) - -
Net loss from GJM business, net 31,239 - -
Write-off of goodwill 48,949 - -
Depreciation, amortization and write-off of fixed assets 7,922 5,109 745
Rent expense not currently payable 751 185 180
Bad debt expense 2,147 - -
Deferred income taxes (2,583) (144) 158
Income attributable to minority interests 1,710 1,642 631
Changes in operating assets and liabilities:
Trade accounts receivable and due from factor, net 14,883 (17,802) (11,825)
Inventory 9,589 (24,172) (3,212)
Other receivables and prepaid expenses 9,580 (8,419) (2,786)
Accounts payable 2,474 3,710 3,792
Accrued expenses 4,579 (1,827) 905
Customer advances payable - - (4,007)
Due to affiliates and shareholders - - (3,306)
Income taxes payable (1,508) 1,703 (38)
---------------------------------------------------
Net cash used in operating activities (1,068) (29,206) (12,619)
INVESTING ACTIVITIES
Purchase of fixed assets, net (7,915) (6,797) (3,488)
Other assets 28 1,330 (597)
Payment for noncompete agreements - (3,200) -
Sale of subsidiary, net (464) - -
Purchase of businesses, net of cash acquired (3,830) 5,299 (60)
---------------------------------------------------
Net cash used in investing activities (12,181) (3,368) (4,145)
FINANCING ACTIVITIES
Short-term borrowings, net (1,436) 5,292 -
Credit facility outstanding, net 5,383 1,619 774
Increase in long-term debt, net 315 (6,414) (5,453)
Redemption of preferred stock - - (1,250)
Net proceeds from issuance of common stock 24 39,199 24,542
Investment by shareholder in subsidiary 32 212 -
---------------------------------------------------
Net cash provided by financing activities 4,318 39,908 18,613
Effect of exchange rate changes on cash 216 (324) (6)
---------------------------------------------------
Net (decrease) increase in cash (8,715) 7,010 1,843
Cash at beginning of period 14,202 7,192 5,349
---------------------------------------------------
Cash at end of period $ 5,487 $ 14,202 $ 7,192
===================================================
</TABLE>
F-6
<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<CAPTION>
Year ended
--------------------------------------------------
February January January
3, 1996 28, 1995 29, 1994
--------------------------------------------------
(In thousands)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 2,335 $ 3,005 $ 3,777
Interest paid 4,220 7,500 5,005
Equipment acquired through capital leases - - 534
Mortgage assumed on purchase of building - - 1,332
Issuance of Company common stock to purchase
minority interest of subsidiary companies - - 2,925
Issuance of Company common stock for common stock
of affiliates - - 21
Exchange of Company common stock for acquisitions 675 57,325 -
Debt assumed on acquisition of business - 1,858 -
Issuance of Company common stock for services rendered - 70 -
Unpaid deferred acquisition costs - 259 810
Receipt of Company common stock from sale of subsidiary 7,500 - -
</TABLE>
See accompanying notes.
F-7
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
February 3, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPAL BUSINESS ACTIVITY
Cygne Designs, Inc. ("Cygne") and its subsidiaries (collectively, the "Company")
are engaged in private label designing, merchandising and manufacturing of woven
and knit career and casual clothing for women.
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest to January 31. A year
refers to the fiscal year of the Company commencing in that calendar year and
ending on the Saturday nearest January 31 of the following year.
ORGANIZATION AND PRINCIPLES OF COMBINATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Cygne and its
subsidiaries. All material intercompany balances and transactions were
eliminated in consolidation and combination. Certain prior year accounts were
reclassified to conform to current year presentation.
USE OF ESTIMATES
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.
Actual results could differ from those estimates.
INVENTORY
Inventory is stated at the lower of cost (determined on a first-in, first-out
basis) or market.
F-8
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is provided for by the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized using the straight-line method over the term of the related lease.
REVENUE RECOGNITION
Revenues are recorded at the time of shipment of merchandise. The Company
establishes reserves for sales returns and allowances. Such reserves amounted to
$2,138,000 and $6,553,000 at February 3, 1996 and January 28, 1995,
respectively.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the applicable
foreign currency of the country in which it operates except for Hong Kong for
which the functional currency is the U.S. dollar. The translation from the
applicable foreign currencies to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using a weighted average exchange rate during
the period. The gains or losses, net of applicable deferred income taxes,
resulting from such translation are included in stockholders' equity.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of short-term debt and long-term variable rate debt
approximate fair value.
EARNINGS PER SHARE AND SUPPLEMENTAL EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of common
stock outstanding during each year and, for 1994 and 1993, the common stock
equivalents outstanding during the period. For 1995, common stock equivalents
are excluded as the effect of their inclusion would be antidilutive.
F-9
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Supplemental earnings per share for the year ended January 29, 1994 also include
approximately 1,392,000 shares deemed to be sold by the Company in connection
with its initial public offering to repay certain debts and to redeem
outstanding redeemable preferred stock as if such debts and redeemable preferred
stock had been repaid at the beginning of the year. Earnings per share for the
year ended January 29, 1994 would have been $0.86 if such shares had been issued
at the beginning of that year.
Supplemental earnings per share for the year ended January 28, 1995 also include
approximately 353,000 shares deemed to be sold by the Company in connection with
its June 1994 public offering to repay certain debt assumed in connection with
an acquisition as if such debt had been repaid at the date of the acquisition.
Earnings per share for the year ended January 28, 1995 would have been $0.93 if
such shares had been issued at the date of the acquisition.
GOODWILL AND OTHER INTANGIBLES
Goodwill includes the excess of cost over fair value of net assets acquired. The
remaining goodwill is being amortized on a straight-line basis over 10 years.
Accumulated amortization at February 3, 1996, excluding the write-off of
$48,949,000 during 1995, and January 28, 1995 was approximately $5,738,000 and
$2,563,000, respectively.
The Company assesses the recoverability of its intangible assets by determining
whether amortization over the remaining lives can be recovered through
undiscounted future operating cash flows of the acquired operation and other
considerations. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
Other intangibles were being amortized over 4 and 15 years.
F-10
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. PURCHASES AND DISPOSITIONS OF COMPANIES
CAT US, Inc. and C.A.T. (Far East) Limited, collectively "CAT," which began
operations in June 1992, was originally owned by the stockholders of Cygne (80%)
and AnnTaylor, Inc. (20%). Effective April 30, 1993, CAT became a 60% owned
subsidiary of Cygne with AnnTaylor, Inc. owning the remaining 40% interest. Had
such minority interests been increased at the date CAT commenced operations,
combined net income for the year ended January 29, 1994 would have been
$6,006,000, and the earnings per share would have been $0.90.
Cygne Knits Ltd., which began operations in February 1993, was originally owned
by certain stockholders of Cygne. Effective April 30, 1993, it became a
wholly-owned subsidiary of Cygne. The consolidated financial statements for the
year ended January 29, 1994 include Knits from its inception.
On May 2, 1993, the Company purchased 66% of the capital stock of JMB
Internacionale S.A. ("JMB"), a company formed to supervise manufacturing of
products in Guatemala, from an affiliate of a Director of the Company. At May 2,
1993, JMB owned 50% of Modas Cisne, S.A., a manufacturing company located in
Guatemala. On October 29, 1993, JMB purchased the remaining 50% of the
outstanding stock of Modas Cisne, S.A. for future contingent payments based on
future earnings of this subsidiary. On October 18, 1995, the Company purchased
the remaining 34% of the capital stock of JMB.
During 1993, in two transactions, the Company acquired T. Wear Company S.r.l.
and M.T.G.I. Textile Manufacturers Group (Israel) Limited in exchange for an
aggregate of $500,000 and 150,000 shares of the Company's common stock. These
companies, design, merchandise, manufacture and sell women's apparel to
customers principally in the United States. The common stock issued has been
valued at the market price of the Company's common stock on the transactions'
closing date ($19.50 per share). The fair market value of the assets acquired
(principally accounts receivable and current liabilities) approximated their
book value and the excess of the purchase price over the fair value of the net
assets acquired of $3,600,000 was recorded as goodwill and is being amortized
over a ten year period.
F-11
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. PURCHASES AND DISPOSITIONS OF COMPANIES (CONTINUED)
In April 1994, the Company acquired Fenn, Wright and Manson, Incorporated
("FWM"), a designer, merchandiser and manufacturer principally of private label
women's and men's apparel primarily serving prominent specialty retail store
chains and department stores in the U.S. and the United Kingdom (the "FWM
Acquisition"). The purchase price for FWM was $44,000,000, consisting of
2,000,000 unregistered shares of the Company's common stock and $10,000 in cash.
Additional costs related to this acquisition approximated $1,400,000. The excess
of the purchase price over the fair value of the net assets acquired of
approximately $47,848,000 was recorded as goodwill, and was being amortized over
a twenty-five year period.
On April 7, 1995, the Company sold the United Kingdom subsidiary of FWM and
certain brand name rights to Fenn Wright and Manson (Antilles) N.V. (a group led
by Colin Fenn) in exchange for 600,000 shares of Cygne common stock previously
issued. In connection with this transaction, Mr. Fenn resigned his positions as
Director and Vice Chairman of the Company, and as President of FWM. In the
quarter ended April 29, 1995, Cygne recorded a gain of $4,742,000 on the sale,
which is net of certain restructuring expenses of $2,800,000 (consisting
primarily of severance to former FWM employees and costs associated with closing
certain of FWM's facilities) pertaining to the related integration of FWM's
operations with the Company's.
During 1995, management also took various actions to reverse a decline in FWM's
remaining business. However, management determined that such actions were not
having the desired results and eliminated all of the operations of FWM. The
unamortized goodwill recorded in connection with the acquisition of FWM
($44,530,000) exceeded the undiscounted anticipated future operating cash flows
over the remaining goodwill amortization period. Therefore, the FWM goodwill was
written off.
In October 1994, Cygne acquired the business operations of G.J.M. International
Limited ("GJM"), a Hong Kong-based designer, merchandiser and manufacturer of
women's intimate apparel, from G.J.M. International Limited, a company
wholly-owned by Mr. W. Glynn Manson (the "GJM Acquisition"). The purchase price
for GJM was $15,200,000, consisting of 650,000 unregistered shares of the
Company's common stock, $10,000 in cash and the assumption of approximately
$1,900,000 of indebtedness owed by GJM International to The Limited, Inc.
Additional costs related to this acquisition approximated $1,700,000. The excess
of the purchase price over the fair value of the net assets acquired of
approximately $27,659,000 was recorded as goodwill and was being amortized over
a twenty-five year period.
F-12
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. PURCHASES AND DISPOSITIONS OF COMPANIES (CONTINUED)
In connection with the GJM Acquisition the Company also paid $3,200,000 to two
key executives of GJM for non-compete agreements of fifteen years and four
years, respectively, and issued options vesting over four years to certain key
personnel of GJM to purchase an aggregate of 165,000 shares of the Company's
common stock at a purchase price of $20.50 per share, which option purchase
price as to 125,000 of such shares was subsequently reduced to $2.00 per share
along with other employees of this class.
In February 1996, the Company sold substantially all of the assets of its GJM
intimate apparel and sleepwear business to Warnaco Inc. In the transaction,
Warnaco paid Cygne $12.5 million in cash and assumed certain liabilities of the
GJM business. Warnaco is also holding an additional $1.5 million in a treasury
security to secure it obligations to make post-closing payments based upon a
formula that provides, to the extent that net assets (as defined in the purchase
agreement) acquired by Warnaco exceed $8.1 million, Warnaco will pay Cygne the
$1.5 million held in a treasury security and the amount by which the net assets
exceeds $8.1 million. To the extent such net assets are less than $8.1 million,
Cygne will pay Warnaco the difference first by applying up to $1.5 million being
held in a treasury security by Warnaco against the amount the net assets fall
below $8.1 million and thereafter will pay Warnaco any further difference below
$6.6 million in net assets. Warnaco has informed the Company that it believes
the net assets acquired aggregated only $1,589,000 and that the Company owes
Warnaco $6,511,000, of which $1.5 million would be satisfied through the
treasury security. The Company disagrees with Warnaco's calculations and is in
the process of reviewing them with Warnaco. The Company cannot predict the
outcome of this dispute. At the time the dispute is resolved, and depending on
the determination of the value of net assets acquired by Warnaco, the Company
may recognize an increase or a decrease in the loss of approximately $31 million
on the sale. The Company used all the proceeds from the sale to repay
outstanding senior bank indebtedness. GJM accounted for approximately 19.4% of
the Company's net sales of $540.1 million for the year-ended February 3, 1996.
F-13
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. PURCHASES AND DISPOSITIONS OF COMPANIES (CONTINUED)
In February 1995, Cygne acquired Tralee S.A. ("TSA"), a Uruguayan corporation
that sources products in Brazil for export, primarily to the U.S. The purchase
price for TSA was approximately $3,800,000, consisting of 53,038 unregistered
shares of the Company's common stock and $3,100,000 in cash (the "TSA
Acquisition"). Additional costs related to this acquisition approximated
$730,000. The excess of the purchase price over the fair value of the net assets
acquired of approximately $4,500,000 was recorded as goodwill and was amortized
over a twenty-five year period. Cygne also issued options to purchase an
aggregate of 55,000 shares of the Company's common stock to the two former
shareholders of TSA in connection with their entering into consulting agreements
with TSA. In January 1996, the Company decided to cease operations of the end of
the second quarter of 1996 of TSA and wrote-off the balance of the goodwill.
The FWM Acquisition, the GJM Acquisition and the TSA Acquisition were accounted
for under the purchase method and, accordingly, the operating results of FWM,
GJM and TSA have been included in the consolidated operating results since their
respective dates of acquisition.
In April 1996, the Company entered into an agreement in principle with AnnTaylor
Stores Corporation ("AnnTaylor") pursuant to which AnnTaylor will acquire
Company's 60% interest in CAT and the assets of the Company's AnnTaylor Woven
Division that are used in sourcing merchandise for AnnTaylor (the "AnnTaylor
Disposition").
F-14
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. PURCHASES AND DISPOSITIONS OF COMPANIES (CONTINUED)
The aggregate consideration to be paid to the Company in the transaction
consists of unregistered shares of AnnTaylor common stock having a market value
of $36 million (based on the average of the high and low price of AnnTaylor
common stock in the ten days prior to closing), but in no event is AnnTaylor
obligated to issue more than 2.5 million shares, and cash in an amount equal to
the tangible net book value of the inventory and fixed assets of the Company's
AnnTaylor Woven Division, less certain assumed liabilities of the division. The
closing of the transaction is subject to various conditions, including the
negotiation and execution of definitive documentation, approval by the Company's
stockholders, the Company's receipt of a fairness opinion from its financial
advisor, the consent of the Company's and AnnTaylor's lenders and the
continuation of CAT's $40 million credit facility. It is currently anticipated
that the transaction will close in July 1996, although there can be no assurance
that the transaction will be consummated in this time frame or at all. In order
to facilitate the integration of CAT and Cygne's AnnTaylor Woven Division into
AnnTaylor's operations, Cygne has agreed to make available for a three year
period the services of Mr. Bernard Manuel, the Company's Chief Executive
Officer, and Mr. Irving Benson, the Company's President. Cygne will make
available up to 30% of Messrs. Benson's and Manuel's time and will receive an
aggregate fee of $450,000 per year. AnnTaylor has agreed to register the shares
issued to Cygne for resale, although Cygne will be subject to certain
restrictions on the timing of sales and the amount of shares which can be sold
at any one time.
CAT and the AnnTaylor Woven Division accounted for approximately 53% of the
Company's estimated net sales of $435 million (excluding net sales of the
recently sold GJM Group) for the year ended February 3, 1996.
F-15
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. PRO FORMA RESULTS OF OPERATIONS
The pro forma unaudited results of operations for the years ended January 28,
1995 and January 29, 1994 include the results of the operations of FWM and GJM
as if such acquisitions occurred at the beginning of the respective periods. The
shares of the Company's common stock issued in the FWM Acquisition have been
valued at $22.00 per share, based on the closing price of the Company's common
stock on April 6, 1994, the date the FWM Acquisition was consummated. The shares
of the Company's common stock issued in the GJM Acquisition have been valued at
$20.50 per share based on the closing price of the Company's common stock on
October 7, 1994, the date the GJM Acquisition was consummated. The pro forma
information does not purport to be indicative of the results that actually would
have occurred had the FWM and GJM Acquisitions been effected on the dates
indicated, nor do they project the Company's results of operations for any
future dates or periods.
The following selected unaudited pro forma information combines Cygne, FWM and
GJM assuming the purchases were consummated as of the beginning of the
respective periods.
1994 1993
----------------------------
($ In thousands, except
per share amounts)
Net sales $592,676 $475,299
Net income 9,403 10,068
Income per common and common equivalent share $ 0.75 $ 1.08
For the period from February 1, 1994 through the date of acquisition, FWM had
net sales of $25,457,000 and net income of $886,000.
For the period from February 1, 1994 through the date of acquisition, GJM had
net sales of $51,114,000 and a net loss of $1,243,000.
F-16
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. PRO FORMA RESULTS OF OPERATIONS (CONTINUED)
The allocation of the purchase price of FWM and GJM is summarized as follows
($ in thousands):
Current assets $ 47,067
Current liabilities (56,392)
----------------
Working capital (9,325)
Other assets 1,827
Property, plant and equipment 3,558
Goodwill 75,507
Long-term debt (7,858)
Other noncurrent liabilities (1,380)
----------------
Total purchase price $ 62,329
================
4. PUBLIC OFFERINGS OF THE COMPANY'S COMMON STOCK
In August 1993, the Company sold 2,760,000 shares of its common stock through an
initial public offering and realized net proceeds of approximately $24,500,000.
The net proceeds received by the Company from the offering were used to (i)
repay $6,800,000 due WHK Holdings Company Limited, an affiliate of a Director of
the Company, representing amounts due for the purchase of raw materials and
finished products (including related agency and financing fees) on behalf of the
Company; (ii) repay a $3,600,000 advance from AnnTaylor, Inc.; (iii) repay
$2,400,000 in notes and accrued interest due to stockholders (the notes bore
interest at 10% per annum); and (iv) redeem $1,250,000 of the Company's Series A
Redeemable Preferred Stock owned by an affiliate of a Director of the Company.
The balance of the proceeds were used for working capital purposes.
In June 1994, the Company sold 2,300,000 shares of common stock to the public
and realized net proceeds of approximately $39,100,000. The net proceeds
received by the Company from the offering were used to repay a $6,000,000 note
due to Plymouth Holdings Limited, the former indirect sole stockholder of FWM.
The balance of the proceeds were used for working capital and for fixed asset
purchases.
F-17
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INVENTORY
Inventory consists of the following:
February January
3, 1996 28, 1995
-----------------------------------
($ In thousands)
Raw materials $21,748 $39,447
Finished goods 2,972 8,411
Finished goods-in-transit 5,279 9,712
----------------------------------
$29,999 $57,570
==================================
6. FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation and amortization
and are summarized below together with estimated useful lives used in computing
depreciation and amortization:
<TABLE>
<CAPTION>
February January Estimated
3, 1996 28, 1995 Useful Lives
------------------------------------------------------
($ In thousands)
<S> <C> <C> <C>
Land and building $ 2,826 $ 2,905 20-30 years
Equipment, furniture, and fixtures 9,614 17,048 3-10 years
Leasehold improvements 4,138 6,106 Term of Lease
Trucks and automobile 654 1,323 3-5 years
-------------------------------
17,232 27,382
Less accumulated depreciation
and amortization 3,699 12,730
-------------------------------
$13,533 $14,652
===============================
</TABLE>
F-18
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. CREDIT FACILITIES
During the quarter ended October 28, 1995, Cygne and CAT each entered into a
Credit Agreement with the HS Bank, expiring May 31, 1996, which modified and, in
the case of Cygne, FWM and GJM, consolidated the previous credit arrangement
with the HS Bank. The modifications included (i) the consolidation of the Cygne,
FWM and GJM facilities, previously aggregating up to $76,400,000, into one
facility of up to $70,000,000 (ii) an increase in the CAT facility from up to
$28,000,000 to up to $40,000,000, (iii) a requirement under each agreement to
comply with certain financial covenants as well as various other restrictions,
(iv) an increase in the Cygne facility interest rate and (v) the elimination of
the requirement to maintain a certain certificate of deposit as additional
security for the prior separate GJM credit facility, which appeared as
restricted cash on the January 28, 1995 balance sheet. Borrowings under these
facilities, which may be terminated by the HS Bank or the Company at any time as
to future borrowings upon proper notice, are subject to certain borrowing base
limitations and the HS Bank's agreement as to amount, purpose, interest rate,
maturity and collateral. Borrowings under these facilities are due on the
earlier of demand or the maturity date specified by the HS Bank for each
borrowing. Amounts outstanding under the Cygne agreement bear interest at 1.25%
above the prime rate through January 31, 1996 and between 1% and 1.75% above the
prime rate thereafter depending upon the working capital, as defined, of the
Company, exclusive of CAT. Amounts outstanding under the CAT agreement bear
interest at 0.5% above the prime rate. Each agreement provides for additional
interest at 2% per annum on amounts not paid when due. The HS Bank facilities
are cross guaranteed by Cygne and certain of its subsidiaries and are secured by
a first lien on substantially all the assets of the Company including a pledge
of 65% of the capital stock of certain of Cygne's foreign subsidiaries, except
for C.A.T. (Far East) Limited as to which 60% of the capital stock is pledged.
At February 3, 1996, the Company is not in compliance with its credit
agreement's working capital requirements, current ratio, leverage ratio and
tangible net worth financial covenants. The HS Bank has permanently waived all
defaults under the credit agreement.
F-19
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. CREDIT FACILITIES (CONTINUED)
The following table sets forth information with respect to the HS Bank
facilities ($ in thousands):
<TABLE>
<CAPTION>
At February 3, 1996
----------------------------------------------------
Total Direct Open Direct
Facility (1) Borrowing Letters of Borrowings Interest
Limit (2) Credit Outstanding Rate
--------------- ---------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Cygne $ 70,000 $50,000 $10,896 $34,773 9.25%-10.0%
CAT (3) 40,000 8,000 27,925 1,087 8.75%
--------------------------------------------------------------
Total $110,000 $58,000 $38,821 $35,860
==============================================================
</TABLE>
(1) Under the CAT facility, the total facility, less any direct borrowings
outstanding, is available for letters of credit.
(2) Consists principally of revolving loans and borrowings against
import/exports.
(3) Cygne has guaranteed 60% of the indebtedness outstanding under this
facility, and AnnTaylor has provided the HS Bank with a $4,000,000 standby
letter of credit.
(4) The Limited, Inc. has guaranteed $10,000,000 of the HS Bank facilities
through May 31, 1996.
On May 15, 1996 the Company received a commitment letter from HS Bank to provide
the Company with a new credit facility to replace the existing facility which
expires on May 31, 1996. The commitment letter provides a committed facility of
up to $30 million until the earlier of August 31, 1996 or the closing of the
AnnTaylor Disposition; thereafter the facility reduces to $22.5 million and
further reduces to $15 million at October 31, 1996; $10 million at November 30,
1996; $5 million at December 31, 1996 and matures on January 31, 1997.
Borrowings under this facility are subject to borrowing base limitations. The
Company is obligated to pledge substantially all of its assets, including the
AnnTaylor stock to be received at the closing of the AnnTaylor Disposition. The
credit facility is subject to the completion of definitive documentation.
F-20
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. CREDIT FACILITIES (CONTINUED)
Certain foreign subsidiaries have credit facilities aggregating $1,595,000 at
February 3, 1996. Borrowings under these facilities, which are payable on
demand, are secured by a lien on certain assets of these subsidiaries.
Cygne has agreements with two third parties not affiliated with the Company, but
affiliated with each other, whereby these parties made available to the Company
a trade credit facility. The trade credit facility has been suspended. At
February 3, 1996, $8,945,000 of this facility was outstanding. Outstanding
amounts in 1995 bore interest at 1.5% above the prime rate. The Company has
reached an agreement in principle to restructure the amounts outstanding under
this trade credit facility.
During the year ended February 3, 1996, the Company's weighted average interest
rate for HS Bank was approximately 9.6%.
8. DEBT
The Company has existing mortgages, of $1,052,000 at February 3, 1996 relating
to a foreign office and manufacturing facility which bears interest at LIBOR
plus 2% and is payable quarterly in equal payments of $52,600.
At February 3, 1996, the Company also has a $1,258,000 unsecured note payable to
The Limited, Inc., a major customer of the Company. The principal amount
outstanding, which is currently payable, bears interest at prime plus 2% and was
originally due on December 31, 1995.
At February 3, 1996, the balance outstanding on other debt was $1,299,000 of
which $720,000 is long-term.
F-21
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. STOCK OPTIONS
Pursuant to an employee Stock Option Plan as amended, the Company may grant to
eligible individuals incentive stock options as defined in the Internal Revenue
Code ("IRC") and non-qualified stock option. An aggregate of 1,700,000 shares of
common stock have been reserved for issuance under the Plan. The exercise price
for incentive options may not be less than 100% (110% for holders of 10% or more
of the Company's outstanding shares) of the fair market value of the shares on
the date of grant, and at least par value of the common stock with respect to
the non-qualified stock options, have a ten-year term (five years for holders of
10% or more of the Company's outstanding shares in the case of incentive stock
options) and vest at the discretion of the Board of Directors.
Pursuant to a Stock Option Plan for Non-Employee Directors adopted on April 15,
1993, the Company will automatically grant to eligible non-employee directors
options to purchase 10,000 shares of Common Stock upon the directors' initial
appointment to the Board of Directors and options to purchase 2,000 shares of
Common Stock on each individual director's anniversary date from initial
appointment. Options granted under the Directors Plan do not qualify as
incentive stock options under the IRC. The options have an exercise price of
100% of fair market value on the date of grant, have a ten-year term and vest,
pro-rata, over four years.
F-22
<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. STOCK OPTIONS (CONTINUED)
The following summarizes stock option transactions:
<CAPTION>
Employee Stock Non-Employee Other Stock Option
Option Plan Directors Plan Arrangements
------------------------- ------------------------ ------------------------ Total
Number Exercise Number Exercise Number Exercise Number
of Shares Price Range of Shares Price Range of Shares Price Range of Shares
------------------------- --------- -------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at January 30, 1994 369,000 $4.00-$16.88 40,000 $4.00-$16.88 409,000
Options granted in fiscal 1994 598,000 $13.38-$22.75 8,000 $22.50-$23.50 165,000 $13.38-$22.50 771,000
Options canceled in fiscal 1994 (13,500) $4.00-$13.38 (13,500)
Options exercised in fiscal 1994 (15,750) $4.00 (15,750)
Options outstanding at January 28, 1995 937,750 $4.00-$22.75 48,000 $4.00-$23.50 165,000 $13.38-$22.50 1,150,750
Options granted in fiscal 1995 589,500 $2.00 6,000 $3.25-$10.00 67,500 $2.00 663,000
Options canceled in fiscal 1995 (329,500) $2.00-$22.75 (20,500) $4.00-$23.50 (2,250) $2.00-$23.50 (352,250)
Options exercised in fiscal 1995 (5,250) $4.00 - - - - (5,250)
=========== ========== =========
Options outstanding at February 3, 1996 1,192,500 $2.00-$22.75 33,500 $3.25-$22.50 230,250 $2.00-$22.50 1,456,250
=========== ========== ========== =========
At February 3, 1996 options exercisable 273,750 16,500 39,375 329,625
=========== ========== ========== =========
</TABLE>
On November 11, 1994, the Company repriced employee stock options to purchase
430,000 shares of Common Stock at $13.375 (the fair market value on that date),
of which options to purchase 305,000 shares had been granted on May 31, 1994 at
$18.50 a share and options to purchase 125,000 shares had been granted on
October 7, 1994 at $22.50 a share.
F-23
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. STOCK OPTIONS (CONTINUED)
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based compensation issued
to employees. The Statement allows for a fair value based method of accounting
for employee stock options and similar equity instruments. However, for
companies that continue to account for stock-based compensation arrangements
under Opinion No. 25, Statement No. 123 requires disclosure of the pro forma
effect on net income and earnings per share of its fair value based accounting
for those arrangements. These disclosure requirements are effective for fiscal
years beginning after December 15, 1995, or upon initial adoption of the
statement, if earlier. The Company determined that it would continue to account
for stock-based compensation arrangements under opinion No. 25. Accordingly,
Statement No. 123 will not have an effect on future operating results.
10. CONCENTRATIONS OF RISK
For the year ended February 3, 1996, two customers (AnnTaylor and The Limited
Inc.) accounted for 43% and 34% of the Company's net sales. These customers
accounted for approximately 63% and 17% of trade accounts receivable at February
3, 1996.
For the year ended January 28, 1995, the two customers above accounted for 37%
and 38% of the Company's net sales. The customers accounted for approximately
30% and 20%, and a third customer accounted for approximately 12% of trade
accounts receivable at January 28, 1995.
For the year ended January 29, 1994, the two customers above accounted for 55%
and 39% of the Company's net sales. These customers accounted for approximately
54% and 26% of trade accounts receivable at January 29, 1994.
In April 1996, the Company entered into an agreement in principle to sell its
60% interest in CAT and the assets of Cygne's AnnTaylor Woven Division to
AnnTaylor. Upon the consummation of the AnnTaylor Disposition, the Company
anticipates that it will no longer have sales to AnnTaylor. The Company has been
dependent on its key customers and, with the loss of AnnTaylor as a customer,
its future success is dependent upon its ability to attract new customers. There
can be no assurance that the Company will be able to attract new customers in
1996 or that The Limited, Inc., the Company's other significant customer, will
continue to purchase merchandise from the Company at the same rate in the
future.
F-24
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. LEASES, COMMITMENTS AND LITIGATION
LEASES
The Company leases manufacturing and office facilities and equipment under
operating lease agreements which expire through 2010. Future minimum lease
payments under noncancelable operating leases are as follows ($ in thousands):
(In thousands)
Year ended:
1996 $ 2,921
1997 2,791
1998 2,791
1999 2,493
2000 2,555
Thereafter 22,818
------------------
Total future minimum lease payments $36,369
==================
Certain of the leases contain provisions for additional rent based upon
increases in the operating costs of the premises, as defined. Pursuant to an
Agreement in Principle (see Note 2) certain of the aforementioned leases are to
be assumed by AnnTaylor.
Total rent expense under the operating leases for the years ended February 3,
1996, January 28, 1995 and January 29, 1994 amounted to approximately
$2,752,000, $4,988,000 and $1,651,000, respectively.
For leases which contain free-rent periods and predetermined fixed escalations
of the minimum rentals, the Company recognizes the related rental expense on a
straight-line basis and includes the difference between the expense charged to
income and amounts payable under the leases on the balance sheets in deferred
rent credits.
COMMITMENTS
The Company has employment agreements with certain officers and key employees
through 2000. Future minimum aggregate annual payments under these agreements
amount to approximately $2,799,000 in 1996, $871,000 in 1997, $220,000 in 1998.
In addition, certain of the officers and employees may receive additional
compensation based upon the income, as defined, of the Company or one or more of
its subsidiaries.
F-25
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. LEASES, COMMITMENTS AND LITIGATION (CONTINUED)
LITIGATION
On December 11, 1995, a class action complaint was filed against the Company,
certain of the Company's officers and directors, Ernst & Young LLP, the
underwriters of the Company's June 1994 secondary public offering of stock and
certain financial analysts who followed the Company, in the United States
District Court, Southern District of New York. The action was purportedly filed
on behalf of a class of purchasers of the Company's stock during the period
September 28, 1993 through April 28, 1995. The complaint seeks unspecified money
damages and alleges that the Company and the other defendants violated federal
securities laws in connection with various public statements made by the Company
and certain of its officers and directors during the putative class period. A
scheduling order was entered by the Court on February 9, 1996 and provides for
the filing of an amended complaint by plaintiff on March 6, 1996 and the filing
of motions to dismiss the amended complaint by all of the defendants, including
the Company and certain of its officers and directors, on April 9, 1996. The
Company believes that all of the allegations contained in the complaint are
without merit and intends to continue to defend the action vigorously. An
adverse decision in this action could have a material adverse effect on the
Company's financial condition and results of operations.
Richard Kramer, a former employee of the Company, brought an action against the
Company Bernard Manuel and Irving Benson alleging three causes of action (1)
fraudulent inducement of Kramer to accept employment as a Vice President; (2)
breech of contract by refusing to pay Kramer approximately $168,500 upon his
termination, under a provision which states that if he were terminated without
cause he would receive consideration equal to that sum; and (3) breach of
contract for failure to deliver certain stock options to Kramer. In October 1995
the defendants moved to dismiss the action on the grounds that the complaint
failed to state a cause of action, that Kramer refused to give the Company a
release in return for payment of the $168,500, and that Kramer, who had been
employed for only two months at the time of his termination, was not entitled to
stock options under the employment letter between the parties. The motion was
denied to the extent that it sought dismissal of the fraudulent inducement claim
and the claim for $168,500, but granted insofar as the stock option were
concerned. An agreement in principle was reached with respect to this matter for
an amount that the Company does not deem material during mandatory nonbinding
mediation.
F-26
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Leases, Commitments and Litigation (continued)
The Company is subject to various other claims and assessments which arise in
the ordinary course of its business. In the opinion of management, the
disposition of all such items will not have a material effect on the Company's
results of operations or financial position.
12. RELATED PARTY TRANSACTIONS
The Company had the following related party transactions in addition to those
discussed elsewhere in these financial statements:
(i) During the year ended January 28, 1995, a company controlled by a
director began acting as the Company's agent for the collection of
claims against vendors.
(ii) During the year ended January 29, 1994 the Company was charged
consulting fees of approximately $66,000 by a stockholder.
(iv) The Company paid to an affiliate fees to cover, among other matters, a
buying agent commission and bank letter of credit fees. The total fees
incurred for the year ended January 29, 1994 amounted to approximately
$123,000.
The Company paid to this affiliate interest at the rate of 11% per
annum on outstanding indebtedness. Related interest expense for the
year ended January 29, 1994 amounted to approximately $199,000.
Purchases arranged by this affiliate for the year ended January 29,
1994 was approximately $3,500,000.
(v) Amounts receivable from companies affiliated with an officer of a
foreign subsidiary amounted to approximately $400,000 at January 29,
1994.
13. INCOME TAXES
Income taxes are provided using the liability method prescribed by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the
liability method, deferred income taxes reflect tax carryforwards and the net
tax effects of temporary differences between the carrying amount of assets and
liabilities for financial statement and income tax purposes, as determined under
enacted tax laws and rates. The financial effect of changes in tax laws or rates
is accounted for in the period of enactment.
F-27
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets are as follows:
February January
3, 1996 28, 1995
----------------------------
(In thousands)
Deferred tax assets:
Capitalization of expenses $ 731 $ 669
Inventory reserve 80 1,026
Accounts receivable reserve 243 639
Reserves for losses on shuttered operations 2,870 -
Other (170) 1,155
Net operating loss carryforwards 18,790 556
----------------------------
Subtotal 22,544 4,045
Valuation allowance (16,478) (562)
----------------------------
Total deferred tax assets $ 6,066 $3,483
============================
For financial reporting purposes income before income taxes includes the
following components:
Year ended
-------------------------------------------------
February January January
3, 1996 28, 1995 29, 1994
-------------------------------------------------
(In thousands)
Pretax income:
United States $(126,384) $ 2,456 $ 6,878
Foreign (4,180) 15,563 3,794
------------------------------------------------
$(130,564) $18,019 $10,672
================================================
F-28
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES (CONTINUED)
Significant components of the (benefit) provision for income taxes attributable
to operations are as follows:
Year ended
----------------------------------------------------
February January January
3, 1996 28, 1995 29, 1994
----------------------------------------------------
(In thousands)
Current:
Federal $ (3,875) $ 1,910 $ 2,592
Foreign 345 3,119 940
State (103) 674 639
----------------------------------------------------
Total current (3,633) 5,703 4,171
Deferred:
Federal (2,315) (112) (55)
Foreign 4 57 (205)
State (272) (80) (14)
----------------------------------------------------
Total deferred (2,583) (135) (274)
----------------------------------------------------
$ (6,216) $ 5,568 $ 3,897
====================================================
The reconciliation of income tax at the U.S. federal statutory tax rates to
income tax expense is:
<TABLE>
<CAPTION>
Year ended
------------------------------------------------------------------
February January January
3, 1996 28, 1995 29, 1994
----------------------- ---------------------- -------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $(44,392) (34.0)% $ 6,126 34.0% $3,628 34.0%
Loss, no benefit provided 15,916 12.2 - - - -
State income taxes, net of
federal tax benefit (248) (0.2) 392 2.2 412 3.8
Lower effective income tax rates
of foreign jurisdictions 1,770 1.4 (2,115) (11.7) (556) (5.2)
Amortization of intangibles 1,080 0.8 825 4.6
Goodwill written-off 21,032 16.1 - - - -
Other (1,374) (1.1) 340 1.8 413 3.9
----------- ---------- ----------- ---------- --------- --------
$ (6,216) (4.8)% $ 5,568 30.9% $3,897 36.5%
=========== ========== =========== ========== ========= ========
</TABLE>
F-29
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES (CONTINUED)
At February 3, 1996, the Company has U.S. net operating loss carryforwards of
approximately $49,000,000 for income tax purposes that expire in years 1996
through 2005. The Company has additional net operating loss carryforwards of
$1,100,000 that are subject to Internal Revenue Code Section 382 which limits
the maximum loss carryforward utilization each year to approximately $115,000.
The Company is subject to ongoing tax audits in several jurisdictions. The
Company believes any adjustments that may arise as a result of these audits,
will not be material to the Company's financial position.
14. GEOGRAPHIC SEGMENT INFORMATION
The Company operates primarily in one industry segment which includes the
development, manufacturing and sales of women's apparel.
Net sales to unaffiliated customers and identifiable assets classified by
geographic area, which was determined by where sales originated from and where
identifiable assets were held, were as follows: ($ in thousands)
Total Total Intersegment
Domestic Foreign Eliminations Total
------------------------------------------------
Year ended February 3, 1996
Net sales $ 492,497 $55,349 $ (7,783) $ 540,063
Operating loss (120,668) (1,083) - (121,751)
Identifiable assets 107,465 24,221 (14,541) 117,145
Year ended January 28, 1995
Net sales 460,377 74,079 (18,351) 516,105
Operating profit 4,662 20,977 - 25,639
Identifiable assets 202,162 51,964 (598) 253,528
(a) Sales in the U.S. are primarily from imported goods.
(b) The intangible assets recognized in connection with acquisitions are
included in identifiable assets in the U.S.
(c) Total Foreign amounts principally represent the Company's Asian operations.
F-30
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. EMPLOYEE BENEFIT PLANS
The Company does not provide any post employment or post retirement benefits to
its current or former employees. The Company also terminated all of its 401(k)
plans and its foreign defined benefit plans. Costs of these plans charged to
operations for 1995 were not material.
F-31
<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Related to Deductions End of
Description of Period Additions Expenses Acquisitions (Describe)* Period
- - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Reserves for returns and allowances:
Year ended January 29, 1994 $1,301 $ 5,511 $ - $ 4,614 $2,198
Year ended January 28, 1995 2,198 19,353 2,580 17,578 6,553
Year ended February 3, 1996 6,553 23,293 - 27,663 2,183
*Sales returns and write-off of uncollectible accounts.
</TABLE>
F-32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) and (2) See "Index to Consolidated Financial Statements and Financial
Statement Schedules" on page F-1.
(3) Exhibits
Certain exhibits presented below contain information that has been
granted or is subject to a request for confidential treatment. Such
information has been omitted from the exhibit. Exhibit Nos. 10.2,
10.3, 10.4, 10.5, 10.6, 10.8, 10.9, 10.17, 10.19, 10.41, 10.43, and
10.55 are management contracts, compensatory plans or arrangements.
EXHIBIT NO. DESCRIPTION
- - -----------------------------------------------------------------
3.1 Restated Certificate of Incorporation, as amended by
Certificate of Amendment filed August 5, 1994 with the
Secretary of State of the State of Delaware.*(1)
3.2 By-laws.*(2)
4 Specimen Stock Certificate.*(2)
10.1 Agreement, dated as of April 30, 1993, among the Company, Bernard
Manuel, Irving Benson, CIL, Belton Limited and certain other
parties.*(2)
10.2 Amended and Restated Employment Agreement, dated as of January 1,
1995, between the Company and Bernard M.
Manuel.*(10)
10.3 Employment Agreement, dated as of May 1, 1993, between
the Company and Irving Benson.*(2)
10.4 Employment Agreement, dated as of May 1, 1993, between
the Company and Roy Green.*(2)
10.5 Employment Agreement, dated as of May 1, 1993, between
the Company and Gary Smith.*(2)
10.6 Employment Agreement, dated as of May 1, 1992, among
CAT US Inc., C.A.T. (Far East) Limited, the Company and
Dwight F. Meyer.*(2)
<PAGE>
EXHIBIT NO. DESCRIPTION
- - -----------------------------------------------------------------
10.7 Waiver and Amendment Agreement, dated as of April 30,
1993, among CAT US Inc., C.A.T. (Far East) Limited,
Dwight F. Meyer and the Company.*(2)
10.8 Employment Agreement, dated April 4, 1994, between the
Company and Paul D. Baiocchi.*(3)
10.9 Employment Agreement, dated as of April 7, 1994, among
the Company, Fenn, Wright and Manson, Incorporated, and
Trevor J. Wright.*(3)
10.10 Purchase Agreement, dated as of December 7, 1993, by and among
Cygne Designs, Inc., Fenn, Wright and Manson, Incorporated and
Fenn Wright and Manson (Antilles) N.V., as amended.*(4)
10.11 Registration Rights Agreement, dated as of April 6, 1994,
between the Company and Fenn Wright and Manson
(Antilles) N.V.*(3)
10.12 Lease between Hong Kong Ferry (Holdings) Company,
Limited and Fenn, Wright and Manson (F.E.) Limited.*(3)
10.13 Agreement, dated October 29, 1993 between Chung Chae Sig
and Cygne (Guatemala) International, S.A.*(3)
10.14 Financing Contract in Value with Personal Mortgage
Guarantees, dated January 21, 1994.*(3)
10.15 Agreement, dated as of September 30, 1993, among Jonathan
Kafri, Simona Kafri, Cygne Designs F.E. Limited, T. Wear
Company S.r.l. and Cygne Designs, Inc.*(5)
10.16 Agreement, dated as of September 30, 1993, among
Lancaster Enterprises Limited, Jonathan Kafri, Simona
Kafri, Cygne Designs F.E. Limited, M.T.G.I. Textile
Manufacturers Group (Israel) Limited, Cygne TW Inc. and
Cygne Designs, Inc.*(5)
10.17 Employment Agreement, dated as of October 1, 1993,
between T. Wear Company S.r.l. and Jonathan Kafri.*(5)
10.18 Consulting Agreement, dated as of October 1, 1993, between
Cygne Designs, Inc. and Jonathan Kafri.*(5)
10.19 Employment Agreement, dated as of October 1, 1993,
between Charlotte Neuville and Cygne Designs, Inc.*(5)
<PAGE>
EXHIBIT NO. DESCRIPTION
- - -----------------------------------------------------------------
10.20 Sale Contract, dated October 7, 1993, between T. Wear
Company S.r.l. and Alma Immobiliare, S.r.l.*(5)
10.21 Contract of Special Financing Guaranteed by Mortgage and
Suretyship, dated May 4, 1987.*(5)
10.22 Financing Contract in Money with Mortgage Guaranty,
dated June 1, 1993.*(5)
10.23 Purchase and Sale Agreement, dated as of November 24,
1993, among G.J.M. (US) Inc., Manufacturas G.J.M. de
Guatemala S.A. and the Company.*(5)
10.24 Termination of Lease Agreement, dated as of November 24,
1993, among G.J.M. de Guatemala S.A. and Cygne
(Guatemala) Internacional, S.A.*(5)
10.25 Indemnity Agreement, dated November 24, 1993, among
G.J.M. Sales Limited, G.J.M. (US), Inc., Manufacturas G.J.M.
de Guatemala S.A. and Cygne Designs, Inc.*(5)
10.26 Form of Indemnification Agreement.*(2)
10.27 Guaranty of the Company for the benefit of Dwight F.
Meyer.*(2)
10.28 Agreement, dated as of July 13, 1993, among the Company,
CAT US Inc., C.A.T. (Far East) Limited and Ann Taylor,
Inc.*(2)++
10.29 Agreement, dated as of July 13, 1993, between Ann Taylor,
Inc., and Cleveland Investment Limited.*(2)
10.30 Stock Purchase Agreement, dated as of June 25, 1993,
among the Company, Bernard Manuel, Irving Benson,
Cleveland Investment Limited and Limited Direct Associates,
L.P.*(2)
10.31 Agreement of Lease, dated August 7, 1991, between the
Company and Nineteen New York Properties Limited
Partnership, as amended by the First Amendment of Lease,
dated as of January 1, 1993.*(2)
10.32 Second Amendment of Lease, dated May 31, 1993, between
Nineteen New York Properties Limited Partnership and the
Company.*(2)
<PAGE>
EXHIBIT NO. DESCRIPTION
- - -----------------------------------------------------------------
10.33 Third Amendment of Lease, dated as of December 1, 1993,
between Nineteen New York Properties Limited Partnership
and the Company.*(3)
10.34 Net Lease dated as of April 15, 1993, between Manufacturas
G.J.M. de Guatemala and JMB International, S.A.*(2)
10.35 Lease, dated July 21, 1993, between Cygne Far East Limited
and Hong Kong Island Development Ltd.*(2)
10.36 Lease Agreement, dated August 10, 1992, between Mr. Kim,
Byung yo, the Company and C.U. International Co., Ltd.*(2)
10.37 Business Lease, Addendum and Memorandum of Lease,
dated January 21, 1992, among the Company, David
Schaecter and Marvis Schaecter.*(2)
10.38 Security Agreement, dated as of June 4, 1992, between
Mitsubishi Corporation and the Company.*(2)
10.39 Security Agreement, dated as of June 4, 1992, between
Mitsubishi International Corporation and the Company.*(2)
10.40 Agreement, dated November 1992, between JMB
Internacional, SA and Mr. Jeong Che Shik.*(2)
10.41 1993 Stock Option Plan, as amended, through June 28,
1994.*(1)
10.42 Form of Stock Option Agreement.*(2)
10.43 Stock Option Plan for Non-Employee Directors.*(2)
10.44 Form of Registration Rights Agreement between the
Company and Limited Direct Associates, L.P.*(2)
10.45 Memorandum of Understanding, dated as of June 1, 1993,
among the Company, Cygne Knits Limited, T. Wear
Company S.r.l and certain other parties.*(2)
10.46 Non-Exclusive Subagency Buying Agreement, dated October
29, 1992, between Fenn Wright and Manson (F.E.) Ltd. and
UVW Pte Ltd.*(3)
<PAGE>
EXHIBIT NO. DESCRIPTION
- - -----------------------------------------------------------------
10.47 Amended and Restated Subordinated Promissory Note in the
initial principal of $8,000,000, dated as of December 8, 1993,
made by Fenn Wright and Manson (F.E.) Limited in favor of
Plymouth Holdings Limited.*(6)
10.48 Amended and Restated Textile Sales and Financing
Agreement, dated as of May 10, 1994, between Mitsubishi
Corporation and the Company.*(6)
10.49 First Amendment, dated as of May 10, 1994, to Security
Agreement, dated as of June 4, 1992, between Mitsubishi
Corporation and the Company.*(6)
10.50 Amended and Restated Textile Sales and Financing
Agreement, dated as of May 10, 1994, between Mitsubishi
International Corporation and the Company.*(6)
10.51 Non-Competition Agreement, dated as of October 7, 1994, by
and between Cygne Designs, Inc. and William Glynn
Manson.*(8)
10.52 Assumption Agreement, dated October 7, 1994, by and
between G.J.M. International Limited and Cygne Designs,
Inc.*(8)
10.53 Registration Rights Agreement, dated as of October 7, 1994,
by and between Cygne Designs, Inc. and G.J.M. International
Limited.*(8)
10.54 Amendment No. 1 to the Registration Rights Agreement,
dated as of October 6, 1994, amending the registration rights
agreement, dated as of July 29, 1993 between Cygne Designs,
Inc. and Limited Direct Associates, L.P.*(8)
10.55 Amended and Restated Incentive Compensation Plan.*(10)
10.56 Letter Agreement, dated September 14, 1993 between G.J.M.
(U.S.) Inc. and The Hongkong and Shanghai Banking
Corporation Limited.*(8)
10.57 Purchase Agreement, dated as of October 7, 1994, by and
among Cygne Designs, Inc., G.J.M. Manufacturing Limited,
G.J.M. Purchasing Limited, G.J.M. Sales Limited, G.J.M.
(Sales), Inc. and G.J.M. International Limited.*(9)
<PAGE>
EXHIBIT NO. DESCRIPTION
- - -----------------------------------------------------------------
10.58 Agreement, dated as of March 24, 1995, by and among Cygne
Designs, Inc., Fenn Wright and Manson (Antilles) N.V.,
Fenn, Wright and Manson Incorporated and Colin
Fenn.*(10)
10.59 Credit Agreement, dated as of August 4, 1995, by and
between CAT US, Inc. and The Hongkong and Shanghai
Banking Corporation Limited.*(11)
10.60 Optional Advance Time Note (Loans Against Imports), dated
as of August 4, 1995, made by CAT US, Inc. in favor of The
Hongkong and Shanghai Banking Corporation Limited.*(11)
10.61 Security Agreement, dated as of August 4, 1995, between
CAT US, Inc. and The Hongkong and Shanghai Banking
Corporation Limited.*(11)
10.62 Guarantee Agreement, dated as of August 4, 1995, between
Cygne Designs, Inc. and The Hongkong and Shanghai
Banking Corporation Limited.*(11)
10.63 Pledge Agreement, dated as of August 4, 1995, by Cygne
Designs, Inc. in favor of The Hongkong and Shanghai
Banking Corporation Limited.*(11)
10.64 Letter of Negative Pledge, dated as of August 4, 1995, made
by CAT US, Inc. in favor of The Hongkong Shanghai
Banking Corporation Limited.*(11)
10.65 Credit Agreement, dated as of September 28, 1995, by and
between Cygne Designs, Inc. and The Hongkong and
Shanghai Banking Corporation Limited.*(12)
10.66 Optional Advance Time Note (Loans Against Imports), dated
as of September 28, 1995, made by Cygne Designs, Inc. in
favor of The Hongkong and Shanghai Banking Corporation
Limited.*(12)
10.67 Optional Advance Time or Demand Grid Note, dated as of
September 28, 1995, made by Cygne Designs, Inc. and The
Hongkong and Shanghai Banking Corporation Limited.*(12)
10.68 Promissory Note (Export Loans), dated as of September 28,
1995, between Cygne Designs, Inc. and The Hongkong and
Shanghai Banking Corporation Limited.*(12)
<PAGE>
EXHIBIT NO. DESCRIPTION
- - -----------------------------------------------------------------
10.69 Security Agreement, dated as of September 28, 1995,
between Cygne Designs, Inc. and The Hongkong and
Shanghai Banking Corporation Limited.*(12)
10.70 Guarantee Agreement, dated as of September 28, 1995,
between Cygne Designs, Inc. and The Hongkong and
Shanghai Banking Corporation Limited.*(12)
10.71 Guarantee Agreement, dated as of September 28, 1995,
between AC Services, Inc. and The Hongkong and Shanghai
Banking Corporation Limited.*(12)
10.72 Guarantee Agreement, dated as of September 28, 1995,
between Cygne TW, Inc. and The Hongkong and Shanghai
Banking Corporation Limited.*(12)
10.73 Guarantee Agreement, dated as of September 28, 1995,
between Cygne Knits Limited and The Hongkong and
Shanghai Banking Corporation Limited.*(12)
10.74 Letter of Negative Pledge, dated as of September 28, 1995,
made by Cygne Designs, Inc. in favor of The Hongkong and
Shanghai Banking Corporation Limited.*(12)
10.75 Commitment letter dated May 15, 1996, between Cygne
Designs, Inc. and the HongKong and Shanghai Banking
Corporation Limited.
21 Subsidiaries of the Company.*(10)
23 Consent of Ernst & Young LLP.
* Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the following documents:
(1) Company's Quarterly Report on Form 10-Q for the quarter ended July 30,
1994.
(2) Company's Registration Statement on Form S-1 (Registration No. 33-64358).
(3) Company's Annual Report on Form 10-K for the fiscal year ended January 29,
1994.
(4) Company's Current Report on Form 8-K dated April 6, 1994.
(5) Company's Quarterly Report on Form 10-Q for the quarter ended October 30,
1993.
(6) Company's Registration Statement on Form S-1 (Registration No. 33-78700).
<PAGE>
(7) Company's Quarterly Report on Form 10-Q for the quarter ended July 30,
1994.
(8) Company's Quarterly Report on Form 10-Q for the quarter ended October 29,
1994.
(9) Company's Current Report on Form 8-K dated October 7, 1994.
(10) Company's Annual Report on Form 10-K for the fiscal year ended January 28,
1995.
(11) Company's Quarterly Report on form 10-Q for the quarter ended July 29,
1995.
(12) Company's Quarterly Report on Form 10-Q for the quarter ended October 28,
1995.
++ Confidential treatment granted for portions omitted.
Exhibits have been included in copies of this Report filed with the Securities
and Exchange Commission. Stockholders of the Company will be provided with
copies of these exhibits upon written request to the Company.
(b) Reports on Form 8-K
Amendment No. 1 to a report on Form 8-K/A dated October 7, 1994 and filed on
March 2, 1995 pertaining to the acquisition on October 7, 1994 of the business
operations of G.J.M. International Limited.
Report on Form 8-K dated November 21, 1995 relating to the Company's third
quarter operating results, the Company's non-compliance with certain financial
covenants in its credit agreement and the suspension of the Companys' trade
credit facility.
Report on Form 8-K dated December 18, 1995 relating to the filing of a purported
class action lawsuit against the Company.
Report on Form 8-K dated February 9, 1996 relating to the sale by the Company of
the GJM Business.
Report on Form 8-K dated April 8, 1996 relating to the signing of an agreement
in principle relating to the Ann Taylor Disposition.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
See "Index to Consolidated Financial Statements and Supplemental Schedules"
appearing on page F-1. Schedules not included herein are omitted because they
are not applicable or the required information appears in the Consolidated
Financial Statements or notes thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Cygne Designs, Inc.
By: /s/ ROY E. GREEN
----------------
Roy E. Green
May 31, 1996 Senior Vice President--Chief
Financial Officer and Treasurer
15
