<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
April 3, 1999 0-23234
L.A. T SPORTSWEAR, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1724902
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Airport Drive, Ball Ground, Georgia 30107
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 479-1877
-----------------------------
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, without par value 4,200,001 shares
- ------------------------------------ -----------------------------------
Class Outstanding at May 10, 1999
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
L.A. T SPORTSWEAR, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
(In thousands except share data)
- ---------------------------------------------------------------------------
APRIL 3, JANUARY 2,
ASSETS 1999 1999
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 572 $ 407
Accounts receivable, net 8,729 6,115
Inventories 23,644 23,665
Other current assets 733 919
-------- --------
Total current assets 33,678 31,106
PROPERTY, PLANT AND EQUIPMENT - Net 3,437 3,201
OTHER ASSETS 124 156
-------- --------
$ 37,239 $ 34,463
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,509 $ 11,647
Current portion of long-term debt 31 30
Accrued expenses 817 809
-------- --------
Total current liabilities 12,357 12,486
LONG-TERM DEBT 13,117 10,162
OTHER LONG TERM LIABILITIES 124 371
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares
authorized; no shares issued
Common Stock, no par value; 25,000,000
shares authorized; 4,200,001 shares
issued and outstanding 10,825 10,825
Paid in capital 3,304 3,304
Accumulated deficit (2,488) (2,685)
-------- --------
Total stockholders' equity 11,641 11,444
-------- --------
$ 37,239 $ 34,463
======== ========
</TABLE>
See notes to unaudited financial statements.
-1-
<PAGE> 3
LA. T SPORTSWEAR, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
------------------------
April 3, April 4,
1999 1998
<S> <C> <C>
NET SALES $ 20,455 $ 17,666
COST OF GOODS SOLD 16,866 14,572
-------- --------
Gross Profit 3,589 3,094
OPERATING EXPENSES 3,029 2,598
-------- --------
OPERATING INCOME 560 496
OTHER INCOME (EXPENSE) PRINCIPALLY INTEREST (235) (293)
-------- --------
INCOME BEFORE INCOME TAXES 325 203
INCOME TAX PROVISION 128 --
-------- --------
NET INCOME $ 197 $ 203
======== ========
BASIC AND DILUTED NET INCOME PER SHARE $ 0.05 $ 0.05
WEIGHTED AVERAGE SHARES OUTSTANDING 4,200 4,200
AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 4,294 4,200
======== ========
</TABLE>
See notes to unaudited financial statements.
-2-
<PAGE> 4
L.A. T SPORTSWEAR, INC.
STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------
APRIL 3, APRIL 4,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 197 $ 203
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 149 141
Provision for doubtful accounts 63 91
Changes in assets and liabilities providing (using) cash:
Accounts receivable (2,677) (2,715)
Inventories 22 (1,750)
Other (61) (106)
Accounts payable (138) 3,682
Accrued expenses 9 65
------- -------
Net cash used in operating activities (2,436) (389)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (355) (33)
Net cash used in investing activities (355) (33)
------- -------
FINANCING ACTIVITIES:
Borrowings under line of credit, net 2,963 675
Repayments of long-term borrowings (7) (6)
------- -------
Net cash provided by financing activities 2,956 669
------- -------
NET CHANGE IN CASH 165 247
CASH, BEGINNING OF PERIOD 407 177
------- -------
CASH, END OF PERIOD $ 572 $ 424
======= =======
</TABLE>
See notes to unaudited financial statements.
-3-
<PAGE> 5
L.A. T SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
QUARTERS ENDED APRIL 3, 1999 AND APRIL 4, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
L.A. T Sportswear, Inc. (The "Company") distributes and manufactures
sportswear principally for the imprinted garment industry. The Company
manufactures certain of its products and also purchases merchandise from
national sportswear manufacturers for distribution currently through six
distribution facilities across the United States. The Company's customers are
principally domestic retailers in the imprintable and decorable sportswear
industry. Accordingly, the Company operates in one business segment.
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information, the instructions for Form 10-Q, and Regulation S-X. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended January 2, 1999.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) considered necessary for a fair presentation of interim
results have been included. The results of operations for the three months ended
April 3, 1999 are not necessarily indicative of the operating results for the
full year.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
<S> <C> <C>
Raw materials $ 812 $ 952
Work-in-process 500 476
Finished goods 24,108 23,745
Reserves (1,776) (1,508)
-------- --------
$ 23,644 $ 23,665
======== ========
</TABLE>
3. LONG-TERM DEBT
The Company maintains a credit facility with a bank. At April 3, 1999
the credit facility, as amended, (i) provided for maximum borrowings of $15
million (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets), (ii) expired on March 31, 2001 and
(iii) bore interest at prime plus 1.00%. The facility is secured by principally
all the Company's assets. As of April 3, 1999, the Company had borrowings
totaling $12.5 million outstanding under the credit facility and availability to
borrow $2.2 million.
The credit facility was again amended on April 20, 1999 to (i) increase
maximum borrowings to $16 million (subject to certain collateral restrictions
based on eligible receivables, inventories and fixed assets), (ii) extend the
facility's expiration to April 30, 2002 and (iii) bear interest for 1999 at
prime plus .25% (subject to repricing annually thereafter).
4. STOCK OPTIONS
During the first quarter of 1999 certain employees of the Company were
granted options to purchase a total of 75,000 shares of common stock. The
options were granted at or above the fair market value of the stock at the time
of grant.
-4-
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
components of the Company's statements of operations expressed as a percentage
of net sales.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
APRIL 3, APRIL 4,
1999 1998
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 82.5 82.5
----- -----
Gross profit 17.5 17.5
Operating expenses 14.8 14.7
----- -----
Operating income 2.7 2.8
Other income (expense) principally interest (1.1) (1.7)
----- -----
Income before income taxes 1.6 1.1
Income tax provision (0.6) --
----- -----
Net income 1.0% 1.1%
===== =====
</TABLE>
First Quarter of 1999 Compared to First Quarter of 1998
The Company's net sales increased approximately $2.8 million, or 15.8%,
to $20.5 million in the first quarter of 1999 from $17.7 million in the first
quarter of 1998. The increase in net sales was attributable, in large part, to
the implementation of the second phase of a national sales initiative.
Due to the increase in net sales, the Company's gross profit increased
approximately $500,000, or 16.1%, to $3.6 million for the first quarter of 1999
from $3.1 million in the first quarter of 1998. As a percentage of net sales,
the gross profit margin remained constant at 17.5% for the first quarter of 1999
and 1998.
Operating expenses increased approximately $430,000, or 16.5% to $3.0
million in the first quarter of 1999 from $2.6 million in the first quarter of
1998. The increase in operating expenses was due primarily to increased selling
costs associated with phase two of the national sales initiative and to
increased distribution costs relating to the installation of new warehousing
systems. As a percentage of net sales, operating expenses increased slightly to
14.8% in the first quarter of 1999 from 14.7% in the first quarter of 1998.
As a result of the increase in net sales and gross profit, operating
income increased approximately $64,000, or 12.9%, to $560,000 in the first
quarter of 1999 from $496,000 in the first quarter of 1998. As a percentage of
net sales, operating income decreased slightly to 2.7% in the first quarter of
1999 from 2.8% in the first quarter of 1998.
Other income (expense), which consists principally of interest expense,
decreased approximately $58,000, or 19.8%, to $235,000 in the first quarter of
1999 from $293,000 in the first quarter of 1998. The decrease was primarily due
to lower interest rates and to reduced borrowings under the Company's line of
credit, which resulted from taking advantage of vendor deferred datings.
As a result, income before income taxes increased approximately
$122,000, or 60.0% to $325,000 in the first quarter of 1999 from $203,000 in the
first quarter of 1998. Income before income taxes as a percentage of net sales
increased to 1.6% in 1999 from 1.1% in 1998.
-5-
<PAGE> 7
The Company recorded an income tax provision of $128,000 in 1999. No
provision for income taxes was recorded in 1998 due to the use of previously
reserved net operating loss carryforwards to offset 1998 taxable income.
As a result of the above factors, net income decreased $6,000, or 3.0%,
to $197,000 in the first quarter of 1999 from $203,000 in the first quarter of
1998. As a percentage of net sales, net income decreased to 1.0% in 1999 from
1.1% in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was approximately $2.4 million for the
first quarter of 1999 compared to approximately $389,000 in the first quarter of
1998. The net cash used in operations in the first quarter of 1999 was primarily
used to support increased accounts receivable levels associated with the
increase in sales.
The Company maintains a credit facility with a bank. At April 3, 1999
the credit facility, as amended, (i) provided for maximum borrowings of $15
million (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets), (ii) expired on March 31, 2001 and
(iii) bore interest at prime plus 1.00%. The facility is secured by principally
all the Company's assets.
The credit facility was again amended on April 20, 1999 to (i) increase
maximum borrowings to $16 million (subject to certain collateral restrictions
based on eligible receivables, inventories and fixed assets), (ii) extend the
facility's expiration to April 30, 2002 and (iii) bear interest for 1999 at
prime plus .25% (subject to repricing annually thereafter). As of May 4, 1999,
the Company had borrowings totaling $12.3 million outstanding under the credit
facility and availability to borrow $2.3 million.
The Company's ability to fund its working capital and capital
expenditure requirements, make interest payments and meet its other cash
requirements depends, among other things, on internally generated funds and the
continued availability of and compliance with the terms of its credit facility.
Management further believes that internally generated funds and funds available
from the Company's line of credit will be sufficient to meet the Company's
capital requirements and operating needs in fiscal 1999. However, if there is a
significant reduction of internally generated funds or the Company is unable to
meet the operating projections used in amending the credit facility, the Company
may require additional funds from outside financing sources. In such event,
there can be no assurance that the Company will be able to obtain such funding
as and when required or on acceptable terms.
YEAR 2000 READINESS
The Company's distribution division (which accounted for approximately
80% of the sales volume in 1998) utilizes a distribution package known as VICS
(Vertically Integrated Computer Systems) which runs on an IBM RS6000 computer.
The distribution division's package is year 2000 compliant according to
certifications by both IBM and the VICS software vendor. However, the Company is
conducting basic tests to assure itself that mission critical features are in
fact year 2000 compliant. The Company expects to complete these basic tests by
May 15, 1999. The cost of the basic tests are considered to be immaterial as
they only involve weekend time spent by salaried personnel.
The Company's manufacturing division (which accounted for approximately
20% of the sales volume in 1998) utilizes a manufacturing software package known
as AIC (Applied Intelligence Corporation) that runs on a Wang computer. The AIC
software is not year 2000 compliant on the Wang computer. The Company is
purchasing a new manufacturing software package, which is year 2000 compliant
according to a certification by the software vendor. The new manufacturing
software package will operate on a new IBM AS400 computer. A separate
certification for the AS400 will be obtained from IBM. The total cost of the new
system, including hardware and software, is expected to be approximately
$500,000, which includes the Company's commitment of internal resources. As of
April 3, 1999, the Company had incurred approximately $177,000 of the $500,000
cost. The IBM AS400 computer has been delivered and the Company's information
-6-
<PAGE> 8
technology personnel have begun training. The base manufacturing software
package is available to the Company now. The software supplier is also creating
substantial custom modifications for this software. The Company has a target
date of June 1, 1999 for completion and installation of the software package,
and a target date of July 1, 1999 to implement this new computer system. In the
event that the customized software is not completed by the year 2000, the
Company's contingency plan is to operate with the generic package until such
customized modifications can be completed.
Other items which include non-information technology systems are being
tested and upgraded as needed. Included in the non-information technology
systems are the Company's personal computers and applications, telephone
systems, manufacturing equipment, security systems, and other non-crucial items.
The Company has a substantial amount of personal computers and software
applications. In order to make the personal computers and software applications
year 2000 compliant, the Company will install a new network communication
package which will tie all of the Company's personal computers and software
applications together. The Company will replace all non-compliant personal
computers and install the latest versions of year 2000 compliant applications
available on the network. Specialized applications not used Company wide will be
upgraded as necessary. The estimated cost of the network is $155,000. As of
April 3, 1999, the Company had incurred approximately $57,000 of the estimated
cost. The Company has an estimated completion date of July 1, 1999 for the
network.
The Company has received certification that its primary telephone
systems are year 2000 compliant, with the exception of the voice mail and call
accounting applications for the manufacturing division. The Company plans to
upgrade the voice mail and call accounting applications of the manufacturing
division. However, no time frame or estimated cost has been established.
The manufacturing division utilizes a computerized Lectra Systems(R)
marking and grading system which is crucial to the manufacturing operations. The
current version of Lectra Systems(R) is not year 2000 compliant. Lectra
Systems(R) expects to complete its year 2000 compliant version by April 30, 1999
and have it out to its customers by June 30, 1999. Since the Company has a
maintenance agreement with Lectra Systems(R), there will be no charge for the
upgrade. No contingency plan has been established in the event that Lectra
Systems(R) does not complete the year 2000 compliant upgrade. However, Lectra
Systems(R) does have current versions of the software that are year 2000
compliant. The Company will monitor the progress of the year 2000 upgrade and
make a decision to convert to a new system if necessary.
Other non-information technology systems such as security systems,
copiers and other non-essential items are being assessed for year 2000
compliance. The Company is contacting vendors of these items either by mail or
through internet access to determine their compliance status. No time frame or
estimated cost has been established to bring these non-essential items year 2000
compliant.
The costs of major year 2000 projects have been included in the current
operating budget. The majority of the costs will be capitalized with the
exception of software data conversion costs and training costs. The funds to
finance these projects will come from the Company's cash flows from operations,
line of credit or other lenders. There can be no assurance that the Company will
not encounter unanticipated delays with the implementations or that costs of
such implementations will not exceed management's current estimates.
The Company has issued certification requests to all major vendors and
customers as well as to its main bank seeking assurance that they will be year
2000 compliant. The Company continues to monitor the progress of these third
parties in becoming year 2000 compliant. At this time the Company has no
contingency plans to address problems if third parties are not compliant.
-7-
<PAGE> 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.40.5 - Fourth Amendment to Loan and Security
Agreement, dated April 23, 1999 by and between the
Company and Mellon Bank, N.A.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. No report on Form 8-K was filed
during the quarter ended April 3, 1999.
-8-
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
L.A. T SPORTSWEAR, INC.
Dated: May 10, 1999 By: /s/ Isador E. Mitzner
----------------------------------
Isador E. Mitzner, Chairman
and Chief Executive Officer
Dated: May 10, 1999 By: /s/ John F. Hankinson
----------------------------------
John F. Hankinson
Chief Financial Officer
(acting principal financial and
accounting officer)
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.40.5 Fourth Amendment to Loan and Security
Agreement, dated April 20, 1999 by and
between the Company and Mellon Bank, N.A.
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
Exhibit 10.40.5
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fourth Amendment ("Amendment") to Loan and Security Agreement,
dated as of April 20, 1999, among L.A. T SPORTSWEAR, INC. ("Borrower"), MELLON
BANK, N.A., as Agent ("Agent") and MELLON BANK, N.A. ("Mellon") and the
financial institutions now or hereafter a party to the Loan Agreement (as
defined below) and listed on Schedule "A" attached thereto and made a part
thereof (as such Schedule may be amended, modified or replaced from time to
time), in their capacity as lenders (Mellon and the other financial institutions
are individually referred to as "Lender" and collectively as "Lenders").
BACKGROUND
A. On or about April 29, 1996, the parties hereto entered into a Loan
and Security Agreement (as amended, supplemented, or modified from time to time
"Loan Agreement") and related agreements, instruments and documents, pursuant to
which Lenders established a Revolving Credit for the benefit of Borrower. All
capitalized terms used but not defined herein shall have the meaning given to
such term in the Loan Agreement.
B. Borrower and Lenders desire to modify certain terms and conditions
of the Loan Documents as more fully set forth herein.
TERMS AND CONDITIONS
NOW, THEREFORE, with the foregoing background hereinafter incorporated
by reference as if set forth more fully below, the parties hereto, intending to
be legally bound hereby, promise and agree as follows:
1. Section 1 of the Loan Agreement is hereby amended by deleting the
definition of Applicable Base Rate Margin in its entirety and replacing it with
the following:
Applicable Base Rate Margin - The applicable margin based upon
the ratio of Borrower's EBITDA to Interest Expense as of the last day
of the fiscal year then ended for which financial statements have been
delivered pursuant to Section 6.10(a)(i), as set forth below:
<PAGE> 2
Ratio of EBITDA to Interest Expense Margin
Less than 1.75:1 1.00%
Equal to or greater than 1.75:1 but less than 2.00:1 0.75%
Equal to or greater than 2.00:1 but less than 2.50:1 0.50%
Equal to or greater than 2.50:1 but less than 3.00:1 0.25%
Equal to or greater than 3.00:1 0%
The above pricing index shall be measured annually and shall be
effective upon receipt of the Fiscal Year End audited financial
statements referenced above. The Applicable Base Rate Margin shall be
one percent (1.00%) per annum if: (i) Borrower fails to maintain a
minimum excess availability of $1,000,000 for the ninety (90) day
period immediately prior to the delivery of Borrower's Fiscal Year End
audited financial statements, or (ii) an Event of Default has occurred,
including, without limitation, Borrower's failure to deliver financial
statements within the time period required by Section 6.10(a)(i).
2. Section 1 of the Loan Agreement is hereby amended by deleting the
definition of Applicable LIBOR Rate Margin in its entirety and replacing it with
the following:
Applicable LIBOR Rate Margin - The applicable margin based
upon the ratio of Borrower's EBITDA to Interest Expense as of the last
day of the fiscal year then ended for which financial statements have
been delivered pursuant to Section 6.10(a)(i), as set forth below:
Ratio of EBITDA to Interest Expense Margin
Equal to or greater than 1.75:1 but less than 2.00:1 3.00%
Equal to or greater than 2.00:1 but less than 2.50:1 2.75%
Equal to or greater than 2.50:1 but less than 3.00:1 2.50%
Equal to or greater than 3.00:1 but less than 4.00:1 2.25%
Equal to or greater than 4.00:1 2.00%
The above pricing index shall be measured annually and shall be
effective upon receipt of the Fiscal Year End audited financial
statements referenced above. The Applicable LIBOR Rate Margin shall be
three percent (3.00%) per annum if: (i) Borrower fails to maintain a
minimum excess availability of $1,000,000 for the ninety (90) day
period immediately prior to the delivery of Borrower's Fiscal Year End
audited financial statements, or (ii) an Event of Default has occurred,
including, without limitation, Borrower's failure to deliver financial
statements within the time period required by Section 6.10(a)(i).
<PAGE> 3
3. Section 1 of the Loan Agreement is hereby amended by deleting
the definition of Revolving Credit Limit in its entirety and replacing it with
the following:
Revolving Credit Limit - $16,000,000.
4. Section 1 of the Loan Agreement is hereby amended by deleting
the definition of Revolving Credit Maturity Date in its entirety and replacing
it with the following:
Revolving Credit Maturity Date - April 30, 2002.
5. Section 2.4 of the Loan Agreement is hereby amended by
deleting Subsection (b)(i) and replacing it with the following:
(i) Provided that: (A) Borrower has and maintains an EBITDA to
Interest Expense equal to or greater than 1.75:1, and (B) subject to
the provisions of Section 2.5(b) below, Borrower shall have the option
to have the unpaid principal balance of Loans under the Revolving
Credit bear interest at the LIBOR Based Rate ("LIBOR Rate Option"),
provided that LIBOR Rate Loans shall be in $1,000,000 increments and in
a minimum amount of Two Million Dollars ($2,000,000).
6. Section 2.6 of the Loan Agreement is hereby amended by
deleting Subsection (d) in its entirety and replacing it with the following:
(d) Termination Fee: In the event there occurs any
termination of the Revolving Credit for any reason whatsoever prior to
the Revolving Credit Maturity Date, Borrower, if initiating such
termination, may only effect such termination on at least ninety (90)
days prior written notice to Agent and in all events Borrower shall pay
to Agent for the benefit of Lenders in accordance with their Revolving
Credit Pro Rata Percentage, a prepayment premium (the "Termination
Fee") in an amount equal to three percent (3%) of the Revolving Credit
Limit if such termination occurs prior to or on April 30, 1999, two
percent (2%) of the Revolving Credit Limit if the termination occurs
thereafter but prior to or on April 30, 2000, and one percent (1%) of
the Revolving Credit Limit if such termination occurs thereafter but
prior to or on April 30, 2001, and one-half of one percent (0.50%) of
the Revolving Credit Limit if such termination occurs at any time
thereafter but prior to the Revolving Credit Maturity Date, as well as
make full payment of all outstanding Obligations, in which case any and
all commitments of Lenders and Agent hereunder shall cease as of such
date of termination.
7. Section 2.6 of the Loan Agreement is hereby amended by
deleting Subsection (e) in its entirety and replacing it with the following:
<PAGE> 4
(e) Collateral Management Fee: So long as the Revolving
Credit is outstanding and has not been terminated pursuant to the terms
hereof, Borrower shall unconditionally pay to Agent, for its sole
benefit, a non-refundable audit and collateral management fee
("Collateral Management Fee") in an amount per month payable in
advance, based upon the ratio of Borrower's EBITDA to Interest Expense
as of the last day of the fiscal year then ended for which financial
statements have been delivered pursuant to Section 6.10(a)(i), as set
forth below:
Ratio of EBITDA to Interest Expense Fee
Less than 1.75:1 $6,000
Equal to or greater than 1.75:1 but less than 2.00:1 $5,000
Equal to or greater than 2.00:1 but less than 2.50:1 $4,000
Equal to or greater than 2.50:1 but less than 3.00:1 $4,000
Equal to or greater than 3.00:1 but less than 4.00:1 $3,000
Equal to or greater than 4.00:1 $3,000
The above index shall be measured annually and shall be effective as of
the first day of the first full month after receipt of the Borrower's
Fiscal Year End audited financial statements for the fiscal year just
ended. The Collateral Management Fee shall be $6,000 per month if: (i)
Borrower fails to maintain a minimum excess availability of $1,000,000
for the ninety (90) day period immediately prior to the delivery of
Borrower's Fiscal Year End audited financial statements, or (ii) an
Event of Default has occurred, including, without limitation,
Borrower's failure to deliver financial statements within the time
period required by Section 6.10(a)(i).
8. Section 6.9 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
6.9 Financial Covenants: Borrower shall maintain and
comply with the following financial covenants (calculated on the basis
of GAAP):
(a) Working Capital: Borrower shall have and maintain
Working Capital, measured quarterly at the end of each Fiscal Quarter,
of not less than: $7,000,000 as of Fiscal Quarter end December, 1998;
$7,000,000 as of Fiscal Quarter end March, 1999; $7,000,000 as of
Fiscal Quarter end June, 1999; $7,000,000 as of Fiscal Quarter end
September, 1999; $7,500,000 as of Fiscal Quarter end December, 1999 and
for each Fiscal Quarter end through Fiscal Quarter end September, 2000;
$8,000,000 as of Fiscal Quarter end December, 2000 and for each Fiscal
Quarter end through Fiscal Quarter end September, 2001; $8,500,000 as
of Fiscal Quarter end December, 2001 and for each Fiscal Quarter end
thereafter.
<PAGE> 5
(b) Tangible Net Worth: Borrower shall have and
maintain a Tangible Net Worth, on a consolidated basis, measured
monthly at each Fiscal Month End, of not less than:
<TABLE>
<CAPTION>
<S> <C>
$10,000,000 as of December, 1998 through May, 1999,
$11,000,000 as of June, 1999 through November, 1999,
$11,400,000 as of December, 1999 through November, 2000,
$11,800,000 as of December, 2000 through November, 2001,
$12,200,000 as of each Fiscal Month End thereafter.
</TABLE>
(c) Net Income: Borrower shall have and maintain a
Net Income, on a consolidated basis, measured annually, of not less
than: $0 as of the close of Fiscal Year End 1998; $400,000 as of the
close of Fiscal Year End 1999 and for each Fiscal Year End thereafter.
(d) Current Ratio: Borrower shall have and maintain a
Current Ratio, on a consolidated basis, measured monthly at each Fiscal
Month End, of not less than: 1.20:1 as of December, 1998 through
November, 2000; 1.25:1 as of December, 2000 through November, 2001; and
1.30:1 as of each Fiscal Month End thereafter.
(e) Debt to Tangible Net Worth: Borrower shall have
and maintain a Debt to Tangible Net Worth Ratio, on a consolidated
basis, measured quarterly at the end of each Fiscal Quarter, not to
exceed: 2.50:1 as of Fiscal Quarter end December, 1998 and for each
Fiscal Quarter end thereafter.
(f) Capital Expenditure: Borrower shall not expend
for Capital Expenditures in excess of: $750,000 during the fiscal year
ending December, 1998; $1,250,000 during fiscal year ending December,
1999; and $1,000,000 during each fiscal year thereafter, determined on
a noncumulative basis.
(g) Inventory Turnover. Borrower shall have and
maintain an Inventory Turnover Period not to exceed 120 days during
fiscal year ending December, 1998, and each fiscal year thereafter.
<PAGE> 6
9. Amendment Fee: Contemporaneously with the execution of this
Amendment, Borrower shall pay to Lender an amendment fee ("Amendment Fee") in
the amount of $10,000, which such Amendment Fee is fully earned and
nonrefundable as of such date.
10. Conditions to Closing: Agent's and Lenders' obligation to
enter into this Amendment are subject to the following conditions having been
satisfied in full to Agent's and Lenders' satisfaction:
(a) Execution and delivery of this Amendment to Agent;
(b) Payment of Amendment Fee by Borrower to Lender;
(c) Delivery of a certification by the Chief Executive Officer
of Borrower that there has not occurred any material adverse change, since
February 28, 1999, in the operations and condition (financial or otherwise) of
Borrower;
(d) Delivery of such other documentation or documents as Agent
may reasonable require;
(e) No Event of Default shall have occurred under the Loan
Agreement and be continuing and no event shall have occurred which with the
passage of time, the giving of notice or both would constitute an Event of
Default under the Loan Agreement; and
(f) Payment or reimbursement to Agent for all legal expenses
incurred by Agent or Lenders to analyze, prepare and negotiate and conclude this
Amendment and all related agreements and transactions described herein.
11. CONFIRMATION OF INDEBTEDNESS: Borrower hereby acknowledges and
confirms that as of the close of business on April 16, 1999, it is indebted to
Lenders under the Loan Documents, in the aggregate principal amount of twelve
million, five hundred eighty nine thousand, ninety six and 98/100 Dollars
($12,589,096.98), comprised of $12,339,096.98 outstanding with respect to the
Revolving Credit Loans and $250,000 representing the face value of issued and
outstanding Letters of Credit issued for the benefit of Borrower, plus all fees,
costs and expenses (including attorneys' fees) incurred to date in connection
with the Loan Documents, without defense, setoff, claim or counterclaim, of any
nature.
12. CONFIRMATION OF SECURITY INTEREST: Borrower hereby confirms
that all Collateral, liens, and security interests at any time granted by
Borrower to Agent for the benefit of Lenders, shall continue unimpaired and in
full force and effect and shall continue to cover and secure the Obligations of
Borrower to Lenders to the full extent set forth in the Loan Agreement, as
amended hereby. All Collateral remains free and clear of any Liens other than
Permitted Liens or Liens in favor of Agent for the benefit of Lenders. Nothing
herein contained is intended to
<PAGE> 7
in any way impair or limit the validity, priority and extent of Agent's existing
security interest in and Liens upon the Collateral.
13. REPRESENTATION AND WARRANTIES: Borrower represents and
warrants to Lender that:
(a) All warranties and representations made to Agent and/or
Lenders under the Loan Agreement are true and correct as of the date hereof,
except those warranties and representations made in Section 5.2 of the Loan
Agreement relating to those locations which have been closed;
(b) The execution and delivery by Borrower of this Amendment
and the performance by it of the transactions herein contemplated (i) are and
will be within its powers, (ii) have been authorized by all necessary corporate
or partnership action, and (iii) are not and will not be in contravention of any
order of any court or other agency of government, of law or any other indenture,
agreement or undertaking to which Borrower is a party or by which the Property
of Borrower is bound, or be in conflict with, result in a breach of, or
constitute (with due notice and/or lapse of time) a default under, any such
indenture, agreement or undertaking or result in the imposition of any lien,
charge or incumbrance of any nature on any Property of Borrower;
(c) This Amendment and any assignment, instrument, document,
or agreement executed and delivered in connection herewith, will be valid,
legal, binding and enforceable in accordance with the respect of terms; and
(d) No Event of Default has occurred under the Loan Agreement
and that no event has occurred which with the passage of time, the giving of
notice or both would constitute an Event of Default under the Loan Agreement.
14. INCORPORATION: The parties acknowledge and agree that this
Amendment is incorporated into and made a part of the Loan Agreement, the terms
and provisions of which, unless expressly modified herein, are hereby ratified
and confirmed and continue unchanged and in full force and effect. Any future
reference to the Loan Agreement shall mean the Loan Agreement as amended hereby.
To the extent that any term or provision of this Amendment is or may be deemed
expressly inconsistent with any term or provision of the Loan Agreement, the
terms and provisions hereof shall control. All other terms and provisions of the
Loan Agreement unless expressly modified herein shall remain in full force and
effect.
15. NO MODIFICATION: No modification hereof or of any agreement
referred to herein shall be binding or enforceable unless in writing and signed
on behalf of the party against whom enforcement is sought.
16. WAIVER: Nothing herein shall be construed to constitute a
waiver of any breach of any representation, warranty or covenant made or agreed
to by Borrower under the Loan
<PAGE> 8
Documents as amended hereby, and all of Agent's and Lenders' claims and rights
resulting from any such breach or misrepresentation by Borrower, are expressly
reserved by Agent and Lenders.
17. GOVERNING LAW: This terms and provisions of this Amendment
shall be governed by, construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
18. COUNTERPARTS: This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts together shall constitute one and the same respective
agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Amendment the
day and year first above written.
MELLON BANK, N.A., as Agent and Lender
By: /s/ Roger Attix
-------------------------------------
Roger Attix
Vice President
L.A. T SPORTSWEAR, INC.
By: /s/ Isador Mitzner
-------------------------------------
Name: Isador Mitzner
Title: Chief Executive Officer
Attest: /s/ John Hankinson
---------------------------------
Name: John Hankinson
Tittle: Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF L.A.T. SPORTSWEAR, INC. FOR THE 3 MONTHS ENDED APRIL 3,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-3-1999
<PERIOD-END> APR-3-1999
<CASH> 572
<SECURITIES> 0
<RECEIVABLES> 10,131
<ALLOWANCES> 1,402
<INVENTORY> 23,644
<CURRENT-ASSETS> 33,678
<PP&E> 7,190
<DEPRECIATION> 3,753
<TOTAL-ASSETS> 37,239
<CURRENT-LIABILITIES> 12,357
<BONDS> 13,117
0
0
<COMMON> 10,825
<OTHER-SE> 816
<TOTAL-LIABILITY-AND-EQUITY> 37,239
<SALES> 20,455
<TOTAL-REVENUES> 20,455
<CGS> 16,866
<TOTAL-COSTS> 16,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 244
<INCOME-PRETAX> 325
<INCOME-TAX> 128
<INCOME-CONTINUING> 197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
