<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended December 31, 1994
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to_____________
Commission File Number 1-5893
MOVIE STAR, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-5651322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
136 MADISON AVENUE, NEW YORK, N.Y. 10016
(Address of principal executive offices) (Zip Code)
(212) 679-7260
(Registrant's telephone number, including area code)
____________________________________________________________
(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
------- ------
The number of common shares outstanding on January 31, 1995 was 13,959,650.
<PAGE> 2
MOVIE STAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
Dec. 31, June 30,
1994 1994*
--------- --------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash $ 714 $ 922
Receivables, net of allowances 18,268 10,091
Inventory (note 3) 27,607 44,812
Deferred income taxes (note 5) 2,301 2,915
Prepaid expenses and other
current assets 1,028 326
------- -------
Total current assets 49,918 59,066
Property, plant and equipment (net) 7,252 7,697
Other assets 1,934 1,949
Deferred income taxes (note 5) 674 1,094
------- -------
Total assets $59,778 $69,806
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities
Notes payable $12,107 $19,509
Current maturities of long-term debt 48 118
Accounts payable and accrued expenses 9,837 13,921
------ -------
Total current liabilities 21,992 33,548
------- -------
Long-term debt 22,506 22,529
------- -------
Stockholders' equity
Common stock 160 160
Additional paid-in capital 3,731 3,731
Retained earnings 15,007 13,456
------- -------
18,898 17,347
Less: Treasury stock, at cost 3,618 3,618
------- -------
Total stockholders' equity 15,280 13,729
------- -------
Total liabilities and stockholders'
equity $59,778 $69,806
======= =======
</TABLE>
* Derived from audited financial statements.
See notes to consolidated condensed financial statements.
<PAGE> 3
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
1994 1993 1994 1993
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $35,997 $35,020 $68,437 $64,942
Cost of sales (note 3) 27,632 27,980 53,020 51,184
------- ------- ------- -------
Gross profit 8,365 7,040 15,417 13,758
------- ------- ------- -------
Selling, general and administrative
expenses 5,509 5,572 10,283 10,671
Interest expense 1,282 1,148 2,549 2,218
------- ------- ------ -------
6,791 6,720 12,832 12,889
------- ------- ------ -------
Income from operations 1,574 320 2,585 869
Gain on sale of plant facilities (note 4) - 984 - 984
------- ------- ------- -------
Income before provision for income taxes
and cumulative effect of accounting change 1,574 1,304 2,585 1,853
Provision for income taxes (note 5) 630 522 1,034 742
------- ------- ------- -------
Income before cumulative effect of
accounting change 944 782 1,551 1,111
Cumulative effect of change in accounting
for income taxes (Note 5) - - - 861
------- ------- ------- -------
Net income $ 944 $ 782 $ 1,551 $ 1,972
======= ======= ======= =======
Income per share before cumulative effect of
accounting change $.07 $.06 $.11 $.08
==== ==== ==== ====
Cumulative effect of accounting change per share $.06
====
Net income per share $.07 $.06 $.11 $.14
==== ==== ==== ====
Weighted average number of shares
outstanding 13,959 14,175 13,959 14,205
====== ====== ====== ======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
MOVIE STAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1994 1993
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before cumulative effect of accounting change $ 1,551 $ 1,111
Adjustments to reconcile income before cumulative
effect of accounting change to net cash provided by
(used in) operating activities:
Depreciation and amortization 648 646
Deferred income taxes 1,034 606
Gain on sale of plant facilities - (984)
Changes in operating assets and liabilities:
Receivables (8,177) (3,915)
Inventory 17,205 7,372
Prepaid expenses and other current assets (702) (1,162)
Other assets (33) (9)
Accounts payable and accrued expenses (4,084) (5,280)
------ -------
Net cash provided by (used in)
operating activities 7,442 (1,615)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for fixed assets (155) (778)
Reduction of notes receivable - 395
Proceeds from sale of plant facilities - 110
------- -------
Net cash used in investing activities (155) (273)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payment of) notes payable (7,402) 1,532
Payment of long-term debt obligations (93) (419)
Purchase of treasury stock - (340)
------- -------
Net cash (used in) provided by
financing activities (7,495) 773
------- -------
NET DECREASE IN CASH (208) (1,115)
CASH, beginning of period 922 1,788
------- -------
CASH, end of period $ 714 $ 673
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during period for:
Interest $ 2,423 $ 2,193
======= =======
Income taxes (net of refunds) $ 7 $ 135
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 5
MOVIE STAR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position as of December 31, 1994 and the results of operations for the
three and six-month periods ended December 31, 1994 and 1993 and cash
flows for the six months ended December 31, 1994 and 1993.
2. The results of operations for the six months ended December 31, 1994 are
not necessarily indicative of the results to be expected for the full
year.
3. Certain items included in these statements are based upon estimates. The
cost of sales is determined utilizing estimated gross profit rates. The
calculation of the actual cost of sales is predicated upon a physical
inventory taken only at the end of each fiscal year.
An approximate breakdown of the inventory in thousands is as follows:
<TABLE>
<CAPTION>
Dec. 31, June 30,
1994 1994
------- -------
<S> <C> <C>
Raw materials $ 8,703 $13,506
Work-in-process 4,938 5,673
Finished goods 13,966 25,633
------- -------
$27,607 $44,812
======= =======
</TABLE>
4. During fiscal 1993, the Company sold a plant facility for a gain of
$621,000 of which $548,000 was deferred at June 30, 1993. During the six
months ended December 31, 1993, the Company realized the remaining gain of
$548,000 on such sale and sold another plant facility, which was connected
to the facility discussed above, for which a gain of $436,000 was
recognized.
5. The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," effective July 1, 1993. This
statement supersedes SFAS No. 96, "Accounting for Income Taxes," which was
adopted by the Company in 1989. The cumulative effect of adopting SFAS
No. 109 on the Company's financial statements was to increase income by
$861,000 ($.06 per share) for the six months ended December 31, 1993.
<PAGE> 6
MOVIE STAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the three months ended December 31, 1994 increased to $35,997,000
from $35,020,000, or an increase of 3%, from the comparable period in 1993.
This increase is attributable to increased sales to existing customers. Net
sales for the six months ended December 31, 1994 increased by $3,495,000 (5%)
to $68,437,000 compared to the similar period in 1993. This increase is
primarily attributable to increased sales in the Company's men's work and
leisure shirt division.
The gross profit percentage increased from 20.1% in 1993 to 23.2% in 1994 and
from 21.2% in 1993 to 22.5% in 1994 for the three-month and six-month periods,
respectively. The increase in the gross profit percentage was primarily due to
the higher margins in the Company's popular-priced intimate apparel division,
partially offset in the six-month period from higher sales of the Company's
men's work and leisure shirt division which operates on a lower gross margin
percentage than the Company's other divisions.
The increase in gross margins of the Company's popular-priced intimate apparel
division was due to the Company's decision, during the third quarter of fiscal
1994, to phase-out the portion of its popular-priced intimate apparel
division's business which produced and purchased inventory for sale to smaller
accounts ("Trade Business") without orders in hand. Trade Business was a
smaller and less profitable portion of the division's business and required
higher inventory levels and associated costs. This division is now
concentrating its efforts on private label business, where goods are
manufactured against orders. As a result of this decision, during the third
quarter of fiscal 1994, the Company recorded a special charge of $3,800,000
consisting of a write-down, to its estimated realizable value, of inventory
related to its Trade Business. As of December 31, 1994, the Company has
substantially liquidated its finished goods Trade Business inventory. The
Company has, and will continue to seek to mitigate the loss of Trade Business
sales through a more concentrated effort on its higher margin private label
business, improving its sourcing capabilities and the further elimination of
low margin business, as well as increasing sales of the Company's other
divisions.
For the three months ended December 31, 1994, selling, general and
administrative expenses decreased slightly by $63,000 to $5,509,000.
For the six months ended December 31, 1994, selling, general and
<PAGE> 7
administrative expenses decreased by $388,000 to $10,283,000 from the
comparable period in 1993. The decrease was primarily attributable to
decreases in the first quarter which were principally related to a reduction in
salary expense of $97,000 and sales related expenses of $265,000, including
royalties of $132,000 and travel and entertainment of $45,000.
Interest expense for the three months ended December 31, 1994 increased by
$134,000 to $1,282,000 compared to the similar period in 1993 due to higher
short-term rates. Interest expense for the six months ended December 31, 1994
increased by $331,000 to $2,549,000 compared to the similar period in 1993 due
to higher short-term rates and increased borrowing needs in the first quarter.
The Company had income from operations of $1,574,000 for the three months ended
December 31, 1994 compared to $320,000 for the same period in 1993, and income
from operations of $2,585,000 for the six months ended December 31, 1994
compared to $869,000 for the same period in 1993 due to higher sales, higher
gross profit margins and lower selling, general and administrative expenses,
offset partially by increased interest expense, in both periods.
During the second quarter of fiscal 1994, the Company realized a gain of
$984,000 from the sale of certain plant facilities.
The Company's effective income tax rate was 40% for the three-month and
six-month periods ended December 31, 1994 and 1993. The Company adopted
Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for
Income Taxes," effective July 1, 1993, which resulted in a cumulative benefit
from a change in accounting amounting to $861,000 for the six-month period
ending December 31, 1993. The effective income tax rate differs from the
statutory federal income tax rate principally as a result of certain non-
deductible expenses and the effect of state income taxes.
As a result of the above factors, net income increased by $162,000 to $944,000
and decreased by $421,000 to $1,551,000 for the three-month and six-month
periods, respectively.
Liquidity and Capital Resources
For the six months ended December 31, 1994, the Company's working capital
increased by $2,408,000 to $27,926,000, principally from operating profits,
partially offset by the payment of long-term debt and expenditures for fixed
assets.
During the six months ended December 31, 1994, cash decreased by $208,000. The
Company used cash for the purchase of fixed assets of $155,000, the payment of
notes payable of $7,402,000 and the payment of long-term obligations of
$93,000. These activities were principally funded by cash generated by
operating activities of $7,442,000.
<PAGE> 8
The Company intends to reduce the required sinking fund payment of $3,750,000
due in 1996 on its outstanding subordinated debentures by the $2,550,000 of
debentures previously purchased by the Company. The balance of the payment due
in 1996 and future sinking fund requirements in each year after 1996 are
presently expected to be paid from a combination of future earnings and the
refinancing of such debt in the future. The Company does not anticipate any
further significant purchases of its stock or debentures and anticipates
capital expenditures for fiscal 1995 to be less than the amount spent in fiscal
1994.
The Company has lines of credit with two banks, aggregating up to approximately
$35,000,000, subject to monthly borrowing limitations based on the Company's
anticipated working capital requirements. The credit lines bear interest of up
to 1% above the banks' prime rate. The Company pledged, as collateral for such
lines, all of its accounts receivable and its finished goods inventory imported
pursuant to letters of credit issued under such lines. These lines of credit
expire on June 30, 1995. The Company intends to request renewal of such lines
prior to their expiration. Management believes its available borrowing under
these lines of credit through June 30, 1995, and their anticipated renewal,
along with anticipated internally generated funds, will be sufficient to cover
its working capital requirements.
<PAGE> 9
PART II Other Information
Item 1 - Legal Proceedings - Not Applicable
Item 2 - Changes in Securities - Not Applicable
Item 3 - Defaults Upon Senior Securities - Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on December 8,
1994, in addition to the election of directors and the ratification of Deloitte
& Touche LLP as auditors, approval of the Company's 1994 Incentive Stock Option
Plan (the "Plan") was submitted to a vote of the stockholders. The Plan was
approved by a vote of 7,370,910 in favor, 1,511,493 opposed and 57,814
abstentions; there were 2,782,442 non-votes.
Item 5 - Other Information - None
Item 6 - (a) Exhibits
Exhibit
Number Exhibit Method of Filing
- - - - ------- ------- ----------------
10.5.4 Letter Agreement Filed herewith.
dated December 22,
1994 between Republic
National Bank of
New York and the
Registrant confirming
extension of terms
of credit facility.
10.6.5 Letter Agreement dated Filed herewith.
as of October 11, 1994
between National
Westminster Bank USA
and the Registrant
confirming extension of
terms of credit facility.
27 Financial Data Schedule Filed herewith.
(b) Form 8-K Report - None
<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 hereunto duly authorized.
MOVIE STAR, INC.
By: /s/ CLAYTON E. MEDLEY
------------------------------
CLAYTON E. MEDLEY
President
By: /s/ SAUL POMERANTZ
------------------------------
SAUL POMERANTZ
Senior-Vice President;
Chief Financial Officer
February 13, 1995
<PAGE> 11
Exhibit Index
-------------
Exhibit
Number Exhibit Method of Filing
- - - - ------- ------- ----------------
10.5.4 Letter Agreement Filed herewith.
dated December 22,
1994 between Republic
National Bank of
New York and the
Registrant confirming
extension of terms
of credit facility.
10.6.5 Letter Agreement dated Filed herewith.
as of October 11, 1994
between National
Westminster Bank USA
and the Registrant
confirming extension of
terms of credit facility.
27 Financial Data Schedule Filed herewith.
<PAGE> 1
[REPUBLIC BANK LOGO]
[REPUBLIC BANK LETTERHEAD]
December 22, 1994
Movie Star, Inc.
Attn.: Clay Medley
136 Madison Avenue
New York, New York 10016
RE: MOVIE STAR INC. LINE OF CREDIT
Dear Mr. Medley:
Reference is made to the Line of Credit for Movie Star Inc., (the Facility),
as set forth in our letter dated to you on October 7, 1994. The Company has
requested that the Bank extend the expiration date of the Facility to June 30,
1995. Subject to the terms and conditions set forth herein and upon the
acceptance by the Company, the Bank hereby agrees to extend the expiration date
of the Facility to June 30, 1995 except as modified hereby all terms and
conditions of our letter of October 7, 1994 shall be made in full force and
effect. The following conditions shall apply to your Facility effective upon
your acceptance of the additional conditions for the Facility on or before
January 10, 1995.
1) For the six month period ending on December 31, 1994, the income before
provision for income taxes shall not be less than $2.5 million and the deferred
income tax benefit as reflected on your December 31, 1994 financial statement
shall not be greater than $3.3 million.
2) Prior to March 3, 1995 you shall submit cash flow projection for the period
from July 1, 1995 through December 31, 1995 which cash flow projection shall be
acceptable to the Bank in its sole and absolute discretion.
3) On or before January 31, 1995, you will have retained the services of an
outside consultant to assist you in reconstructing the management and
operations of your business and such consultant shall have rendered a report, a
copy which shall be furnished to the Bank on or before April 30, 1995.
<PAGE> 2
Please indicate your acceptance of the following by signature below.
Very truly yours,
/s/ Leonard Katzenstein, V.P.
-----------------------------
Leonard Katzenstein
Vice President
/s/ Saul Pomerantz, Sr. V.P.
- - - - ----------------------------
Saul Pomerantz, SVP
Movie Star Inc.
<PAGE> 1
[NATIONAL WESTMINSTER BANK LETTERHEAD] [NATWEST BANK LOGO]
CYNTHIA E. SACHS
Assistant Vice President
As of October 11, 1994
Movie Star, Inc.
136 Madison Avenue
New York, N.Y. 10016
Gentlemen:
We are pleased to advise you that National Westminster Bank USA (the "Bank")
holds available for the use of Movie Star, Inc. (the "Company") a line of
credit (the "Line") in the amount of $14,400,000 upon the following terms and
conditions:
1. Facilities. The Line shall include the following
facilities: short-term loans ("Loans"), documentary letters of credit for the
importation of merchandise inventory ("Letters of Credit"), eligible bankers'
acceptances ("Acceptances"), and airway releases and steamship guarantees
("Releases"; Loans and Acceptances at all times collectively hereinafter
referred to as "NatWest Credits") (NatWest Credits, Letters of Credit and
Releases at all times collectively hereinafter referred to as "NatWest Total
Credits"), provided that the aggregate amount of:
(i) NatWest Total Credits at any time outstanding shall not
exceed the sum of $14,400,000;
(ii) NatWest Credits at any time outstanding shall not exceed
the sum of $13,000,000; and
(iii) Letters of Credit and Releases at any time outstanding
shall not exceed $3,200,000.
It is contemplated that Republic National Bank of New York ("Republic") will
make available to the Company a $21,600,000 line of credit including the
following facilities: short-term loans ("Republic Loans"), standby letters of
credit ("Republic Standbys"), documentary letters of Credit ("Republic Letters
of Credit"), and airway releases and steamship guarantees ("Republic Releases")
(Republic Loans, Republic Standbys, Republic Letters of Credit and Republic
Releases at all times collectively hereinafter referred to as "Republic Total
Credits").
Subject to all other applicable limitations set forth herein (including without
limitation the Borrowing Base), outstandings under the Bank's Line described in
Paragraph 1 (ii) shall be subject to additional limitations as follows (refer
to Addendum I for summarized chart):
(i) The aggregate amount of NatWest Credits and Republic Loans
at any time outstanding shall not exceed $32,500,000 for the
period October 1, 1994 through October 30, 1994 and $30,000,000
at month end October 31, 1994
<PAGE> 2
-2-
only; $32,500,000 for the period November 1, 1994 through
November 29, 1994 and $21,500,000 at month end November 30, 1994
only; $22,500,000 for the period December 1, 1994 through
December 30, 1994 and $12,000,000 at month end December 31, 1994
only; $8,200,000 at month end January 31, 1995 only; $8,350,000
at month end February 28, 1995 only; and $12,600,000 at month end
March 31, 1995 only.
Outstandings under the Bank's Line shall be subject to the further limitations
as follows:
(i) The aggregate amount of NatWest Total Credits and
Republic Total Credits at any time outstanding shall not exceed
$36,000,000;
(ii) The aggregate amount of NatWest Credits and Republic
Loans at any time outstanding shall not exceed $32,500,000;
(iii) The aggregate amount of Letters of Credit and Releases
and Republic Letters of Credit and Republic Releases at any time
outstanding shall not exceed $8,000,000;
(iv) The aggregate amount of Republic Standbys at any time
outstanding shall not exceed $1,000,000; and
(v) The aggregate amount of NatWest Credits, Republic Loans
and Republic Standbys at any time outstanding shall not exceed
the lesser of $33,500,000 or the Borrowing Base (as hereinafter
defined), as then in effect.
As used herein, the "Borrowing Base" shall be the sum of (1) 85% of the
Company's Eligible Receivables (as defined below) plus $1,000,000 at month end
October 31, 1994 only; and zero thereafter through the Credit Period.
Eligible Receivables shall consist of those accounts receivable ("Accounts")
arising out of sales of inventory in the ordinary course of business which are
outstanding not more than 90 days from the original due date and which are
otherwise satisfactory to the Bank in its sole discretion, provided, that, if
fifty percent (50%) or more of the Accounts due from an account debtor are
deemed ineligible by the Bank then all Accounts due from such account debtor
shall be deemed ineligible. Eligible Receivables shall not include: (a)
intercompany Accounts; (b) chargeback Accounts; (c) Accounts with respect to
which the account debtor is not domiciled in the United States of America
unless such Account is fully secured by an irrevocable letter of credit
acceptable to the Bank and assigned to the Bank; and (d) Accounts from any
customer who has filed for Chapter XI bankruptcy protection.
2. Credit Period. The Line shall be available for the period
commencing with the date of the Company's acceptance of the terms hereof and
ending March 31, 1995 (the "Credit Period"). All NatWest Credits shall mature
on the last day of the Credit Period. All Letters of Credit shall expire no
later than June 30, 1995.
3. Interest and Fees. The Bank will charge and shall be
entitled to receive the following (which amounts, together with any other
amounts owing by the Company to the Bank, may be charged to any demand deposit
account maintained by the Company with the Bank):
<PAGE> 3
-3-
(a) Loans shall bear interest at a rate equal to 1/2%
per annum in excess of the Prime Rate (the rate of interest established by the
Bank from time to time as its "prime rate"), such interest rate to change when
and as the Prime Rate changes. Interest shall be computed on the basis of a
360 day year for actual days elapsed and shall be payable monthly in arrears on
the first day of each month.
(b) Letters of Credit and Releases will be issued at the
Bank's standard fees and charges in effect from time to time therefor; Letters
of Credit payment commission not to exceed 1/4%. All shipping documents for
Letters of Credit must be consigned to the Bank.
(c) Acceptances must arise out of transactions involving
the importation, exportation or domestic shipment of goods and have not more
than 180 days sight to run. The Bank's fee for the creation of each Acceptance
will be 2.25% in excess of the Bank's acceptance rate in effect from time to
time.
4. Collateral. All obligations of the Company to the Bank under
NatWest Total Credits shall be secured by a first priority perfected security
interest in all present and future accounts receivable and imported inventory
of the Company as more fully described in the Continuing General Security
Agreement dated May 19, 1993 or any other security agreements executed by the
Company in favor of the Bank. It is understood that Republic also requires a
perfected security interest in the same collateral as security for Republic
Total Credits. Execution by both banks of a written agreement to share such
collateral on an equal priority, pro rata basis, is a condition precedent to
the extension of any credit under the Bank's Line. No other security interest
shall exist, nor shall any financing statement be of record with respect to
such collateral except for that of the Bank and Republic. To the extent that
the Company provides Republic any additional collateral to secure payment under
any of the Republic Total Credits, the Company shall also provide the Bank with
a lien on such additional collateral to be shared on an equal priority, pro
rata basis with Republic in accordance with such agreement.
5. Other Conditions. In addition to the foregoing, extension,
continuation and renewal of any credit under the Line is subject to the
conditions set forth below. Should the Company fail to comply with any of such
conditions the Bank may in its sole discretion and without notice to the
Company curtail or eliminate any or all of the facilities described herein and
take whatever other actions it shall deem appropriate as permitted by
applicable law or by any agreement, document or instrument executed and
delivered pursuant to or in connection with this agreement.
(a) The usual credit factors remaining favorable in the sole
determination of the Bank.
(b) The Company performing each material condition and
obligation described herein and in each other agreement, document and
instrument executed and delivered pursuant to or in connection with this
agreement.
(c) The Company not being in default under any agreement,
document or instrument executed and delivered pursuant to or in connection with
this agreement (whether executed prior or subsequent to the date hereof) which
would have a material adverse affect on the financial condition of the Company.
<PAGE> 4
-4-
(d) The Company not being in default under any agreement,
document or instrument with any other person or entity which would have a
material adverse affect on the financial condition of the Company.
(e) The Company furnishing to the Bank:
(i) within sixty (60) days of the close of each fiscal quarter
throughout the Credit Period, the consolidated balance sheet,
statements of income and retained earnings and cash flows of the
Company and its subsidiaries as of the last day of and for such
quarter and for the portion of the fiscal year then elapsed, each
such statement to be certified by the chief financial or
accounting officer of the Company, in each case as having been
prepared in accordance with generally accepted accounting
principles consistently applied;
(ii) monthly, and not later than the 15th day of each month, an
aging of the accounts receivable of the Company, an imported
inventory designation statement and a borrowing base certificate
(in a format satisfactory to the Bank) for the Company, each as
of the last day of the immediately preceding month. To the
extent that any such document reveals that, or at any time the
Company has knowledge that, the aggregate obligations then
outstanding under the Line are in excess of the borrowing
limitations set forth in Paragraph 1, the Company shall then pay
such excess to the Bank to be applied against obligations then
outstanding in such manner as the Bank in its sole discretion may
determine; and
(iii) such other statements and reports as shall be reasonably
requested by the Bank.
(f) Except for obligations owing to the Bank and Republic, the
Company not assuming, endorsing, being or becoming liable for or guaranteeing
the obligations of any corporation, partnership, individual or other entity in
an amount greater than $1,000,000 excluding the endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
(g) Except for liens in favor of the Bank and Republic, the
Company not allowing the pledge of, or creation of a security interest in, any
of its accounts receivable or inventory.
6. Documentation. There shall be no extension of credit
hereunder until there shall have been executed documentation acceptable to the
Bank, including without limitation a promissory note, intercreditor agreement,
security agreement, financing statements, and Letter of Credit, Acceptance and
Release applications and/or agreements.
7. Acceptance. If the foregoing is acceptable, please have the
enclosed copy of this letter signed by a duly authorized officer of the Company
at the space provided below and returned to the Bank on or before November 30,
1994. This letter shall be terminated and unenforceable against the Bank
unless signed and returned to the Bank within the stated period.
<PAGE> 5
-5-
Very truly yours,
NATIONAL WESTMINSTER BANK USA
By: /s/ CYNTHIA E. SACHS
---------------------
Cynthia E. Sachs, AVP
ACCEPTED AND AGREED:
Movie Star, Inc.
By: /s/ SAUL POMERANTZ, Sr. V.P.
----------------------------
Saul Pomerantz, SVP
<PAGE> 6
[LOGO] NATIONAL WESTMINSTER BANK USA
- - - - -------------------------------------------------------------------------------
INTEREST BEARING GRID NOTE
$13,000,000 OFFICE ADDRESS 350 Fifth Avenue, New York, N.Y., October 11, 1994
On March 31, 1995 for value received, the undersigned jointly and severally
promise(s) to pay to the order of National Westminster Bank USA (hereinafter
called the Bank) at its Office in the place first above stated, or if no place
is stated, at 44 Wall Street, New York, New York, in funds current at the New
York Clearing House, the sum of Thirteen Million Dollars ($13,000,000) Dollars,
or if less than such principal sum, the aggregate unpaid principal amount of
all loans made by the Bank to the undersigned hereunder as indicated on the
schedule on the reverse side hereof. The undersigned also promises to pay
interest at said office in like money on the unpaid principal amount hereof
from time to time outstanding prior to maturity at an annual rate equal to the
Bank's Prime Rate (the rate of interest established from time to time by the
Bank as its "prime rate") plus 1/2%, which interest rate shall change when and
as the Prime Rate changes. If all or a portion of the principal or interest of
the Liabilities (as hereinafter defined), or any fee 15 days after the due date
or other amount due in connection therewith, shall not be paid when due
(whether after stated maturity, acceleration or otherwise), such amount, to the
extent permitted by applicable law, shall bear interest at a rate of 2% per
annum in excess of the rate hereinbefore provided, but in no event in excess of
the maximum rate of interest permitted under applicable law. Interest shall be
payable on the first day of each month commencing the first such day to occur
after the date the first loan is made hereunder and on the maturity hereof. The
Bank shall have no obligation to make any loan hereunder.
The undersigned hereby expressly authorizes the Bank to record on the schedule
on the reverse hereof the amount and date of each loan made hereunder and the
date and amount of each payment of principal thereon. All such notations shall
be presumptive as to the correctness thereof and the aggregate unpaid amount of
loans set forth on such schedule shall be presumed to be the unpaid principal
amount hereof.
Any loan may be prepaid in whole or in part at any time and from time to time
without premium or penalty together with interest accrued on the amount prepaid
to the date of any such prepayment.
As collateral security for the payment of this note and of all other notes
and/or obligations or Liabilities (as hereinafter defined) of the Obligor (as
hereinafter defined), or any one or more of them, now or hereafter owned or held
by the Bank, the Obligor grants the Bank a security interest in and pledges with
the Bank all moneys and/or other property now or hereafter held by the Bank on
deposit, in safekeeping, or otherwise, for the account of or to the credit of or
belonging to any Obligor (which term as used herein shall be deemed to include
each and all of the undersigned and each and every endorser or guarantor hereof)
or in which any Obligor shall have any interest, all of which is hereinafter
termed the collateral security. The Bank at any time, before or after an Event
or Default (as hereinafter defined), may, but shall not be obligated to,
transfer into or out of its own name or that of its nominee all or any of the
collateral security, including stocks, bonds, and other securities, and the Bank
or its nominee may demand, sue for, collect, receive and hold as like collateral
security any or all interest, dividends and income thereon and if the securities
are held in the name of the Bank or its nominee, the Bank may, after an Event of
Default, exercise all voting and other rights pertaining thereto as if the Bank
were the absolute owner thereof; but the Bank shall not be obligated to demand
payment of, protest, or take any steps necessary to preserve any rights in the
collateral against prior parties, or to take any action whatsoever in regard to
the collateral security or any part thereof, all of which the Obligor assumes
and agrees to do. Without limiting the generality of the foregoing, the Bank
shall not be obligated to take any action in connection with any conversion,
call, redemption, retirement or any other event relating to any of the
collateral security, unless the Obligor gives written notice to the Bank that
such action shall be taken not more than thirty (30) days prior to the time such
action may first be taken and not less than ten (10) days prior to the
expiration of the time during which such action may be taken. The term
"Liabilities" shall include this note and all other indebtedness and obligations
and liabilities of any kind of any Obligor to the Bank, now or hereafter
existing, arising directly between any Obligor and the Bank or acquired by
assignment, conditionally or as collateral security by the Bank, absolute or
contingent, joint and/or several, secured or unsecured, due or not due,
contractual or tortious, liquidated or unliquidated, arising by operation of law
or otherwise, direct or indirect, including, but without limiting the generality
of the foregoing, indebtedness, obligations or liabilities to the Bank of any
Obligor as a member of any partnership, syndicate, association or other group,
and whether incurred by any Obligor as principal, surety, endorser, guarantor,
accommodation party or otherwise.
If any of the following events shall occur with respect to any Obligor (each an
"Event of Default"): failure to comply forthwith with any such demand for
additional collateral; default in payment of any liability to the holder hereof
(however acquired); default in the due payment of any other indebtedness for
borrowed money or default in the observance or performance of any covenant or
condition in any agreement or instrument evidencing, securing or relating to
any such indebtedness which causes or permits the acceleration of the maturity
thereof; suspension or liquidation of usual business; calling of a meeting of
creditors; assignment for the benefit of creditors; dissolution, bulk sale or
notice thereof; mortgage or pledge of, creation of a security interest in, any
assets without prior written notice of the holder of this note; insolvency of
any kind, attachment, distraint, garnishment, levy, execution, judgment, death,
application for or appointment of a receiver, filing of a voluntary or
involuntary petition or entry of any order for relief under any provision of
the Federal Bankruptcy Code as now or hereafter in effect; failure to pay its
debts as they become due; failure to comply with the terms of any agreement
with the Bank; failure on request of any Obligor or any Obligor's accountant,
to furnish any reasonable material financial information, or to permit
inspection of any books or records; any change in, or discovery with regard
to, the condition or affairs which, in the Bank's opinion, increases its credit
risk; or if the Bank for any other reason deems itself insecure; the
Liabilities shall become absolute, due and payable without demand or notice to
any Obligor. Upon default in the due payment of this note or any other Event of
Default, or whenever this note or any payment of principal or interest hereof
shall become due in accordance with any of the provisions hereof, the Bank may,
but shall not be required to (1) proceed to apply to the payment hereof the
balance to the credit of any account or accounts maintained with the Bank by
any Obligor and (2) sell (without demand of performance, advertisement, notice
of intention to sell, notice of time or place of sale, notice to redeem or
other notice whatsoever, all of which are hereby waived) all or any part of the
collateral security (on all of which the Obligor does hereby give to the Bank a
continuing lien, security interest and/or right of set-off) at public or
private sale or sales, or at any exchange or broker's board, or at the Bank's
office, at such prices as it shall deem best, for cash or credit, with the
right of the Bank at such sale to purchase all or any part thereof, free from
any right or equity of redemption, applying the net proceeds of such sale to
the payment of this note and of any other liabilities, claims or obligations to
the Bank of any of the Obligors, or of any partnership in which any of the
Obligors is a partner, all of whom together with any endorser or guarantor
hereby expressly agree to remain jointly and severally liable for any
deficiency. The Bank may exercise any other right or remedy hereby granted or
allowed to it by law, including but not limited to, the rights and remedies of
a Secured Party under the Uniform Commercial Code of New York, and each and
every right and remedy hereby granted to the Bank or allowed to it by law shall
be cumulative and not exclusive the one of the other, and may be exercised by
the Bank from time to time and as often as may be necessary. The Bank shall
have at any time in its discretion the right to enforce collection and payment
or liquidation of any of the collateral security by appropriate action or
proceedings, and the net amounts received therefrom, after deducting all costs
and expenses incurred in connection therewith, shall be applied on account of
this note and any other indebtedness or liabilities of the Obligor aforesaid,
all without notice to any Obligor. The Bank shall not be bound to take any
steps necessary to preserve any rights in the collateral against prior parties,
which the Obligor hereby assumes to do. Any demand or notice, if made or given,
shall be sufficiently made upon or given to any Obligor if left at or mailed to
the last address of such Obligor known to the Bank or if made or given in any
other manner reasonably calculated to come to the attention of such Obligor or
the personal representatives, successors or assigns of such Obligor, whether or
not in fact received by them respectively. Unless the collateral is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Bank will give the undersigned reasonable notice of the
time and place of any public sale thereof or of the time after which any
private sale or other intended disposition is to be made. Five (5) days prior
notice shall be deemed reasonable notice. The Bank may assign and transfer this
note to any other person, firm or corporation and may deliver and repledge the
collateral security or any part thereof to the assignee or transferee of this
note, who shall thereupon become vested with all the powers and rights above
given to the Bank in respect thereof, and the Bank shall thereafter be forever
released and discharged of and from all responsibility or liability to the
Obligor for or on account of the collateral security so delivered. If an
attorney is used to enforce or collect this note, the Obligor agrees to pay
reasonable attorneys fees, which the Obligor agrees to be reasonable. The
Obligor jointly and severally promises to pay all expenses of any nature as
soon as incurred whether in or out of court and whether incurred before or
after this note shall become due at its maturity date or otherwise and costs
which the Bank may deem necessary or proper in connection with the satisfaction
of the indebtedness or the administration, supervision, preservation,
protection (including but not limited to maintenance of adequate insurance) or
of the realization upon the collateral. The Obligor and the Bank in any
litigation (whether or not arising out of or relating to this note) in which
any of them shall be adverse parties waive the right of trial by jury. The note
shall be deemed to have been made and delivered in the State of New York, the
Obligor consents to the jurisdiction of the courts of New York in any action
brought to enforce any rights of the Bank under this note and the Bank and the
Obligor shall be determined in accordance with the laws of the State of New
York. Interest shall be calculated on the basis of a 360-day year and actual
days elapsed, provided that any interest so calculated hereunder shall in no
event be in excess of the maximum permitted under applicable law. This note and
any other agreements, documents and instruments executed and delivered pursuant
to or in connection with the Liabilities contain the entire agreement between
the parties relating to the subject matter hereof and thereof. The undersigned
expressly acknowledges that the Bank has not made and the undersigned is not
relying on any oral representations, agreements or commitments of the Bank or
of any officer, employee, agent or representative thereof. No change,
modification, termination, waiver, or discharge, in whole or in part, of this
instrument shall be effective unless in writing and signed by the party against
whom such change, modification, termination, waiver, or discharge is sought to
be enforced. The Obligor hereby waives presentment, demand for payment,
protest, notice of protest, notice of dishonor, and any and all other notices
or demands in connection with the delivery, acceptance, performance, default,
or enforcement of this
<PAGE> 7
note, consents to any and all delays, extensions of time, renewals, releases of
any Obligor and of any available security, waivers or modifications that may be
granted or consented to by the Bank with regard to the time of payment or with
respect to any other provisions of this note and agrees that no such action or
failure to act on the part of the Bank shall in any way affect or impair the
obligations of any Obligor or be construed as a waiver by the Bank of, or
otherwise affect, its right to avail itself of any remedy hereunder with the
same force and effect as if each Obligor had expressly consented to such action
or inaction upon the part of the Bank. Each Obligor hereby authorizes the Bank
to request his accountant or accountants to furnish such reasonable financial
information relating to such Obligor as the Bank shall from time to time
desire; each such accountant is hereby authorized to deliver such reasonable
financial information to the Bank. The Obligors hereby authorize the Bank to
date this note as of the day when the first loan evidenced hereby is made and
to complete and fill in any blank spaces in this note in order to conform to
the terms upon which any loan is granted.
Special provisions This note is secured by the collateral as more fully
-------------------------------------------------------------
described in the Continuing General Security Agreement dated 5/19/93.
- - - - -------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------
- - - - -------------------------------------------------------------------------------
Movie Star, Inc.
GUARANTEE
In consideration of the making of the loan evidenced by the within note, hereby
requested by the undersigned, the undersigned hereby jointly and severally
guarantee(s) to National Westminster Bank USA, its successors, endorsees or
assigns, irrespective of the genuineness, validity or enforceability hereof,
the payment when due, including all interest payable hereon and the payment of
all legal expenses incurred by the holder hereof to enforce the same or to
enforce this guarantee, and hereby consent(s) to and agree(s) to be bound by
the terms and conditions hereof and agree(s) that the collateral may be
exchanged or surrendered in whole or in part from time to time and that the
time of payment hereof may be extended, or the rate of interest altered, or the
full amount of any part hereof may be renewed one or more times without notice
to the undersigned and that this guarantee shall apply to such extension or
extensions, renewal or renewals. The Bank has no duty to any Guarantor to
protect, secure or insure any security interest or lien and the obligations of
each Guarantor hereunder are valid, binding and enforceable, notwithstanding
any defect the Bank causes permits or suffers to exist in any security interest
or lien. The undersigned waive(s) presentment, demand, protest, notice of
protest and notice of dishonor and each of them consents to any and all delays,
extensions of time, renewals, release of any part hereof and of any available
security, waivers or modifications that may be granted or consented to by the
Bank with regard to the time of payment or with respect to any other provisions
hereof and agrees that no such action or failure to act on the part of the
Bank shall in any way affect or impair the obligations of the undersigned or be
construed as a waiver by the Bank of, or otherwise affect, its right to avail
itself of any remedy hereunder with the same force and effect as if the
undersigned had expressly consented to such action upon the part of the Bank.
As security for the performance of any and of all the obligation of the
undersigned, the undersigned does hereby give the Bank a continuing lien,
security interest and/or a right of set-off in respect to any and all property,
interest or estate and moneys of the undersigned now or at any time hereafter
held by, or in possession of, or under control of, or on deposit with, the Bank.
By: /s/ Saul Pomerantz, Sr. V.P.
- - - - -------------------------------------------------------------------------------
Signature of Borrower
Saul Pomerantz, SVP
136 Madison Avenue, New York, N.Y. 10016
- - - - -------------------------------------------------------------------------------
Address
- - - - -------------------------------------------------------------------------------
Signature of Borrower
- - - - -------------------------------------------------------------------------------
Address
- - - - -------------------------------------------------------------------------------
Signature of Guarantor
- - - - -------------------------------------------------------------------------------
Address
- - - - -------------------------------------------------------------------------------
Signature of Guarantor
- - - - -------------------------------------------------------------------------------
Address
SCHEDULE OF LOANS AND PAYMENTS
<TABLE>
<CAPTION>
==============================================================================================================================
Date Amount of Loan Amount of Principal Paid Balance Remaining Unpaid Notation Made By
<S> <C> <C> <C> <C>
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------------------------------------------------------
==============================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 714
<SECURITIES> 0
<RECEIVABLES> 19,956
<ALLOWANCES> 1,688
<INVENTORY> 27,607
<CURRENT-ASSETS> 49,918
<PP&E> 16,333
<DEPRECIATION> 9,081
<TOTAL-ASSETS> 59,778
<CURRENT-LIABILITIES> 21,992
<BONDS> 22,506
<COMMON> 160
0
0
<OTHER-SE> 15,120
<TOTAL-LIABILITY-AND-EQUITY> 59,778
<SALES> 68,437
<TOTAL-REVENUES> 68,437
<CGS> 53,020
<TOTAL-COSTS> 53,020
<OTHER-EXPENSES> 10,283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,549
<INCOME-PRETAX> 2,585
<INCOME-TAX> 1,034
<INCOME-CONTINUING> 1,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,551
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
