<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 33-80570
APPAREL VENTURES, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
DELAWARE 95 - 4475766
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
204 West Rosecrans, Gardena, California 90248
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(310) 538 - 4980
----------------------------------------------------
(Registrant's telephone number, including area code)
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
issuer's classes of common stock, as of the latest practicable date.
AT OCTOBER 29, 1996, 1,000 SHARES OF $.01 PAR VALUE COMMON STOCK OF THE
REGISTRANT WERE OUTSTANDING.
<PAGE> 2
APPAREL VENTURES, INC.
INDEX
<TABLE>
<CAPTION>
Page
---------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of September 30, 1996 (Unaudited)
and June 30, 1996. 3
Consolidated Statement of Operations for the Three Months ended
September 30, 1996 and 1995 (Unaudited). 4
Consolidated Statement of Cash Flows for the Three Months ended
September 30, 1996 and 1995 (Unaudited). 5
Notes to Consolidated Financial Statements (Unaudited). 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION. 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K 11
SIGNATURE 11
EXHIBIT INDEX 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APPAREL VENTURES, INC.
CONSOLIDATED BALANCE SHEET
A S S E T S
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 JUNE 30,
(Unaudited) 1996
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash $1,504,000 $ 244,000
Due from factor 3,785,000 15,809,000
Accounts receivable, net of
allowance for doubtful accounts and
discounts of $438,000 and $425,000 1,086,000 2,528,000
Inventories 12,441,000 7,684,000
Deferred charges 1,960,000 1,960,000
Deferred income taxes 2,549,000 999,000
Prepaid expenses 373,000 227,000
-------------- --------------
Total current assets 23,698,000 29,451,000
-------------- --------------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 4,670,000 4,810,000
OTHER ASSETS
Goodwill and organizational costs 12,680,000 12,764,000
Deferred loan costs 1,981,000 2,110,000
Deferred income taxes 2,368,000 2,368,000
Other 522,000 546,000
-------------- --------------
$45,919,000 $52,049,000
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of credit $ $ 4,144,000
Accounts payable 4,189,000 1,500,000
Accrued interest and other 3,181,000 4,458,000
Current portion of notes payable 85,000 128,000
-------------- --------------
Total current liabilities 7,455,000 10,230,000
-------------- --------------
SENIOR NOTES PAYABLE 35,483,000 35,459,000
NOTE PAYABLE TO BANK 2,450,000 2,450,000
NOTES PAYABLE, net of current portion 91,000 109,000
COMMITMENTS
STOCKHOLDER'S EQUITY
Common stock $.01 par value, 10,000
shares authorized, 1,000 shares
issued and outstanding 1,000 1,000
Additional paid - in capital 11,053,000 11,053,000
Due from parent (15,000) (15,000)
Cumulative translation adjustment (48,000) (48,000)
Accumulated deficit (10,551,000) (7,190,000)
-------------- --------------
440,000 3,801,000
-------------- --------------
$45,919,000 $52,049,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
APPAREL VENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
NET SALES $3,356,000 $8,283,000
COST OF SALES 2,687,000 7,713,000
-------------- --------------
Gross profit 669,000 570,000
OPERATING EXPENSES
Design 649,000 686,000
Selling 1,006,000 1,168,000
Shipping 288,000 349,000
General and administrative 2,132,000 2,094,000
-------------- --------------
4,075,000 4,297,000
-------------- --------------
Loss from operations (3,406,000) (3,727,000)
-------------- --------------
OTHER (EXPENSE) INCOME
Interest expense, including
amortization of deferred
loan costs of $130,000 and $153,000 (1,353,000) (1,770,000)
Interest income 5,000 3,000
Royalty income 43,000 77,000
Miscellaneous (199,000) 22,000
-------------- --------------
(1,504,000) (1,668,000)
-------------- --------------
LOSS BEFORE INCOME TAXES (4,910,000) (5,395,000)
INCOME TAX BENEFIT 1,550,000 1,931,000
-------------- --------------
NET LOSS ($3,360,000) ($3,464,000)
============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
APPAREL VENTURES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES --------------- --------------
<S> <C> <C>
Net loss ($3,360,000) ($3,464,000)
Depreciation and amortization 470,000 510,000
Other (5,000) 30,000
Changes in assets and liabilities
Due from factor 12,024,000 4,523,000
Accounts receivable, net 1,442,000 683,000
Inventories (4,757,000) 1,673,000
Deferred income tax benefits (1,550,000) (1,931,000)
Prepaid expenses and other assets (122,000) (358,000)
Accounts payable 2,689,000 (1,618,000)
Accrued expenses (1,277,000) (1,747,000)
--------------- --------------
Net cash provided (used) by operating activities 5,554,000 (1,699,000)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (113,000) (158,000)
--------------- --------------
Net cash used by investing activities (113,000) (158,000)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of line of credit (4,144,000) (437,000)
Borrowing under (repayment of) notes payable (37,000) 104,000
Borrowing from officer, net -- 2,075,000
--------------- --------------
Net cash provided (used) by financing activities (4,181,000) 1,742,000
--------------- --------------
NET INCREASE (DECREASE) IN CASH 1,260,000 (115,000)
CASH, beginning of period 244,000 207,000
--------------- --------------
CASH, end of period $1,504,000 $92,000
=============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
APPAREL VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management the accompanying financial statements
reflect all adjustments (consisting of normal recurring adjustments) which are
necessary for a fair presentation of the changes in financial position, results
of operations and cash flows for the interim periods reported.
The results of operations for the three months ended September 30, 1996
are not necessarily indicative of the results to be expected for the full year.
The accompanying financial statements should be read with reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained herein and the Notes to consolidated financial
statements, as set forth in the Company's Form 10 - K filing for the fiscal
year ended June 30, 1996.
COMPANY BACKGROUND - Apparel Ventures, Inc. (the "Company") is a wholly owned
subsidiary of AVI Holdings, Inc. The Company was incorporated in Delaware
under the name of AVI Acquisition Co. effective April 20, 1994 and concurrent
with a series of transactions on May 23, 1994, changed its name to Apparel
Ventures, Inc.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its 79% - owned Portuguese subsidiary, Apparel
Ventures Europa-Textil, LDA. Significant intercompany accounts and
transactions are eliminated in consolidation.
NATURE OF BUSINESS - The Company is headquartered in Gardena, California and
designs, manufactures and markets branded women's swimwear. The Company offers
ten proprietary lines catering to the Junior and Missy categories, distributed
through major department stores and specialty retail stores nationwide and,
through its subsidiary, throughout Europe.
TRANSLATION OF FOREIGN CURRENCIES - Cumulative translation adjustments, which
arise from consolidating Portuguese operations, are included in stockholder's
equity.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ -----------
<S> <C> <C>
Piece goods and trim $5,664,000 $3,769,000
Work-in-process 2,864,000 836,000
Finished goods 3,913,000 3,079,000
------------ -----------
$12,441,000 $7,684,000
============ ===========
</TABLE>
<PAGE> 7
NOTE 3 - LINE OF CREDIT
The Company has a line of credit with a bank (the "Credit Facility")
which provides for advances and commercial letters of credit of up to $32.0
million through May 23, 1999. The Credit Facility has a sublimit of $3.0
million for commercial letters of credit. Borrowings are limited to a
predetermined percentage of eligible factored accounts receivable, plus a
seasonal overadvance of $2.5 million during September and increasing to $4.5
million from October to March 15, of each year, the amount of which is tied to
bookings. Interest on base borrowings is charged at the bank's prime rate plus
1/2%, while interest on seasonal overadvances is charged at the bank's prime
rate plus 1 1/2%. The Credit Facility is collateralized by receivables,
finished goods inventories, and general intangibles.
The credit agreement includes a $2,450,000 term loan due December 5, 1998.
Interest on the term loan is payable monthly at the bank's prime rate. The
term loan is collateralized by receivables, finished goods inventories, and
general intangibles of the Company as well as certain personal assets pledged
by the Company's President.
The Credit Facility contains covenants requiring the maintenance of minimum
tangible net worth, fixed charge coverage ratios and other matters. The
Company was in compliance with these covenants for the quarter ended September
30, 1996.
NOTE 4 - SENIOR NOTES PAYABLE
On May 23, 1994, the Company issued $40 million principal amount of Series
A Senior Notes. The Senior Notes are due December 30, 2000 and bear interest
of 12 1/4%, payable July 1 and January 1 each year. The Senior Notes were
issued at a discount of $800,000, which is being amortized over the term of the
Senior Notes to yield a constant interest rate of 12.7%. As of September 30,
1996 there is $36.0 million principal amount of bonds outstanding net of
$517,000 in unamortized discount.
The Company may redeem the Senior Notes, subject to a premium for
redemption, after December 31, 1998. The Senior Notes contain certain
restrictions requiring the Company to offer to redeem the Senior Notes
including a premium for redemption, in the event of a change in control of the
Company.
The indenture governing the Senior Notes contains customary covenants
regarding maintaining specified ratios of earnings to fixed charges,
restrictions on transactions with officers and affiliates, and other matters.
For the year ended June 30, 1996 the Company failed to meet the fixed charge
coverage ratio covenant required by the indenture. The bondholders agreed to
waive the violation and forego their right to require redemption of 10% of the
bonds. As part of this agreement with the Company, the bondholders received
stock warrants allowing them to purchase an additional 5% of the outstanding
shares of the Parent company's common stock at $0.01 per share. The fair value
of the warrants is estimated between $100,000 and $200,000. Although the value
of the warrants has not been recorded by the Company, management is of the
opinion that the effect of the transaction would not be significant to the
Company's operating results or financial position.
The fair value of the senior notes payable is determined based on the
estimated current rates available to the Company for debt of similar maturities
and terms. The fair value of senior notes payable as of September 30, 1996 is
estimated to be between $37.5 million and $39.5 million.
NOTE 5 - COMMITMENT - PARENT COMPANY CAPITAL STRUCTURE
In connection with the acquisition of the Company, AVI Holdings, Inc. (the
"Parent") issued $10 million of Subordinated Senior Notes, $3.8 million of
Subordinated Junior Notes, $300,000 of common stock, $1.7 million of Class A
Preferred Stock, $1.7 million of Class B Preferred Stock and $1.0 million of
Class C Stock. A Subordinated Junior Note in the amount of $650,000 was
immediately repaid in full for $350,000. Since the Company is a wholly - owned
subsidiary of the Parent and is the sole operating unit of the consolidated
entity, the Company is the sole source of any cash to be paid by the parent on
such securities in the form of interest, dividends or principal repayments.
The cash required by the Parent to make these payments will be provided by
dividends or cash advances by the Company. While the Parent company's debt
service requirements will be funded by the Company, the debt of the Parent is
not reflected in the balance sheet of the Company since the Company has not
guaranteed, pledged assets as security for, or have plans, intentions, or a
requirement to directly assume or repay the Parent company's organizational
obligations.
<PAGE> 8
On December 5, 1995, in order for the Company to obtain waivers of certain
defaults from the Senior Note holders, the Parent authorized the issuance of
6,450 shares of Class D Preferred Stock and issued to certain subscribers 4,000
shares of Class D Preferred Stock for cash consideration of $4.0 million. Such
proceeds were then contributed by the Parent to the Company.
The $10.0 million Senior Subordinated Notes issued by the Parent bear
interest at 12% and require semi-annual interest payments on April 30 and
October 31 each year, commencing October 31, 1994. The notes are due on April
30, 2004. The remaining $3.15 million Junior Subordinated Notes bear interest
at 10.78% and require semi-annual interest payments on the 150th day following
the second and fourth quarter of each fiscal year, commencing with the second
fiscal quarter ended December 31, 1994. The notes are due in equal annual
installments on June 30, 2002, 2003 and 2004. In the aggregate, annual debt
service requirements for each of the next 5 years is $1,540,000.
The Company has not met the fixed charge ratio requirement and therefore is
precluded under its bond indenture from making any advances to the Parent for
its payment obligation. However, the Parent has satisfied these payment
obligations by issuing promissory notes (bearing interest at the default rate)
in the amounts of the interest due.
All classes of preferred stock of the Parent are 6% cumulative shares. The
dividends shall be paid, at the option of the Board of Directors, in the form
of cash or preferred stock, payable November 1 of each year. The payment of
cash dividends shall be restricted if such payment would result, directly or
indirectly, in a default under any obligation of the Company. The preferred
shares may be redeemed at any time for $1,000 per share plus accrued but unpaid
dividends. All shares not previously redeemed shall be redeemed by payment of
cash of $1,000 per share plus all accrued and unpaid dividends on September 30,
2004.
NOTE 6 - FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standard No. 107 "Disclosures About
Fair Value of Financial Instruments" (SFAS 107) requires the disclosure of the
fair market value of financial instruments for which it is practicable to
estimate fair value. The Company's financial instruments include cash,
receivables, accounts payable, line of credit, notes payable, and senior notes
payable. The Company considers the carrying amounts of all financial
instruments except for senior notes payable to approximate their fair value.
The estimated fair value of senior notes payable is indicated in Note 4.
<PAGE> 9
PART I - FINANCIAL INFORMATION
APPAREL VENTURES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements.
RESULTS OF OPERATIONS
The following table sets forth information with respect to the percentage
relationship of net sales of certain items of the consolidated statement of
operations of the Company for the three months ended September 30, 1996 and
1995.
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------
1996 % 1995 %
-------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
NET SALES $3,356,000 100.0% $8,283,000 100.0%
COST OF SALES 2,687,000 80.1% 7,713,000 93.1%
-------------- ------------
Gross profit 669,000 19.9% 570,000 6.9%
OPERATING EXPENSES
Design 649,000 686,000
Selling 1,006,000 1,168,000
Shipping 288,000 349,000
General and administrative 2,132,000 2,094,000
-------------- ------------
4,075,000 121.4% 4,297,000 51.9%
-------------- ------------
Loss from operations (3,406,000) -101.5% (3,727,000) -45.0%
OTHER (EXPENSE) INCOME
Interest expense (1,353,000) (1,770,000)
Interest income 5,000 3,000
Royalty income 43,000 77,000
Miscellaneous (199,000) 22,000
-------------- ------------
(1,504,000) -44.8% (1,668,000) -20.1%
-------------- ------------
LOSS BEFORE INCOME TAXES (4,910,000) -146.3% (5,395,000) -65.1%
INCOME TAX BENEFIT 1,550,000 46.2% 1,931,000 23.3%
-------------- ------------
NET LOSS ($3,360,000) -100.1% ($3,464,000) -41.8%
============== ============
</TABLE>
NET SALES
Net sales for the first three months of fiscal 1997 decreased by $4.9
million as compared to the same period of fiscal 1996. This sales decrease was
primarily due to a reduction in the sale of prior season merchandise; the
direct result of lower finished goods inventory levels at season's end. During
the comparable period in fiscal year 1996, the Company had sold $5.5 million or
448,000 units of prior season merchandise. Sales returns and allowances also
decreased by $0.5 million primarily the result of the elimination of the
"preview" line for the La Blanca label in the fourth quarter of fiscal 1996 and
an improved performance of the brands in fiscal 1996. Sales of current season
merchandise for the first three months of fiscal 1997 were comparable with the
same period of fiscal 1996.
<PAGE> 10
GROSS PROFIT
Although net sales decreased significantly during the first quarter of
fiscal 1997, gross profit was $0.1 million greater than the same period of
fiscal 1996. This gross margin improvement is due to the significant decrease
in sales of prior season merchandise (which are generally sold at or below
cost), lower returns and allowances, and slightly higher gross profit margins
on current season merchandise.
OPERATING EXPENSES
Operating expenses decreased by $0.2 million or 5.3% which was the direct
result of lower sales volume. In summation, advertising expense declined by
$0.2 million; distribution expense declined by $0.1 million; and other costs
increased slightly by $0.1 million. Operating expenses were 121.5% of net
sales in the current fiscal quarter as compared to 51.9% of net sales in the
same period of fiscal 1996. This increase in operating expense as a percentage
of net sales was due to the significant decrease in net sales while operating
expenses remained relatively constant.
OTHER EXPENSES
Other expenses decreased $0.2 million or 10% due primarily to a reduction
in interest expense of $0.4 million (as a result of improved liquidity of the
Company at June 30, 1996), which was offset by a $0.2 million increase in other
expenses primarily relating to the litigation settlement and related
professional fees.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements are seasonal, with peak needs
arising near the end of the third quarter and the beginning of the fourth
quarter of the fiscal year, primarily as a result of building inventories in
the first and second quarters of the fiscal year to supply third and fourth
quarter demand and the financing of accounts receivable in the fourth quarter
of the fiscal year.
During late fiscal 1995 and early 1996, the Company initiated several
changes in executive personnel and instituted more comprehensive financial
reporting and controls to improve the Company's performance. Taken as a whole,
these initiatives have resulted in lower inventory levels, higher gross profit
margins, reduced costs and greater financial liquidity than in fiscal 1995 and
1996.
The Company does not have any mandatory long-term debt principal payment
requirements until December 1998. Based upon current levels of operations and
anticipated growth, the Company expects that sufficient cash flow will be
generated from operations so that, with the other financing alternatives
available to it, the Company will be able to meet all of its debt service
requirements as well as its capital expenditure requirements for the
foreseeable future.
At September 30, 1996, the net collateral availability under the line of
credit was approximately $8,600,000.
SEASONALITY
The Company's business is highly seasonal. In fiscal 1996, approximately
73% of the Company's gross sales were generated in the second half of its
fiscal year. The Company expects this pattern to continue in its current and
subsequent fiscal years. This seasonality and the relatively long times
required to design and manufacture new products have led to the development of
this standard selling cycle. The Company operates with a deficit in cash flow
from operations (seasonal working capital requirements) for the first nine
months of each fiscal year.
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 27, 1995, The Sirena Apparel Group, Inc. ("Sirena") filed a Complaint
in the Superior Court of the State of California against the Company and two of
its employees. AVI subsequently filed a cross complaint against Sirena.
On September 22, 1996, the Company verbally agreed to an amicable settlement.
The settlement included a cash payment by the Company to Sirena and certain
purchase price concessions to be made to the Company by a foreign sewing
contractor who is also party to the complaint. The settlement offer was
formally signed and accepted by all parties on October 7, 1996. Management is
of the opinion that the cash settlement will not significantly affect the
Company's financial position, cash flow and results for the fiscal year 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The Exhibits listed in the Index to Exhibits are filed as part of this
Quarterly Report on Form 10-Q.
SIGNATURE
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.
APPAREL VENTURES, INC.
October 29, 1996 /s/ WILLIAM F. SINGLETARY
- - -------------------- -----------------------------------
Date
William F. Singletary
Chief Financial Officer
(Duly authorized officer and
principal financial and
accounting officer)
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Exhibit Page No.
- - --------- ----------------------------------------------- ----------
<S> <C> <C>
10.4 Amendment No. 5 to Loan and Security Agreement
dated September 30, 1996 by and between Apparel
Ventures, Inc. and Fleet Capital Corporation. 13
27.1 Financial Data Schedule pursuant to Article 5 of
Regulation S-X.
</TABLE>
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 5
TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 5 ("Amendment") is entered into as of September 30,
1996, by and between Apparel Ventures, Inc., a Delaware corporation having its
chief executive office and principal place of business at 204 West Rosecrans
Avenue, Gardena, California 90248 ("Borrower") and Fleet Credit Corporation
f/k/a Shawmut Capital Corporation ("Lender").
BACKGROUND
Borrower and Lender are parties to a Loan and Security Agreement dated
as of May 23, 1994 (as same has been or may further be amended, supplemented,
restated or otherwise modified from time to time, the "Loan Agreement") pursuant
to which Lender provided Borrower with certain financial accommodations.
Borrower has requested that Lender amend certain provisions of the Loan
Agreement and Lender is willing to do so on the terms and conditions hereafter
set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrower by Lender,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein
shall have the meanings given to them in the Loan Agreement.
2. AMENDMENTS TO LOAN AGREEMENT. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the following provisions of
the Loan Agreement shall be amended as set forth below:
(a) Section 7.2(B) of the Loan Agreement is hereby amended in
its entirety to read as follows:
"(B) LOANS. Make any loans or other advances of money (other
than for salary, travel advances, advances against commissions and other
similar advances in the ordinary course of business) to any Person,
including, without limitation, any of Borrower's Affiliates, officers or
employees, except for loans or other advances to AVE which together with
the value of all assets transferred to AVE by Borrower at any time
outstanding does not exceed (i) $2,500,000 from the Closing Date through
January 31, 1996, (ii) $2,630,000 from February 1, 1996 through March
31, 1996, (iii) $3,000,000 from April 1, 1996 through June 29, 1996,
(iv) $2,500,000 on
<PAGE> 2
June 30, 1996, (v) $2,600,000 from July 1, 1996 through
September 29, 1996, (vi) $2,700,000 from September 30, 1996
through October 30, 1996, (vii) $3,600,000 from October 31, 1996
through December 30, 1996, (viii) $3,800,000 from December 31,
1996 through January 30, 1997, (ix) $4,200,000 from January 31,
1997 through June 29, 1997 and (x) $3,500,000 on June 30, 1997
and thereafter."
(b) Sections 7.3(A) and (B) of the Loan Agreement are
hereby amended in their entirety to provide as follows:
"(A) Minimum Adjusted Tangible Net Worth. (i)
Maintain at all times an Adjusted Tangible Net Worth of
not less than the amount ("Net Worth Amount") shown
below for the Period or Date corresponding thereto:
Period or Date Amount
-------------- ---------------
7/30/95 ($19,114,000)
8/31/95 ($20,548,000)
9/30/95 ($21,928,000)
10/31/95 ($22,669,000)
11/30/95 ($22,985,000)
12/31/95 ($21,765,000)
1/31/95 ($20,180,000)
2/29/96 ($18,073,000)
3/31/96 ($16,717,000)
4/30/96 ($16,987,000)
5/31/96 ($17,689,000)
6/30/96 ($18,217,000)
7/31/96 through 9/29/96 ($19,217,000)
9/30/96 through 10/30/96 ($20,000,000)
10/31/96 through 11/29/96 ($21,000,000)
11/30/96 through 12/30/96 ($21,500,000)
12/31/96 through 1/30/97 ($21,000,000)
1/31/97 through 2/27/97 ($19,500,000)
2/28/97 through 3/30/97 ($18,600,000)
3/31/97 through 4/29/97 ($18,400,000)
4/30/97 through 5/30/97 ($18,200,000)
5/31/97 through 6/29/97 ($18,000,000)
6/30/97 through 6/29/98 ($17,500,000)
6/30/98 through 6/29/99 ($16,000,000)
6/30/99 through 6/29/00 ($14,500,000)
For each Fiscal year, thereafter the Net Worth Amount shall be increased
by $1,500,000 for each such Fiscal year.
Lender acknowledges that the actual Date or ending Date of a period
reflected in the above table may be different by a day or two depending upon the
specific accounting periods utilized by Borrower in the applicable fiscal year.
-2-
<PAGE> 3
(B) Fixed Charge Coverage Ratio. Maintain a Fixed
Charge Coverage Ratio of not less than:
(i) .25 to 1.0 for the four consecutive fiscal
quarter period ending on September 30, 1995;
(ii) .37 to 1.0 for the four consecutive fiscal
quarter period ending on December 31, 1995;
(iii) .35 to 1 for the four consecutive fiscal
quarter period ending on March 31, 1996;
(iv) .75 to 1 for the four consecutive fiscal
quarter period ending on June 30, 1996;
(v) .65 to 1.0 for the four consecutive fiscal
quarter period ending September 30, 1996;
(vi) .75 to 1.0 for the four consecutive fiscal
quarter period ending December 31, 1997; and
(vii) 1.0 to 1.0 for the four consecutive fiscal
quarter period ending March 31, 1997; and
(v) 1.50 to 1.0 for each four consecutive
fiscal quarter period ending thereafter."
3. Conditions of Effectiveness. This Amendment shall
become effective as of July 1, 1996, when and only when Lender shall have
received (i) four (4) copies of this Amendment executed by Borrower and (ii)
such other certificates, instruments, documents, agreements and opinions of
counsel as may be required by Lender or its counsel, each of which shall be in
form and substance satisfactory to Lender and its counsel.
4. Representations and Warranties. Borrower hereby
represents and warrants as follows:
(a) This Amendment and the Loan Agreement, as amended
hereby, constitute legal, valid and binding obligations of
Borrower and are enforceable against Borrower in accordance with
their respective terms.
(b) Upon the effectiveness of this Amendment, Borrower
hereby reaffirms all covenants, representations and warranties
made in the Loan Agreement to the extent the same are not
amended hereby and agree that all such covenants,
representations and warranties shall be deemed to have been
remade as of the effective date of this Amendments.
-3-
<PAGE> 4
(c) No Event of Default or Default has occurred and is
continuing or would exist after giving effect to this Amendment.
(d) Borrower has no defense, counterclaim or offset
with respect to the Loan Agreement.
5. Effect on the Loan Agreement.
(a) Upon the effectiveness hereof, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Loan Agreement as amended
hereby.
(b) Except as specifically amended herein, the Loan
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
Lender, nor constitute a waiver of any provision of the Loan Agreement, or any
other documents, instruments or agreements executed and/or delivered under or
in connection therewith.
6. Governing Law. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns and shall be governed by and construed in accordance with the laws
of the State of New York.
7. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
8. Counterparts, Telecopied Signatures. This Amendment
may be executed in any number of and by different parties hereto on separate
counterparts, all of which, when so executed shall be deemed an original, but
all such counterparts shall constitute one and the same instrument. Any
signature delivered by a party by facsimile transmission shall be deemed an
original signature hereto.
IN WITNESS WHEREOF, this Amendment has been duly executed as of
the day and year first written above.
APPAREL VENTURES, INC.
By: /s/ MARVIN L. GOODMAN
---------------------------
Name: Marvin L. Goodman
Title: President
FLEET CAPITAL CORPORATION
By: /s/ WALTER SCHUPPE
--------------------------
Name: Walter Schuppe
Title: Vice President
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF APPAREL VENTURES, INC. FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,504,000
<SECURITIES> 0
<RECEIVABLES> 5,309,000
<ALLOWANCES> 438,000
<INVENTORY> 12,441,000
<CURRENT-ASSETS> 23,698,000
<PP&E> 7,627,000
<DEPRECIATION> 2,957,000
<TOTAL-ASSETS> 45,919,000
<CURRENT-LIABILITIES> 7,455,000
<BONDS> 38,000,000
0
0
<COMMON> 1,000
<OTHER-SE> 439,000
<TOTAL-LIABILITY-AND-EQUITY> 45,919,000
<SALES> 3,356,000
<TOTAL-REVENUES> 3,356,000
<CGS> 2,687,000
<TOTAL-COSTS> 2,687,000
<OTHER-EXPENSES> 4,226,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,353,000
<INCOME-PRETAX> (4,910,000)
<INCOME-TAX> (1,550,000)
<INCOME-CONTINUING> (3,360,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,360,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
