-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G9OUfK/vOgTVeOftaL6+A3NtHQEvLp+u2HSu+CNIStN0LJ0wpSXSaqnlpwsimNhH gkUsE/JK0A0DZKbQd+EqCA== 0000950144-98-003361.txt : 19980330 0000950144-98-003361.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950144-98-003361 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BISCAYNE APPAREL INC /FL/ CENTRAL INDEX KEY: 0000088706 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 650200397 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09635 FILM NUMBER: 98575302 BUSINESS ADDRESS: STREET 1: 1373 BROAD ST STREET 2: 2665 SOUTH BAYSHORE DRIVE SUITE 800 CITY: CLINTON STATE: NJ ZIP: 07013 BUSINESS PHONE: 2014733240 MAIL ADDRESS: STREET 1: 2665 SOUTH BAYSHORE DRIVE SUITE 800 STREET 2: 2665 SOUTH BAYSHORE DRIVE SUITE 800 CITY: MIAMI STATE: FL ZIP: 33133 FORMER COMPANY: FORMER CONFORMED NAME: BISCAYNE HOLDINGS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: XCOR INTERNATIONAL INC DATE OF NAME CHANGE: 19860727 FORMER COMPANY: FORMER CONFORMED NAME: SEEBURG INDUSTRIES INC DATE OF NAME CHANGE: 19780823 10-K 1 BISCAYNE APPAREL, INC. FORM 10-K 12/31/97 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1997 ---------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________to______________________ Commission file number 1-9635 BISCAYNE APPAREL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) FLORIDA 65-0200397 - --------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1373 BROAD STREET, CLIFTON, NEW JERSEY 07013 - ---------------------------------------- ---------------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including Area Code) (973) 473-3240 --------------- Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------- ----------------------------------------- Common Stock American Stock Exchange $0.01 par value per share Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The number of shares outstanding of the registrant's common stock, as of February 27, 1998, was as follows: COMMON STOCK, PAR VALUE $.01 10,771,622 ---------------------------- ------------------ (Title of each class) (Number of shares) The aggregate market value of common stock held by non-affiliates of the registrant at February 27, 1998 was $2,382,242, based on a $0.34 average of the high and low sales prices for the common stock on the American Stock Exchange on such date. For purposes of this computation, all executive officers, directors and beneficial owners of 5% or more of the registrant's common stock have been deemed to be affiliates. Such determination should not be deemed to be an admission that such persons are, in fact, affiliates of the registrant. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III (Items 10, 11, 12 and 13) is incorporated by reference from the Company's definitive proxy statement (to be filed pursuant to Regulation 14A). - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL Biscayne Apparel, Inc. (the "Company" or "BAI") is an apparel manufacturer dedicated to designing, manufacturing, and marketing high quality products on a worldwide basis. Biscayne Apparel International, Inc. ("BAII") and M&L International, Inc. ("M&L") are wholly-owned subsidiaries of the Company. Through December 31, 1997, BAII operated through two divisions, Andy Johns Fashions International ("Andy Johns") and Varon, and its wholly-owned subsidiaries, Mackintosh of New England Co. ("Mackintosh"), Mackintosh (UK) Limited and Amy Industries De Honduras, S.A. de C.V., which was organized in 1995. As of January 1, 1998, the assets, liabilities, and operations of Andy Johns were contributed by BAII into Mackintosh. The result was that all BAI's women's outerwear lines are now part of Mackintosh. M&L's wholly-owned subsidiaries are Unidex Garments (Philippines), Inc. ("Unidex"), Watersports Garment Manufacturing, Inc. ("Watersports"), Teri Outerwear Manufacturing, Inc. ("Teri"), GES Sportswear Manufacturing Corp. ("GES") and M&L International (H.K.) Limited. As of March 1, 1996, Unidex, Watersports, Teri, and GES ceased operations due to operating losses caused by labor cost increases and production inefficiencies. Varon is a designer and manufacturer of girl's and boy's underwear and girl's daywear; Mackintosh is a designer, manufacturer and distributor of women's and children's wool coats and active outerwear; and M&L is a designer, manufacturer, and distributor of infant's, toddler's, and children's outerwear, sportswear, and swimwear. Unless the context indicates otherwise, the "Company" includes Biscayne Apparel, Inc., its subsidiaries, and their respective divisions. All information relates to continuing operations of the Company. The Company operates in a single industry segment: women's and children's apparel. For the year ended December 31, 1997, two customers represented approximately 22% of total sales. These customers, Target and Mervyn, divisions of Dayton Hudson Corporation ("Target" and "Mervyn") and Sears, Roebuck and Co. ("Sears"), each represented 11% of total sales. For the year ended December 31, 1996, three customers represented approximately 34% of total sales. These customers, Target and Mervyn, Wal-Mart Stores, Inc. and Sears represented 14%, 10%, and 10% of total sales, respectively. For the year ended December 31, 1995, Target accounted for approximately 11% of total sales. 3 RESTRUCTURING PLAN During 1996, the Company developed a restructuring plan which, as described below, outlined the following objectives to be accomplished during 1996 and 1997: (i) simplify the organizational structure with a corresponding decrease in salaried headcount, (ii) implement a cost reduction program targeting both fixed and variable costs throughout the Company, (iii) reconfigure outerwear design, merchandising, production and sales organization to better service its customer base at a lower cost, and (iv) identify the sale or closure of non-strategic assets and facilities. The restructuring plan developed by the Company during 1996 focused on achieving the following objectives: SIMPLIFYING THE ORGANIZATIONAL STRUCTURE AND REDUCING SALARIED HEADCOUNT. During 1996 and 1997 the Company's organizational structure was analyzed and simplified, resulting in the termination of a number of senior and middle managers, primarily within its women's outerwear business. IMPLEMENTATION OF COST REDUCTION PROGRAM TARGETING BOTH FIXED AND VARIABLE COSTS. Throughout 1996 and 1997, the Company analyzed selling, general and administrative expense items for further control and/or reduction. In the fourth quarter of 1996, the Company terminated its contract with a warehouse and distribution facilitator in Kentucky and moved such functions to a warehouse and distribution facilitator in the state of Washington, at a significantly reduced cost. During 1996 and 1997, the Company began implementing co-operative sourcing among its outerwear product groups, utilizing a network of existing overseas satellite offices and staff. These actions, when combined with other aspects of the restructuring plan, have resulted in lower selling, general and administrative costs in 1996 and 1997. THE RECONFIGURATION OF OUTERWEAR DESIGN, MERCHANDISING, PRODUCTION AND SALES ORGANIZATION TO BETTER SERVICE ITS CUSTOMER BASE AT A LOWER COST. During late 1995 and early 1996, the Company redesigned its women's outerwear lines with a new product development team, which continued to change throughout 1997. During this same timeframe, the Company improved its 1996 and 1997 women's outerwear sales and marketing effort with the addition of new and proven personnel. In addition, the Company expanded its licensing partnerships in 1997 with long-term agreements with several well-known children's and junior/women's brand names, including: . Starter Corporation (NYSE:STA) to manufacture girl's activewear, swimwear, and outerwear in sizes 4-6x and 7-16. . Healthtex, a division of VF Corporation (NYSE:VFC), to manufacture a new collection of children's outerwear under the Healthtex brand name in sizes newborn through 4 16 for girls and newborn through 7 for boys. The outerwear products include jackets, pramsuits, windsuits, one- and two-piece snowsuits, and padded vests. . XOXO, a division of privately-held Lola, Inc., to manufacture a line of junior/women's outerwear. The XOXO outerwear line will focus on the upscale contemporary junior customer for distribution through major department and better specialty stores. Initial shipments for these new licenses are targeted for delivery in Fall 1998. Additionally, during 1996 and 1997, foreign production agents, used to assist with women's outerwear production, were replaced with Company personnel, thereby reducing costs and improving controls. THE IDENTIFICATION AND SALE OR CLOSURE OF NON-STRATEGIC ASSETS AND FACILITIES. During the first quarter of 1996 the Company sold its 20% interest in Hartwell Sports, Inc. for $1,750,000, which generated a 1996 gain of $123,000. Proceeds were used to reduce debt. Also, during the first quarter of 1996, the Company closed its manufacturing facilities in the Philippines due to operating losses caused by labor increases and production inefficiencies. This production was successfully outsourced to low cost foreign manufacturing facilities. During the third and fourth quarters of 1996, the Company closed several domestic production and warehousing facilities. Also, during the fourth quarter of 1997 the Company gave notice that it was closing its remaining domestic children's underwear manufacturing facility in the first quarter of 1998. This production has been moved to the Company's new manufacturing facility in Honduras and to outside contractors in the Caribbean Basin. Products and Customers: Mackintosh's and M&L's principal products and customers are: O WOMEN'S AND CHILDREN'S OUTERWEAR: Mackintosh includes four compatible outerwear lines, as follows: . Andy Johns(R) . Judy Simon(R) . Mackintosh of New England(R) . XOXO Outerwear(R) Andy Johns(R), a designer and distributor of women's and children's outerwear, was founded in 1975. Andy Johns provides functional and affordable women's and children's outerwear. Andy Johns produces a broad Fall and Spring product line, appealing to a customer base of all age groups. Andy Johns is less driven by near-term styles and fads than its competitors, preferring to market outerwear that is contemporary in design and responsive 5 to customer preferences, yet has a consistency to its appeal. To expand its product lines, Andy Johns Kids(R) was begun in mid-1987, and sells outerwear targeted for children in the 4 to 14 age range. Andy Johns also markets its outerwear under the KAOS(R) and KAOTIC(TM) labels. In 1998 Andy Johns introduced its Judy Simon(R) brand of outerwear, which initially is being offered on an exclusive basis to one customer. In August of 1997, BAII entered into a license agreement to manufacture a line of junior/women's outerwear under the XOXO(R) brand name. The XOXO outerwear line will focus on the upscale contemporary junior customer for distribution through major department and better specialty stores. Andy Johns, Andy Johns Kids, KAOS, KAOTIC, Judy Simon, and XOXO share showroom space in New York. Andy Johns and XOXO Outerwear imports the majority of its inventory, primarily from Asian manufacturers. Although not foreseen, should import quotas be substantially tightened, Andy Johns and XOXO outerwear may need to import products from alternate overseas sources, or to engage in increased domestic production, which could increase costs. Mackintosh markets spring and fall lines of women's wool and active outerwear products. Mackintosh also markets its active outerwear under the All Outdoors(R) label. The Company also established Mackintosh (UK) Limited to distribute Mackintosh products into the European markets, primarily the United Kingdom. Such sales were not significant. Pricing pressure from imported wool products has prompted Mackintosh to seek offshore production for a portion of its wool line, which it began in 1995 and continues to expand. Mackintosh primarily markets its products through a New York showroom. M&L is one of the largest U.S. based manufacturers of children's outerwear. M&L markets its outerwear products under the Weather Tamer(R) brand name, which it owns, and the OshKosh B'Gosh(R) and Bon Jour(R), Healthtex(R) and Starter(R) Girls brand names, which it licenses. M&L also produces children's sportswear and swimwear products, which are marketed under its Eclipse(R) brand name, and the Starter(R) Girls brand, which it licenses. M&L markets spring and fall lines. M&L has showrooms in Chicago and New York, and has manufacturing and sourcing operations in Hong Kong, Bangladesh, and Sri Lanka. M&L's extensive overseas sourcing and quality assurance operations, coupled with 6 a proven network of manufacturers, allow it to offer a fashionable quality product at competitive prices to its customers, while sustaining attractive profit margins. Although not foreseen, should import quotas be substantially tightened, M&L may need to import products from alternative overseas sources, or to engage in increased domestic production, which could increase costs. For the three years ended December 31, 1997, 1996, and 1995, Mackintosh's and M&L's combined net sales represented 79%, 79%, and 76%, respectively, of the Company's total net sales. O CHILDREN'S UNDERWEAR AND DAYWEAR: Varon has been operating for approximately 70 years as a manufacturer of girl's underwear and daywear and sells primarily to chain stores, mass merchandisers, and discounters. In addition to its thermal underwear line, Varon introduced an interlock cotton long underwear line. The majority of Varon's underwear and interlock underwear line is 100% cotton, while its thermal underwear line is 65% cotton/35% polyester. Varon also manufactures 50/50 poly/cotton underwear for selected accounts. Varon's underwear line has been expanded to include girl's daywear sets and boy's underwear in thermal, cotton interlock and jersey fabrics. Varon markets its products through a New York showroom and its Florida based administrative offices. For the three years ended December 31, 1997, 1996, and 1995, Varon's net sales represented 21%, 21%, and 24%, respectively, of total net sales. MARKETING AND DISTRIBUTION: The Company markets and sells the majority of its products directly to retailers with a portion sold through sales representatives to retail specialty stores. Mackintosh's imported inventory are warehoused in Washington. Mackintosh manufactures and warehouses wool inventories in Massachusetts, Varon warehouses its goods in Georgia and Florida, and M&L warehouses its finished goods in Washington. SUPPLIERS: The Company purchases the raw materials required in connection with its operations from a variety of sources. The Company believes that it has satisfactory relationships with its suppliers, most of which have been suppliers to Biscayne for many years. BACKLOG: The dollar amounts of backlog orders as of December 31, 1997 and 1996 were $15,601,000 and $19,139,000, respectively. The dollar amounts of backlog orders as of March 13, 1998 and March 14, 1997 were $52,480,000 and $63,470,000, respectively. 7 COMPETITION The women's and children's outerwear business is highly competitive. The principal areas of competition in this industry are product quality, delivery, style, and price. Mackintosh's and M&L's products are primarily sold to department stores, specialty stores, and mass merchandisers. Many major retailers produce their own outerwear. Entry into the market is difficult since successful companies need long established brand name recognition and, because of the limited season, the business is capital intensive. Mackintosh and M&L allocate their resources to produce contemporary and timely merchandise, rather than trying to become a fashion leader, which could result in loss of sales. The girl's and boy's underwear and girl's daywear apparel markets are highly competitive. Varon competes primarily in what is referred to as the "downstairs" portion of the market through sales to mass merchandisers, chain stores, and discounters. Quality of product and style, packaging, timely delivery, and price are the principal areas of competition in this industry. The Company believes the quality of Varon's products equals or exceeds that of the similar higher priced products of its competition. Varon's concentration on new product development, quality, and timely delivery has historically resulted in a broadening of its customer base. TRADEMARKS The Company has registered the Andy Johns(R), KAOS(R), KAOTIC(R), Weather Tamer(R), Lee Lipton(R), Judy Simon(R) and Eclipse(R) trademarks with the United States Patent and Trademark Office. In the opinion of management, the Company's trademark position is protected in all its business markets. Additionally, Mackintosh and M&L market their outerwear under the XOXO(R), Healthtex(R) and Starter(R) brand names, which they license. SEASONALITY Sales of women's and children's outerwear and thermal underwear are seasonal. Historically, Mackintosh, M&L, and Varon have significantly higher revenues in the third and fourth quarters than in the first and second quarters. Therefore, the results of any interim period are not necessarily indicative of the results for a full year. Additionally, there is a risk inherently related to the outerwear industry, resulting from dependence on consumer reactions to weather patterns, which have historically had a material effect on the Company's sales and profitability. ENVIRONMENTAL REGULATION The Company is subject to certain federal, state, and local environmental laws and regulations. Compliance with environmental laws and regulations has not had a material effect on the Company's capital expenditures, earnings or competitive position in the past, 8 and is not expected to have a material effect on the Company's future operations. EMPLOYEES As of December 31, 1997, the Company employed approximately 843 persons. None of the Company's employees are represented by a labor union. The Company considers its relations with employees to be satisfactory. IMPACT OF YEAR 2000 Based on a review of its current computer software, the Company has determined that no modifications will be required in order for its computer systems to function properly with respect to the dates in the year 2000 and thereafter. Therefore, this issue will not have a material impact on its business, operations, or financial condition. ITEM 2. PROPERTIES The following table describes, as of December 31, 1997, the operating facilities owned or leased by the Company containing an aggregate of approximately 498,400 square feet. Management believes that all of the Company's facilities are adequate for their respective purposes. 9
Annual Lease Approximate Location Square Feet Rental Expiration Date Principal Use - -------------------- ----------- ------- --------------- ------------- Arlington, GA 100,000 (1) (1) Manufacturing facility for Varon Auburn, WA 191,200 $694,000 April 2002 Warehousing facilities for M&L Bristol, WI 3,000 $7,000 May 1998 Retail outlet for M&L Chicago, IL 27,100 $293,000 December 1998 Administrative office and and April 2002 retail outlet for M&L Clifton, NJ 8,600 $118,000 July 1998 Administrative offices Colombo, Sri Lanka 5,500 $ 12,000 July 2000 Administrative office for M&L Hialeah, FL 40,300 $178,000 December 1999 Administrative office and distribution facility for Varon Hong Kong 8,000 $158,000 February 2000 Administrative office for M&L New Bedford, MA 48,700 $91,000 June 1998 Manufacturing and administration facilities for Mackintosh New York, NY 22,000 $402,000 December 2003 Showrooms and July 2005 San Pedro Sula, Honduras 44,000 $239,000 July 2000 Manufacturing facility for Varon
(1) Owned by the Company. The Company owns substantially all of its machines, equipment, and office fixtures, which are well maintained and satisfactory for the purposes intended. 10 ITEM 3. LEGAL PROCEEDINGS The Company is from time to time involved in routine litigation. No litigation in which the Company is presently involved is material to its financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's Common stock is traded on the American Stock Exchange. The following table sets forth the range of high and low sales prices of the Common stock, as reported by the American Stock Exchange, for each quarterly period during the past two fiscal years: MARKET PRICES HIGH LOW ---- --- 1997 ---- First Quarter $1 3/8 $ 7/8 Second Quarter 1 1/8 7/8 Third Quarter 1 1/8 11/16 Fourth Quarter 1 9/16 HIGH LOW ---- --- 1996 ---- First Quarter $1 $ 1/2 Second Quarter 1 3/16 5/8 Third Quarter 1 5/8 Fourth Quarter 1 1/8 5/8 APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK The Company had 1,231 holders of record of Common stock as of February 27, 1998. 11 DIVIDENDS The Company did not pay cash dividends on its common equity during the fiscal years ended 1997, 1996 and 1995. The Company is restricted from making any cash dividend payments under its credit agreements with various commercial banks. ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below of the Company and its subsidiaries, as of and for each of the five years in the period ended December 31, 1997, are derived from the audited Consolidated Financial Statements of the Company and should be read in conjunction with such Consolidated Financial Statements and related notes, thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report. 12 BISCAYNE APPAREL, INC. Selected Financial Data (In Thousands, Except Per Share Data) At and For the Years Ended December 31,
1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Financial Data Net sales ...................................... $ 93,206 $ 105,425 $ 100,294 $ 72,350 $ 65,258 Operating income (loss) ........................ 513 (6,182) (5,261) 4,960 4,053 Earnings (loss) from continuing operations, less applicable income taxes ................. (3,871) (8,724) (6,127) 2,048 3,687 Cumulative effect of change in accounting for income taxes .................. -- -- -- -- 208 Net earnings (loss) ............................ (3,871) (8,724) (6,127) 2,048 3,895 Working capital ................................ $ 13,944 $ 19,540 $ 19,559 $ 23,167 $ 16,148 Total assets ................................... 34,817 36,110 61,742 60,578 34,791 Long-term debt ................................. 8,944 10,944 12,694 7,944 6,444 Stockholders' equity ........................... 7,658 11,178 19,835 25,881 19,560 Book value per common share .................... $ 0.71 $ 1.04 $ 1.85 $ 2.41 $ 2.18 Basic earnings (loss) per common share: Net earnings (loss) from continuing operations ................................... $ (0.36) $ (0.81) $ (0.57) $ 0.22 $ 0.44 Cumulative effect of change in accounting for income taxes .................. -- -- -- -- 0.02 --------- --------- --------- --------- --------- Basic earnings (loss) per common share ......... $ (0.36) $ (0.81) $ (0.57) $ 0.22 $ 0.46 ========= ========= ========= ========= ========= Shares used in computing basic earnings (loss) per common share ...................... 10,765 10,742 10,734 9,179 8,475 Diluted earnings (loss) per common share: Net earnings (loss) from continuing operations ................................... $ (0.36) $ (0.81) $ (0.57) $ 0.21 $ 0.41 Cumulative effect of change in accounting for income taxes ............................. -- -- -- -- $ 0.02 --------- --------- --------- --------- --------- Diluted earnings (loss) per common share ....... $ (0.36) $ (0.81) $ (0.57) $ 0.21 $ 0.43 ========= ========= ========= ========= ========= Shares used in computing diluted earnings (loss) per common share ....................... 10,765 10,742 10,734 9,652 9,049
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 OPERATIONS Net sales were $93,206,000, $105,425,000 and $100,294,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The 1997 decrease of $12,219,000 includes decreases of $6,798,000, $2,585,000 and $2,836,000 in the Company's women's outerwear sales, children's outerwear sales and children's underwear sales, respectively. The decrease in 1997 women's outerwear sales is due to 1996 sales including approximately $3,000,000 more sales of carryover goods, compared to 1997, and due to the negative impact on sales resulting from the unseasonably warm 1997 fall/winter weather. The decrease in 1997 children's outerwear sales is due to cancellation of orders resulting from late deliveries and due to the negative impact on sales from the unseasonably warm 1997 fall/winter weather. The decrease in 1997 children's underwear sales is due to cancellation of orders resulting from late deliveries. The lower 1997 sales due to the unseasonably warm fall/winter weather and cancellations of orders due to late deliveries resulted in higher levels of inventories and related markdowns in 1997. The 1996 increase in sales of $5,131,000 includes increases of $2,791,000 and $4,419,000 in the Company's women's and children's outerwear sales, respectively, offset by a decrease in sales of $2,079,000 in the Company's children's underwear sales. The increase in 1996 women's outerwear sales resulted from higher sales of carryover goods, investments made in product development and marketing efforts and strong sell-through at retail. The increase in 1996 children's outerwear sales came from increased market share and strong sell-through at retail. The decrease in 1996 children's underwear sales results from consciously eliminating sales of products with unacceptably low gross margins. Cost of goods sold was $70,045,000 (75% of net sales), $78,112,000 (74% of net sales) and $80,121,000 (80% of net sales) for the years ended December 31, 1997, 1996 and 1995, respectively. Cost of goods sold, as a percentage of sales, increased in 1997 due to increased production costs and lower efficiencies at the Company's children's underwear operations, offset by lower production costs in children's outerwear. Cost of goods sold decreased significantly in 1996 as a result of lower production costs in children's outerwear and lower markdowns in women's outerwear, offset by increased raw material and labor costs and production inefficiencies in children's underwear. 14 The Company recorded inventory markdowns of $1,758,000 during the 1997 fourth quarter, $638,000, during the 1996 fourth quarter, and $4,374,000 during the 1995 fourth quarter. The 1997 and 1995 fourth quarters reflect more significant inventory markdowns as a result of outerwear sales below expectations and warm weather in the 1996/1997 and 1994/1995 fall/winter period, which prompted retailers to reduce their Fall 1997 and 1995 outerwear programs. M&L's Philippines subsidiaries ceased operations on March 1, 1996, and Varon closed three of its domestic manufacturing facilities in late 1996. M&L transferred the Philippines production to China and Indonesia, while Varon transferred the domestic production to its new Honduran facility. These actions, the addition of new product development and sales personnel, and the positive effect of the severe winter experienced from late December 1995 to March 1996, improved the Company's net sales and gross margins in 1996. Selling, general and administrative ("S,G&A") expenses, before restructuring expense and impairment of long-lived assets, were $22,183,000 (24% of net sales), $24,394,000 (23% of net sales) and $25,434,000 (25% of net sales), for the years ended December 31, 1997, 1996 and 1995, respectively. In 1997 and 1996 S,G&A expenses were reduced by $2,211,000 and $1,040,000, respectively from the previous year, as a result of management's strategic actions to further reduce S,G&A expenses including; the reduction of personnel and operating expenses throughout the Company; consolidation of administrative functions and consolidation of domestic warehousing and distribution. RESTRUCTURING CHARGES AND IMPAIRMENT OF LONG-LIVED ASSETS As more fully discussed in Notes 1 and 5 to the consolidated financial statements, principally during the fourth quarter of 1996, certain events occurred which led the Company to evaluate the recoverability of certain of its long-lived assets, specifically the goodwill of the Andy Johns and Varon divisions and certain manufacturing facilities. These events included certain changes in government regulations regarding cotton sleepwear, changes in key members of the management team, loss of market share and loss of key customers. As a result, in December 1996, the Company recognized a one-time noncash charge for impairment of goodwill of $6,532,000, with no associated tax benefit, and a fixed asset write-down of $530,000 related to a manufacturing facility. During 1997, the Company recorded restructuring charges of $465,000 relating to salary and separation costs. During 1996, the Company recorded restructuring charges of $2,039,000, relating to termination of long-term contracts and leases and facility closing costs (approximately $880,000) and salary and separation costs (approximately $1,159,000). 15 During the fourth quarter of 1996, the Consumer Product Safety Commission ("CPSC") issued 1998 rules for the manufacturing of all cotton thermal and long underwear products. These rules had two effects: i) sleepwear manufacturers would now be able to produce their products in cotton, and ii) such cotton sleepwear products would now have to be "tight fitting". As a result of these regulations, the Company expects significant changes in Varon's competitive environment related to such products. In the 1997 second quarter, the CPSC announced that the March 1998 implementation date for the above changes would be extended to June 1998. However, the specter of such implementation caused delays in 1997 orders of, and/or reductions of orders for, some of Varon's cotton thermal and long underwear products. The impact on Varon's market position is unknown. Varon could face: i) a decrease in market share due to increased competition from sleepwear manufacturers, and ii) a potential market shift, due to customers who previously purchased sleepwear when it was not required to be "tight fitting" now purchasing other products. Alternatively, Varon may be able to increase its market share of newly approved cotton sleepwear, due to its current expertise in manufacturing, if it can take away market share from heretofore non-cotton sleepwear product sales. These regulations could impact up to one-third of Varon's revenues. OshKosh B'Gosh, Inc. ("OshKosh") notified M&L during the second quarter of 1997 that it will not renew its outerwear license with M&L after May 31, 1998. As part of a strategy adopted over the last several years, OshKosh will sell its outerwear directly to retailers. For the years ended December 31, 1997, 1996 and 1995, M&L's sales of OshKosh outerwear were $19,888,000, $17,063,000 and $13,678,000, respectively. M&L's strategy is to replace the OshKosh brand sales of outerwear with several well-known brand name children's outerwear and activewear licenses. It is unknown whether M&L's strategy will be successful in replacing such levels of OshKosh sales and related margins in the future. In July, 1997, M&L announced the signing of a licensing agreement with the Starter Corporation to manufacture girls' activewear, swimwear, and outerwear in sizes 4-6X and 7-16. Initial shipments of Starter girls' activewear and outerwear are targeted for delivery in Fall 1998. Additionally, in November, 1997, M&L announced the signing of a licensing agreement with Healthtex, a division of VF Corporation, to manufacture a new collection of children's outerwear under the Healthtex brand name in sizes newborn through 16 for girls and newborn through 7 for boys. Initial shipments are targeted for delivery in Fall 1998. In September, 1997, Biscayne Apparel, Inc. announced the signing of a licensing agreement with Lola, Inc., the parent company of XOXO, to manufacture a line of junior/women's outerwear. The XOXO outerwear line will focus on the upscale contemporary 16 junior customer for distribution through major department and better specialty stores. Initial shipments are targeted for delivery in Fall 1998. The apparel industry is subject to substantial cyclical variation, with purchases of apparel and related goods tending to decline during recessionary periods when disposable income is low. This could have a material adverse effect on the Company's business. In addition, various retailers, including some of Biscayne's customers, have experienced financial difficulties during recent years, which have increased the risk of extending credit to such retailers. Certain information included herein contains forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Those risks include, but are not limited to, product acceptance and availability, changes in the level of consumer demand and/or spending, fashion trends, weather patterns, further governmental regulations, etc. All forward-looking statements should be considered in light of these risks and uncertainties. OTHER Interest and other expenses were $3,270,000, $3,643,000, and $3,805,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The 1997 decrease of $373,000 and 1996 decrease of $162,000 are the result of lower bank borrowings. Interest and other income was $43,000, $246,000, and $109,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The higher level of interest and other income in 1996 relates to the closedown of M&L's Philippine operations. On March 27, 1996, the Company sold its 20% interest in Hartwell Sports, Inc., a manufacturer of casual shirts and jackets, for $1,750,000, which resulted in a 1996 gain of $123,000. Proceeds were used to reduce notes payable to banks. INCOME TAXES The Company's effective tax rates during 1997 and 1996 were affected by valuation allowances related to deferred tax debits and Federal and State net operating loss carryforwards and the non-deductibility of the impairment of long-lived assets (primarily goodwill) (see Note 11 to the consolidated financial statements). 17 EFFECT OF INFLATION AND SEASONALITY The Company believes that inflation will not significantly affect its profit margins or have a material effect on the prices of other goods and services used in its business operations. Further, in connection with recent increases in wool and cotton raw material costs and increased domestic labor costs, the Company will continue to seek additional offshore production opportunities. Sales of women's and children's outerwear are seasonal. Historically, Mackintosh, M&L and Varon have significantly higher revenues in the third and fourth quarters than in the first and second quarters. Therefore, the results of any interim period are not necessarily indicative of the results which might be expected during a full year. Additionally, there is a risk inherently related to the outerwear industry, resulting from dependence on consumer reactions to weather patterns, which have recently had a material effect on the Company's sales and profitability. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $268,000 and $327,000 at December 31, 1997 and 1996, respectively. At December 31, 1997, the Company's working capital was $13,944,000, representing a current ratio of 1.77 to 1.00. This compares to working capital of $19,540,000 and a current ratio of 2.45 to 1.00 at December 31, 1996. The negative change results from losses sustained and increased inventory levels. The Consolidated Statement of Cash Flows for the year ended December 31, 1997 reflects net cash used in operations of $3,117,000, compared to cash provided by operations of $16,210,000 in 1996. The change results primarily from 1997 losses, the 1997 $2,704,000 increase in inventory, compared to 1996 reductions in inventory. The 1997 use of cash was primarily funded through borrowings under notes payable to banks. The Consolidated Statement of Cash Flows for the year ended December 31, 1996 reflects net cash provided by operations in 1996 of $16,210,000, compared to $(13,495,000) in 1995. The improvement primarily reflects the 1996 decreases in accounts receivable, net of provision for losses and sales allowances and decreases in inventories. Net cash provided by investing activities for 1996 of $1,504,000 includes $1,750,000 from the sale of the Company's 20% interest in Hartwell Sports, Inc. Net cash used in financing activities reflected the use of cash generated per the above categories in 1996, to reduce debt. As presented in the Consolidated Statement of Cash Flows for the year ended December 31, 1995, the decrease in cash and cash equivalents in 1995 was due to the losses sustained in 1995, increases in inventories, decreases in accounts payable and accrued liabilities and capital expenditures, offset by increased borrowings under notes payable to banks. 18 On March 16, 1995, the Company entered into an agreement with several banks (the "Loan Agreement") for a $56,000,000 two year committed revolving credit facility (the "Revolver") and a $7,500,000 four year term loan (the "Term Loan"). The Revolver is available for loans, letters of credit and letters of indemnity. On March 28, 1996, the Loan Agreement was amended to reduce the Revolver to $50,000,000; adjust the interest rate under Revolver borrowings to prime plus 1.0%, or prime plus 1.25% during agreed upon collateral overadvance periods; adjust the interest rate under the Term Loan to prime plus 2.00% or Libor plus 4.50% on outstanding borrowings; require an additional fee of $250,000, collateral monitoring costs of 0.2% of net sales, and provide for the issuance of warrants to the banks to purchase 425,000 shares of the Company's common stock for an exercise price of $1.00 per share. The warrants are exercisable at any time on or after March 31, 1998. On March 24, 1997, the Loan Agreement was amended to reduce the Revolver Agreement to $45,000,000; adjust the interest rate for Revolver Agreement borrowings to prime plus 1.0%, or prime plus 1.75% during agreed upon collateral overadvanced periods and require additional fees of $325,000. On March 25, 1998, the Loan Agreement was amended to reduce the Revolver Agreement to $39,000,000, adjust the interest rate for the Revolver Agreement borrowings to prime plus 1.5%, require fees of $350,000 for March 1998 to March 1999 and waive violations of certain covenants during 1997. Additionally, if certain Revolver borrowing levels are exceeded beginning in the 1998 fourth quarter, the interest rates for the Revolver are increased to prime plus 3% and the interest rate for the Term Loan is increased to prime plus 3% or LIBOR plus 5.5%. The Revolver is collateralized by all of the Company's assets, excluding Mackintosh's domestic inventory and Varon's domestic raw materials and work-in-process inventories. Additionally, the Revolver contains various financial covenants, reporting requirements and limits capital expenditures, cash dividends, other indebtedness, affiliate transactions, mergers and acquisitions, and other items. Capital expenditures for the year ended December 31, 1997, increased to $506,000 from $257,000 in 1996, which remains below the 1997 depreciation expense of $618,000. The Company expects that cash on hand, investments in short-term securities, cash from operations and borrowings under its new revolving credit agreement will be sufficient to fund current operations and to enable the Company to meet its obligations as they become due. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages F-1 through F-26 of this Form 10-K, incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has not had any disagreements on accounting or financial disclosure with its accountants required to be reported hereunder. PART III ITEMS 10, 11, 12 AND 13. The information called for by Items 10, 11, 12 and 13 is incorporated by reference to the Company's definitive proxy statement which involves the election of directors and will be filed with the Commission within 120 days after the end of the fiscal year. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS: An index to the financial statements appears on Page F1, which index is incorporated herein by reference. 2. FINANCIAL STATEMENT SCHEDULES: An index to the financial statement schedules appears on Page F1, which index is incorporated herein by reference. 3. EXHIBITS: (An asterisk to the left of an exhibit number denotes a management contract or compensatory arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.) 2.1 Agreement and Plan of Merger, dated as of November 1, 1994, by and among the Registrant and M&L Acquisition Corp. and New ML Holding, Inc., incorporated by reference to Exhibit 2.1 filed with the Registrant's Quarterly Report on Form 8-K, filed December 14, 1994. 2.2 Company Shareholders Agreement, dated as of November 1, 1994, by and among the Registrant and M&L Acquisition Corp. and New M&L Holding, Inc. and certain Company shareholders, incorporated by reference to Exhibit 2.2 filed with the Registrant's Quarterly Report on Form 8-K, filed December 14, 1994. 2.3 Escrow Agreement, dated as of November 1, 1994, by and among Gordon and Einstein, Ltd., the Registrant and M&L Acquisition Corp., New M&L Holding, Inc., Odyssey Partners, L.P., Merrill Lynch Capital Corporation, Gregg H. Feinstein, Steven M. Friedman, Kurt C. Gutfreund and Eugene S. Weiner, incorporated by reference to Exhibit 2.3 filed with the Registrant's Quarterly Report on Form 8-K, filed December 14, 1994. 21 2.4 Registration Rights Agreement, dated as of November 30, 1994, among the Registrant, the Federal Deposit Insurance Corporation, as Receiver for Goldome FSB, Odyssey Partners, L.P., Merrill Lynch Capital Corporation, Gregg H. Feinstein, Steven M. Friedman, Kurt C. Gutfreund and Eugene S. Weiner, incorporated by reference to Exhibit 2.4 filed with the Registrant's Current Report on Form 8-K, filed December 14, 1994. 2.5 Note Modification Agreement, dated as of November 30, 1994, between the Registrant, M&L International, Inc., and Kurt C. Gutfreund, incorporated by reference to Exhibit 2.5 filed with the Registrant's Current Report on Form 8-K, filed December 14, 1994. 2.6 Note Modification Agreement, dated as of November 30, 1994, between the Registrant, M&L International, Inc. and Eugene S. Weiner, incorporated by reference to Exhibit 2.6 filed with the Registrant's Current Report on Form 8-K, filed December 14, 1994. 2.7 Stock Purchase Agreement, dated September 13, 1994, between New M&L Holding, Inc. and the Federal Deposit Insurance Corporation, incorporated by reference to Exhibit 2.7 filed with the Registrant's Current Report on Form 8-K, filed December 14, 1994. 3.1 Registrant's Amended and Restated Articles of Incorporation, as amended, incorporated by reference to Exhibit 3.1 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.2 Registrant's Bylaws, as amended, incorporated by reference to Exhibit 3.2 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. 4.1 Form of stock certificate evidencing ownership of the Registrant's Common Stock, incorporated by reference to Exhibit 4.1 filed with the Registrant's Quarterly Report on Form 10-Q, for the quarter ended September 30, 1994. 4.2 Indenture of the Registrant to First Union National Bank of Florida as successor in interest to Southeast Bank, N.A., dated as of December 5, 1989, $9,014,700 Principal Amount of 13% Subordinated Notes due December 15, 1999, filed with the Registrant's Registration Statement on Form S-2 (No. 33-32161), incorporated by reference to Exhibit 10.1 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. 22 *10.1 Management Agreement, dated as of January 1, 1998, by and between the Registrant and Trivest, Inc. (1). 10.2 Form of Amended and Restated Indemnification Agreement entered into between the Registrant and its directors and certain of its officers, incorporated by reference to Exhibit 10.36 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. *10.3 1994 Stock Option Plan of Registrant with form of Stock Option Agreement, incorporated by reference to Exhibit 10.3 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. *10.4 1987 Stock Option Plan for Biscayne Apparel, Inc., incorporated by reference to Exhibit 10.3 filed with the Registrant's Registration Statement on Form S-8 (No. 33-20871). *10.5 Form of Stock Option Agreement entered into between the Registrant and optionees, incorporated by reference to Exhibit 10.4 filed with the Registrant's Registration Statement on Form S-8 (No. 33-20871). *10.6 Amended and Restated 1990 Stock Option Plan for Biscayne Apparel, Inc., incorporated by reference to Exhibit 10.1 filed with the Registrant's Registration Statement on Form S-8 (No. 33-41139). *10.7 Form of Stock Option Agreement entered into between the Registrant and optionees incorporated by reference to Exhibit 10.2 filed with the Registrant's Registration Statement on Form S-8 (No. 33-41139). *10.8 1997 Stock Option Plan of Registrant, incorporated by reference to Exhibit A filed with the Registrant's Schedule 14A on April 28, 1997. *10.9 Warrant for the Purchase of Shares of Common Stock dated as of March 26, 1996 among the Registrant and Trivest, Inc., incorporated by reference to Exhibit 10.2 filed with the Registrant's Quarterly Report on Form 10-Q, for the quarter ended June 30, 1996. *10.10 Waiver Letter, dated as of December 30, 1996 relating to Warrant No. W-2, dated as of March 26, 1996, incorporated by reference to Exhibit 10.10 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. 23 *10.11 Salary Deferral Agreement between the Registrant and Peter Vandenberg, Jr., incorporated by reference to Exhibit 10.11 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. 10.12 Domestic License Agreement by and between Bon Jour Group, Ltd. and M & L International, Inc., dated as of January 25, 1995, incorporated by reference to Exhibit 10.4 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.13 Agreement of Lease, dated July 16, 1990, between Broad Park Associates and Biscayne Apparel, Inc. (Andy Johns Fashions Division), with term commencing February 15, 1993, incorporated by reference to Exhibit 10.24 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. 10.14 First Amendment, dated August 21, 1990, to the SubLease Agreement between Broad Park Associates and Biscayne Apparel, Inc. (Andy Johns Fashions Division), incorporated by reference to Exhibit 10.25 filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. 10.15 Second Amendment, dated May 25, 1993, to the Sublease Agreement between Broad Park Associates and Biscayne Apparel, Inc. (Andy Johns Fashion Division), incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. 10.16 Lease Agreement, dated May 12, 1993, between Dah Chong Hong Trading Corp. and Biscayne Apparel, Inc. (Varon Division), incorporated by reference to Exhibit 10.22 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. 10.17 Lease Modification Agreement, dated September 30, 1993, between Dah Chong Hong Trading Corp. and Biscayne Apparel, Inc. (Varon Division), incorporated by reference to Exhibit 10.23 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. 10.18 Indenture Agreement by and between Clark's Cove Realty, Co. and Mackintosh of New England Co., dated June 17, 1991, incorporated by reference to Exhibit 10.35 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. 24 10.19 Indenture Agreement, dated December 30, 1992, between Clark's Cove Realty Co. and Mackintosh of New England Co., incorporated by reference to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. 10.20 Lease Agreement, dated February 18, 1993, between The Arsenal Company and Biscayne Apparel, Inc. (Andy Johns Fashion Division), incorporated by reference to Exhibit 10.27 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. 10.21 Modification Agreement, dated June 23, 1993, between the Arsenal Company and Biscayne Apparel, Inc. (Andy Johns Fashion Division), incorporated by reference to Exhibit 10.28 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. 10.22 License Agreement between OshKosh B'Gosh, Inc. and M&L International, Inc., dated September 16, 1994, incorporated by reference to Exhibit 10.30 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.23 License Agreement dated as of June 30, 1997 among the Registrant, Starter Corporation and Soundview Licensing, Inc., incorporated by reference to Exhibit 10.1 filed with the Registrant's Quarterly Report on Form 10-Q, for the quarter ended September 30, 1997. 10.24 License Agreement dated as of August 26, 1997 among the Registrant and Lola Inc., incorporated by reference to Exhibit 10.2 filed with the Registrant's Quarterly Report on Form 10-Q, for the quarter ended September 30, 1997. 10.25 License Agreement dated as of November 1, 1997 between Healthtex Apparel, Corp. and M&L International, Inc. (1) *10.26 Employment Agreement between M&L International, Inc. and Kurt C. Gutfreund, dated as of November 30, 1994, incorporated by reference to Exhibit 10.31 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. *10.27 First Amendment to Employment Agreement, dated as of February 4, 1998, between Kurt C. Gutfreund and M&L International, Inc. (1) 10.28 Second Amended and Restated Credit Agreement and Guaranty dated as of March 24, 1997 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co., and M&L International, Inc. and The Chase Manhattan Bank (National Association) as Agent and Milberg Factors, Inc. as Servicing Agent, incorporated by reference to Exhibit 25 10 filed with the Registrant's Quarterly Report on Form 10-Q, for the quarter ended March 31, 1997. 10.29 First Amendment to Second Amended and Restated Credit Agreement and Guaranty dated as of May 22, 1997 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co., and M&L International, Inc. and The Chase Manhattan Bank (National Association) as Agent and Milberg Factors, Inc. as Servicing Agent, incorporated by reference to Exhibit 10 filed with the Registrant's Quarterly Report on Form 10-Q, for the quarter ended June 30,1997. 10.30 Second Amendment to Second Amended and Restated Credit Agreement and Guaranty dated as of February 18, 1998 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co. and M&L International, Inc. and The Chase Manhattan Bank (National Association) as Agent and Milberg Factors, Inc. as Servicing Agent. (1) 10.31 Third Amendment to Second Amended and Restated Credit Agreement and Guaranty dated as of March 6, 1998 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co. and M&L International, Inc. and The Chase Manhattan Bank (National Association) as Agent and Milberg Factors, Inc. as Servicing Agent. (1) 10.32 Sublease Agreement, dated January 1, 1996, between Richland Mills, Inc., as sublandlord and Varon (a division of Biscayne Apparel International, Inc.) as subtenant, incorporated by reference to Exhibit 10.31 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. 10.33 Lease Agreement, dated June 10, 1995, between Buena Vista Export Processing Zone (ZIP Buena Vista, S.A.) and Amy Industries de Honduras, S.A., de C.V., incorporated by reference to Exhibit 10.32 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. 21 Subsidiaries of the Registrant. (1) 23 Consent of Coopers and Lybrand L.L.P. (1) 27 Financial Data Schedule (for SEC use only). - --------------------- (1) Filed herewith (b) No reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this report. (c) Not applicable. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned. BISCAYNE APPAREL, INC. Date: March 26, 1998 By: /s/ Peter Vandenberg, Jr. -------------------------- Peter Vandenberg, Jr. President, Chief Operating Officer, Treasurer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 26, 1998 By: /s/ Earl W. Powell --------------------------------- Earl W. Powell Chairman and Chief Executive Officer Date: March 26, 1998 By: /s/ Peter Vandenberg, Jr. --------------------------------- Peter Vandenberg, Jr. President, Chief Operating Officer, Treasurer, and Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 26, 1998 By: /s/ Kurt C. Gutfreund --------------------------------- Kurt C. Gutfreund Vice Chairman Date: March 26, 1998 By: /s/ Harold E. Berritt --------------------------------- Harold E. Berritt Director Date: March 26, 1998 By: /s/ Phillip T. George, M.D. --------------------------------- Phillip T. George, M.D. Director Date: March 26, 1998 By: /s/ Joseph B. Gildenhorn --------------------------------- Joseph B. Gildenhorn Director Date: March 26, 1998 By: /s/ R. Stephen Lefler --------------------------------- R. Stephen Lefler Director Date: March 26, 1998 By: /s/ James J. Pinto --------------------------------- James J. Pinto Director 27 BISCAYNE APPAREL, INC. INDEX TO FINANCIAL STATEMENTS (ITEM 14 (a))
PAGE ---- BISCAYNE APPAREL, INC. Report of Independent Accountants F-2 Consolidated balance sheets at December 31, 1997 F-3 and 1996 Consolidated statements of operations for each of the F-4 three years in the period ended December 31, 1997 Consolidated statements of stockholders' equity for F-5 each of the three years in the period ended December 31, 1997 Consolidated statements of cash flows for each of the F-6 three years in the period ended December 31, 1997 Notes to consolidated financial statements F-7 to F-21 Consolidated financial statements schedules: Schedule I - Condensed financial information F-22 to F-25 of registrant Schedule II - Valuation and qualifying accounts F-26
All other schedules are omitted since the required information is not present, or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the financial statements and notes thereto. F-1 28 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Biscayne Apparel, Inc.: We have audited the consolidated financial statements and the financial statement schedules of Biscayne Apparel, Inc., and Subsidiaries listed in item 14(a) of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Biscayne Apparel, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Parsippany, New Jersey March 6, 1998, except for Note 7, for which the date is March 25, 1998. F-2 29 BISCAYNE APPAREL, INC. CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 (Dollars in thousands)
1997 1996 -------- -------- ASSETS Current assets: Cash and cash equivalents ........................................... $ 268 $ 327 Trade accounts receivable, less allowances of $2,278 in 1997 and $2,018 in 1996 ..................................................... 13,509 14,374 Inventories ......................................................... 17,258 14,554 Prepaid expenses and other .......................................... 962 2,261 Federal income tax receivable ....................................... -- 1,455 -------- -------- Total current assets ............................................. 31,997 32,971 Property, plant and equipment, net .................................... 2,739 2,864 Other assets, net ..................................................... 81 275 -------- -------- $ 34,817 $ 36,110 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................................... $ 4,320 $ 4,024 Accrued liabilities ................................................. 4,878 6,184 Notes payable to banks .............................................. 6,855 1,473 Current portion of long-term debt ................................... 2,000 1,750 -------- -------- Total current liabilities ........................................ 18,053 13,431 Subordinated notes .................................................... 6,444 6,444 Long-term debt ........................................................ 2,500 4,500 Other liabilities ..................................................... 162 557 Commitments and contingencies ......................................... -- -- Stockholders' Equity: Preferred stock - par value $0.01, 5,000,000 shares authorized; no shares issued Common stock - par value $0.01, 25,000,000 shares authorized; 10,771,308 and 10,741,748 shares outstanding at December 31, 1997 and 1996, respectively ........................... 108 107 Additional paid-in capital .......................................... 26,610 26,311 Accumulated deficit ................................................. (19,060) (15,240) -------- -------- Total stockholders' equity ........................................ 7,658 11,178 -------- -------- $ 34,817 $ 36,110 ======== ========
See accompanying notes. F-3 30 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands, except per share amounts)
1997 1996 1995 ------------ ------------ ------------ Net sales ............................................. $ 93,206 $ 105,425 $ 100,294 Operating costs and expenses: Cost of goods sold ................................... 70,045 78,112 80,121 Selling, general and administrative .................. 22,183 24,394 25,434 Restructuring charges ................................ 465 2,039 -- Impairment of long-lived assets ...................... -- 7,062 -- ------------ ------------ ------------ 92,693 111,607 105,555 ------------ ------------ ------------ Operating income (loss) ............................... 513 (6,182) (5,261) Other income and (expenses): Interest and other expenses .......................... (3,270) (3,643) (3,805) Interest and other income ............................ 43 246 109 Gain on sale and equity in net income of investee .... -- 123 122 ------------ ------------ ------------ Loss before provision (benefit) for income taxes ..................................... (2,714) (9,456) (8,835) Provision (benefit) for income taxes .................. 1,157 (732) (2,708) ------------ ------------ ------------ Net loss .............................................. $ (3,871) $ (8,724) $ (6,127) ============ ============ ============ Basic and diluted loss per common share ............... $ (0.36) $ (0.81) $ (0.57) ============ ============ ============ Shares used in computing basic and diluted loss per common share ................................ 10,764,632 10,741,748 10,733,551 ============ ============ ============
See accompanying notes. F-4 31 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
Retained Additional Earnings Common Paid-in (Accumulated Stock Capital Deficit) Total -------- ---------- ------------ -------- Balance at December 31, 1994 ....................... $ 102 $ 25,225 $ 554 $ 25,881 Issuance of 505,862 shares of common stock due to stock dividend ............................. 5 1,071 (1,076) -- Exercise of employee stock options ................. -- 13 -- 13 Amortization of unearned stock award ............... -- -- 68 68 Net loss ........................................... -- -- (6,127) (6,127) -------- -------- -------- -------- Balance at December 31, 1995 ....................... 107 26,309 (6,581) 19,835 Issuance of 507 shares of common stock due to stock dividend .................................... -- 2 (2) -- Amortization of unearned stock award ............... -- -- 67 67 Net loss ........................................... -- -- (8,724) (8,724) -------- -------- -------- -------- Balance at December 31, 1996 ....................... 107 26,311 (15,240) 11,178 Issuance of 625,000 warrants ....................... -- 265 -- 265 Issuance of 6,131 shares of common stock due to stock dividend .................................... 1 16 (17) -- Exercise of employee stock options ................. -- 18 -- 18 Amortization of unearned stock award ............... -- -- 68 68 Net loss ........................................... -- -- (3,871) (3,871) -------- -------- -------- -------- Balance at December 31, 1997 ....................... $ 108 $ 26,610 $(19,060) $ 7,658 ======== ======== ======== ========
See accompanying notes. F-5 32 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
1997 1996 1995 -------- -------- -------- OPERATING ACTIVITIES: Net loss ............................................................. $ (3,871) $ (8,724) $ (6,127) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation expense ............................................... 618 544 584 Amortization expense ............................................... 83 95 (35) Amortization of unearned stock award compensation .................. 109 -- -- Noncash stock compensation expense ................................. 68 67 68 Loss (gain) on disposition of assets ............................... 3 (11) 91 Gain on sale and equity in net income of investee .................. -- (123) (122) Provision for losses and sales allowances on receivables ........... 4,615 5,158 4,584 Impairment of long-lived assets .................................... -- 7,062 -- (Increase) decrease in operating assets: Trade accounts receivable .......................................... (3,750) (951) (1,846) Inventories ........................................................ (2,704) 11,588 (3,737) Prepaid expenses and other ......................................... 1,299 (360) (410) Federal income tax receivable ...................................... 1,455 514 (1,969) Other assets ....................................................... 277 1,516 (499) Increase (decrease) in operating liabilities: Accounts payable ................................................... 296 60 (2,398) Accrued liabilities ................................................ (1,302) (511) (1,178) Other liabilities .................................................. (313) 286 (501) -------- -------- -------- Net cash (used in) provided by operating activities .............. (3,117) 16,210 (13,495) -------- -------- -------- INVESTING ACTIVITIES: Capital expenditures ................................................. (506) (257) (941) Proceeds from net sale of assets ..................................... -- 11 9 Proceeds on sale of Hartwell Sports, Inc. ............................ -- 1,750 -- -------- -------- -------- Net cash (used in) provided by investing activities ............... (506) 1,504 (932) -------- -------- -------- FINANCING ACTIVITIES: Payments under notes payable to banks ................................ (30,599) (87,402) (72,155) Borrowings under notes payable to banks .............................. 35,981 71,025 81,505 Proceeds from term loan .............................................. -- -- 7,500 Repayment of subordinated notes ...................................... -- -- (6,276) Principal payments of long-term debt and capital leases .............. (1,836) (1,322) (26) Proceeds from exercise of employee stock options ..................... 18 -- 13 -------- -------- -------- Net cash provided by (used in) financing activities .............. 3,564 (17,699) 10,561 -------- -------- -------- Net (decrease) increase in cash and cash equivalents .................. (59) 15 (3,866) Cash and cash equivalents at beginning of year ........................ 327 312 4,178 -------- -------- -------- Cash and cash equivalents at end of year .............................. $ 268 $ 327 $ 312 ======== ======== ========
See accompanying notes. F-6 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements of Biscayne Apparel, Inc. (the "Company" or "BAI") include the accounts of the parent company, Biscayne Apparel, Inc., and its wholly-owned subsidiaries, Biscayne Apparel International, Inc. ("BAII") and M&L International, Inc. ("M&L"), and its wholly-owned subsidiaries, Unidex Garments (Philippines), Inc., Watersports Garment Manufacturing, Inc., Teri Outerwear Manufacturing, Inc., GES Sportswear Manufacturing Corp. and M&L International (H.K.) Limited. As of March 1, 1996, Unidex, Watersports, Teri and GES ceased operations due to operating losses caused by labor increases and production inefficiencies. Through December 31, 1997, BAII operated through two divisions, Andy Johns Fashions International ("Andy Johns") and Varon, and its wholly-owned subsidiaries, Mackintosh of New England Co., Mackintosh (U.K.) Limited and Amy Industries De Honduras, S.A. de C.V., which was organized in 1995. As of January 1, 1998 the assets, liabilities and operations of Andy Johns were contributed by BAII into Mackintosh. All material intercompany balances and transactions have been eliminated. Certain amounts in the 1996 and 1995 financial statements and related notes have been reclassified to conform with the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to sales allowances, inventory reserves and recoverability of assets. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying amounts of these investments approximate fair market value due to their short-term maturities. INVENTORIES Inventories are stated at the lower of cost, (first-in, first-out) (FIFO) or market, for all subsidiaries except M&L, whose inventory is stated at lower of cost, (last-in, first-out) (LIFO), or market. F-7 34 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, as follows: Buildings and Building Improvements..... 1 to 30 years Machinery and Equipment................. 3 to 10 years Maintenance and repair costs are charged to expense as incurred, and renewals and improvements are capitalized. When capital assets are retired or disposed of, the asset and related accumulated depreciation accounts are adjusted accordingly, and any gain or loss is recorded. The Company follows Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121), which requires an impairment loss be recognized if an event or change in circumstances indicate that the carrying amount of an asset may not be recoverable. The impairment loss shall be measured as the amount by which the carrying amount of the asset exceeds the fair value less the estimated selling costs (see Note 5). GOODWILL Negative goodwill, which relates to the acquisition of M&L, is being amortized on a straight line basis over 40 years. Accumulated amortization of negative goodwill was $47,000 and $29,000 at December 31, 1997 and 1996, respectively, and is included in Other assets, net. Goodwill had been amortized on a straight-line basis over forty years from the date of each acquisition. The Company has historically used various criteria to evaluate the amortization period of goodwill, including the following: established market position (with stable customer relationships); experienced management team; history of profitable operations and positive cash flows at or above industry levels, with prospective growth opportunities; and longevity of entity and industry. The carrying value of goodwill is reviewed if the facts and circumstances suggest it may be impaired. Such facts and circumstances resulted in the write off of $6,532,000 of goodwill relating to the Company's Andy Johns and Varon divisions, for the year ended December 31, 1996 (see Note 5). F-8 35 DEBT The estimated fair market value of notes payable to banks and long-term debt approximate their carrying value, since, in accordance with the Company's loan agreement with several banks, these obligations are subject to fluctuating market rates of interest and can be settled at any time at the fair market value rate. The fair market value of the Company's Subordinated Notes is estimated to be below par value based on nominal trading activity. REVENUE RECOGNITION The Company records revenues at the time of shipment of merchandise. The Company establishes reserves for sales returns and allowances based upon actual and historical levels of returns. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109), which requires the liability method for computing deferred income taxes. Deferred income taxes are recognized for the effect of temporary differences between the financial and tax bases of assets and liabilities and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not, that some portion of the deferred tax assets may not be realized. CONCENTRATION OF CREDIT RISK The Company performs ongoing credit evaluations of its customers' financial condition. Generally, the Company does require collateral against its trade accounts receivable. For the year ended December 31, 1997, two customers represented 11% each, or 22% of total sales. For the year ended December 31, 1996, three customers represented approximately 34% of total sales. The individual customers represented 14%, 10% and 10% of total sales, respectively. For the year ended December 31, 1995, one customer accounted for approximately 11% of total sales. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" which establishes standards for the reporting and display of comprehensive income and its components in a full set of financial statements. The Company is required to adopt this standard in 1998 and is currently evaluating the impact of this standard. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" which establishes standards for F-9 36 the way that public business enterprises report information about operating segments, geographic areas, products and major customers. The Company is required to adopt this standard in 1998 and is currently evaluating the impact of this standard. DISPOSITIONS On March 27, 1996, the Company sold its 20% interest in Hartwell Sports, Inc. for $1,750,000. Proceeds from the sale were used to reduce notes payable to banks. 2. EARNINGS PER COMMON SHARE The Company has adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS No. 128") which requires the presentation of basic earnings per share ("Basic EPS"), and diluted earnings per share ("Diluted EPS"). Basic EPS excludes dilution and is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilutive effect if securities or other contracts to issue common stock were exercised or converted. FAS No. 128 requires the restatement of all prior period earnings per share data presented including interim periods. The numerator and denominator of the basic and dilutive per share computations are as follows (in thousands, except per share amounts):
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------ 1997 1996 1995 ---------- ---------- ---------- Numerator: Net Loss $(3,871) $(8,724) $(6,127) Denominator: Shares Outstanding 10,764,632 10,741,748 10,733,551 Basic and Dilutive Net Loss Per Share $(0.36) $(0.81) $(0.57)
The Company has not included potential common shares in the Diluted EPS computation as the result is antidilutive. Options and warrants to purchase 1,064,537, 1,231,216 and 1,238,630 shares of common stock at prices ranging from $0.75 to $2.44 per share were outstanding during 1997, 1996 and 1995, respectively. These shares were not included in the computation of Diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which expire on various dates from June, 1997 to November, 2007, were still outstanding at the end of each respective fiscal year (see Note 10). F-10 37 3. INVENTORIES Inventories at December 31, 1997 and 1996 are comprised of the following: (In thousands) 1997 1996 ------- ------- Raw materials $ 4,067 $ 3,684 Work-in-process 1,944 785 Finished goods 11,247 10,085 ------- ------- $17,258 $14,554 ======= ======= Included in inventory at December 31, 1997 and 1996 respectively, is $7,120,000 and $5,739,000 relating to M&L's inventory, which is valued under the LIFO method. M&L's inventory at December 31, 1997 and 1996 would have been $76,000 and $220,000 higher, respectively, had the inventory been valued under FIFO. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1997 and 1996 is as follows: (In thousands) 1997 1996 ------- ------- Land $ 17 $ 17 Buildings and building improvements 1,066 972 Machinery and equipment 4,173 3,787 ------- ------- 5,256 4,776 Less accumulated depreciation and amortization (2,517) (1,912) ------- ------- $ 2,739 $ 2,864 ======= ======= 5. WRITEDOWN OF GOODWILL, IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES During 1997 and 1996, the Company recorded restructuring charges of $465,000 and $2,039,000, respectively. Approximately $465,000 in 1997 and $1,159,000 in 1996 relate to salary and separation costs, primarily relating to senior and middle managers, and approximately $880,000 in 1996 related to termination of long-term contracts and leases and facility closing costs. As of December 31, 1997, $124,000 of the Company's restructuring charges have not yet been paid. During the fourth quarter of 1996, certain events occurred which led the Company to evaluate the recoverability of goodwill of its Andy Johns and Varon Divisions. Since the goodwill under evaluation is related to the specific enterprises and not to any of their long-term assets, the evaluation was done pursuant to F-11 38 Accounting Principles Board Opinion No. 17, "Intangible Assets". These events included certain changes in government regulations regarding cotton sleepwear, changes in key members of the management team, loss of market share and loss of a key customer. As a result, in December 1996, the Company recognized a one-time non-cash charge for impairment of goodwill of $6,532,000, with no associated tax benefit. Also during the fourth quarter of 1996, the Company evaluated the recoverability of a manufacturing facility and, as a result of such analysis, the Company recorded a fixed asset writedown of $530,000. 6. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31, 1997 and 1996: (In thousands) 1997 1996 ------ ------ Wages, commissions and bonus $2,882 $3,071 Other 1,996 3,113 ------ ------ $4,878 $6,184 ====== ====== 7. DEBT On March 16, 1995, the Company entered into an agreement (the "Loan Agreement") with several banks for a $56,000,000 two year committed revolving credit facility (the "Revolver Agreement") and a $7,500,000 four year term loan (the "Term Loan"). The Revolver Agreement is available for loans, letters of credit and letters of indemnity. The Company had notes payable to banks under the Revolver Agreement at December 31, 1997 and 1996 of $6,855,000 and $1,473,000, respectively. Additionally, at December 31, 1997 and 1996, the Company had letters of credit outstanding of $9,455,000 and $10,650,000 respectively. At December 31, 1997, the Company was at its available credit limits. At December 31, 1996, the Company had $9,398,000 of available credit under the Revolver Agreement. The interest rate was prime plus 1.0% at December 31, 1997 and 1996 on the Revolver Agreement. The prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively. The weighted average interest rate on outstanding short-term borrowings and the term loan at December 31, 1997 and 1996 was 9.86% and 9.91%, respectively. F-12 39 Principal payments of the Term Loan are payable on March 31 in each of the following years: 1998 $2,000,000 1999 2,500,000 ---------- Total $4,500,000 ========== On March 28, 1996, the Loan Agreement was amended to reduce the Revolver Agreement facility to $50,000,000; adjust the interest rate under Revolver Agreement borrowings to prime plus 1.0%, or prime plus 1.25% during agreed upon collateral overadvance periods; adjust the interest rate under the Term Loan, to prime plus 2.00%, or, at the Company's election, LIBOR plus 4.50% on outstanding borrowings; require an additional fee of $250,000, collateral monitoring costs of 0.2% of net sales, and provide for the issuance of warrants to the banks to purchase 425,000 shares of the Company's common stock for an exercise price of $1.00 per share. The warrants are exercisable at any time on or after March 31, 1998. The Company is amortizing the capitalized valuation of these warrants (approximately $156,000) through the period ending March 31, 1999 and accordingly recognized expense, associated with the warrants, of approximately $70,000 in 1997. On March 24, 1997, the Loan Agreement was amended to reduce the Revolver Agreement to $45,000,000; adjust the interest rate for Revolver Agreement borrowings to prime plus 1.0%, or prime plus 1.75% during agreed upon collateral overadvance periods; require additional fees of $325,000 and waive violations of certain covenants during 1996. On March 25, 1998, the Loan Agreement was amended to reduce the Revolver Agreement to $39,000,000, adjust the interest rate for the Revolver Agreement borrowings to prime plus 1.5%, require fees of $350,000 for March 1998 to March 1999 and waive violations of certain covenants during 1997. Additionally, if certain Revolver borrowing levels are exceeded beginning in the 1998 fourth quarter, the interest rates for the Revolver are increased to prime plus 3% and the interest rate for the Term Loan is increased to prime plus 3% or LIBOR plus 5.5%. The Revolver Agreement is collateralized by all of the Company's assets, excluding Mackintosh's domestic inventory and Varon's domestic raw materials and work-in-process inventories. Additionally, the Revolver Agreement contains various financial covenants, reporting requirements and limits on capital expenditures, cash dividends, other indebtedness, affiliate transactions, mergers and acquisitions and other items. Interest expense paid on notes payable to banks and subordinated notes (see Note 9) was approximately $3,199,000, $3,688,000, and $3,715,000 for the years ended December 31, 1997, 1996 and 1995, respectively. F-13 40 8. COMMITMENTS AND CONTINGENCIES The Company leases warehouses, office space and transportation equipment under operating leases expiring at various times. Most of the operating leases contain renewal options. Rent free periods granted under certain leases and scheduled rent increases are charged to rent expense on a straight-line basis over the related lease terms. Total rent expense for all operating leases was $2,203,000 in 1997, $2,279,000 in 1996, and $2,385,000 in 1995. Future minimum operating lease payments at December 31, 1997 are as follows (in thousands): 1998 $1,960 1999 1,828 2000 1,522 2001 1,412 2002 672 Thereafter 611 ------ $8,005 ====== At December 31, 1997, the present value of future minimum capital lease payments was $223,000, which is included in other liabilities on the balance sheet. In 1995, the Company, through a financing lease, obtained computer equipment at a cost of $363,000, which for financial reporting purposes, has been accounted for as a capital lease. The Company licenses the rights to use certain brand names on its products, for which it is contingently obligated to pay minimum royalty and advertising fees through 2001 in the amount of approximately $2,988,000. 9. SUBORDINATED DEBT At December 31, 1997, the Company had outstanding $6,444,000 of 13% Subordinated notes (the "Subordinated Notes") due December 15, 1999 with interest payable biannually on June 15 and December 15. The Subordinated Notes are subordinated in right of payment to all existing and future senior indebtedness of the Company. The Company may redeem all or part of the Subordinated Notes at any time at a price equal to the principal amount plus accrued interest. The fair value of the Company's Subordinated Notes is estimated to be 55% to 65% ($3,544,000 to $4,188,000) of face amount at December 31, 1997, based on nominal trading activity during the year. F-14 41 10. STOCKHOLDERS' EQUITY The Company is authorized to issue 25,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. At December 31, 1997 and 1996, the Company had 10,771,308 and 10,741,748 shares of common stock, issued and outstanding, respectively. No shares of preferred stock have been issued. In March 1995, the Company's Board of Directors declared a five percent stock dividend with respect to its common stock par value, $0.01 per share. Each holder of record on May 24, 1995 received one share of common stock for every 20 shares held, with cash being paid in lieu of issuing fractional shares. The distribution date was May 31, 1995. Accordingly, retained earnings and paid-in-capital reflect the stock dividend distribution and all prior year stock option information has been restated to reflect the 1995 dividend. In March 1996, in connection with the Company's Revolver Agreement and Term Loan, warrants were issued to purchase 425,000 shares of the Company's common stock (see Note 7). Additionally, in 1996, the Company issued warrants to purchase 200,000 shares, at an exercise price of $0.75 per share, to Trivest as part of the amendment to the Company's management agreement (see Note 13). These warrants are fully exercisable effective January 1, 1997 and expire December 31, 2001. In October, 1997, the Company issued a warrant to purchase 36,383 shares of the Company's common stock at an exercise price of $1.62 per share, which is exercisable from October 1997 through December 2000. The Company has four nonqualified stock option plans; the 1987 Stock Option Plan ("1987 SOP"), the 1990 Stock Option Plan ("1990 SOP"), the 1994 Stock Option Plan ("1994 SOP") and the 1997 Stock Option Plan ("1997 SOP"). Under the terms of the 1987 SOP, 1990 SOP, 1994 SOP and 1997 SOP, 550,000 shares, 650,000 shares, 150,000 shares, and 306,695 respectively, may be issued at not less than 100% of market value at the date of grant. Options issued under the plans expire ten years from date of grant and generally vest over five years from date of grant. F-15 42 The following table summarizes the activity of the Company's stock option plans: 1997 1996 1995 ----------- ----------- ----------- Balance outstanding at beginning of year 1,202,610 1,225,637 1,248,403 Granted 140,000 45,000 5,250 Canceled (491,027) (68,027) (16,991) Exercised (23,429) -- (11,025) ----------- ----------- ----------- Balance outstanding at December 31 828,154 1,202,610 1,225,637 =========== =========== =========== Price range per share $0.75-$2.44 $0.75-$2.44 $0.79-$2.44 =========== =========== =========== Exercisable at December 31 699,669 928,367 751,465 =========== =========== =========== Available for grant at December 31 709,119 110,417 87,401 =========== =========== =========== Weighted-average fair value of options granted during the year $ 0.8572 =========== The following table summarizes information about fixed-price stock options outstanding at December 31, 1997:
WEIGHTED- AVERAGE WEIGHTED- AT DECEMBER 31, 1997 REMAINING AVERAGE ------------------------------------- EXERCISE CONTRACTUAL EXERCISE OPTIONS OPTIONS PRICE LIFE PRICE OUTSTANDING EXERCISABLE - ----------------------------------------------------------------------------------------------- $0.7500 8 yrs $0.7500 33,750 33,750 $0.7936 4 yrs $0.7936 55,678 55,678 $0.8125 5 yrs $0.8125 100,000 100,000 $0.8750 5 yrs $0.8750 25,000 25,000 $1.1250 5 yrs $1.1250 15,000 -- $1.2471 1-3 yrs $1.2471 206,997 206,997 $1.9274 6 yrs $1.9274 235,386 188,309 $2.2619 7 yrs $2.2619 5,250 3,150 $2.2675 6 yrs $2.2675 2,756 2,205 $2.3810 7 yrs $2.3810 96,075 57,645 $2.4376 7 yrs $2.4376 52,262 36,385 ------- ------- 828,154 709,119 ======= =======
F-16 43 The Company applies the provisions of Opinion 25 ("APB 25") and related interpretations in accounting for its stock based compensation plans. Accordingly, compensation expense has been recognized in the financial statements with respect to the above plans to the extent required by APB 25. Had compensation costs for the above plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation", the Company's net loss and net loss per share would have been increased to the pro forma amounts below:
1997 1996 1995 -------- -------- --------- (In thousands of dollars, except per share data) Pro forma net loss $ (3,944) $ (8,749) $ (6,128) ======== ======== ========= Pro forma net loss per share $ (0.37) $ (0.81) $ (0.57) ======== ======== =========
As options vest over a varying number of years, and awards are generally made each year, the pro forma impacts shown here may not be representative of future pro forma expense amounts due to the annual grant of options by the Company. The pro forma additional compensation expense of $73,000, $25,000 and $1,000 for 1997, 1996 and 1995, respectively, was calculated based on the fair value of each option grant using the Black-Scholes model with the following weighted-average assumptions used for grants: 1997 1996 1995 ---- ---- ---- Dividend yield 0% 0% 0% Expected volatility 50% - 52% 56% 61% Risk free interest rate 5.81% - 6.42% 6.34% 7.09% Expected option lives 3.25 - 5 9 9.33 (in years) 11. INCOME TAXES The components of the provision (benefit) for income taxes for each of the three years in the period ended December 31, 1997 are as follows: 1997 1996 1995 (In thousands) ------- ------- ------- Current $ (61) $(1,577) $(2,039) Deferred 1,218 845 (669) ------- ------- ------- $ 1,157 $ (732) $(2,708) ======= ======= ======= The total Federal and state provision (benefit) for income taxes is as follows: 1997 1996 1995 (In thousands) ------- ------- ------- Federal $ 844 $ (498) $(2,712) State 313 (234) 4 ------- ------- ------- $ 1,157 $ (732) $(2,708) ======= ======= ======= F-17 44 A reconciliation of the statutory provision and the effective provision for income taxes is as follows: (In thousands) 1997 1996 1995 ------- ------- ------- Income tax at statutory rate $ (923) $(3,215) $(3,004) State income taxes, net of federal benefit 195 7 200 Impairment of goodwill -- 2,173 -- Amortization expense 54 45 70 Refund of prior year's income taxes and related adjustments -- (473) (37) Other, net (17) (157) 63 ------- ------- ------- (691) (1,620) (2,708) Valuation allowance 1,848 888 -- ------- ------- ------- $ 1,157 $ (732) $(2,708) ======= ======= ======= The components of the net deferred tax (assets) and liabilities recorded on the balance sheets at December 31, 1997 and 1996 are as follows: (In thousands) 1997 1996 ------- ------- Deferred Tax Liabilities: LIFO inventory adjustments $ 1,157 $ 1,167 Depreciation 49 -- ------- ------- Total deferred tax liabilities 1,206 1,167 Deferred Tax (Assets): Federal net operating loss carryovers (3,159) (1,855) State net operating loss carryover (1,188) (900) State jobs credit carryover (237) (237) Alternative minimum tax credit carryover (199) -- Accounts receivable and sales allowances (1,022) (870) Capitalized trademarks (599) (590) Capitalized inventory (236) (310) Deferred compensation (73) (260) Employee benefit reserves (140) (121) Operating leases (90) (100) Depreciation -- (16) Other (63) (71) ------- ------- (7,006) (5,330) Valuation allowance on deferred tax (assets) 5,800 2,922 ------- ------- Total deferred tax (assets) (1,206) (2,408) ------- ------- Net Deferred Taxes $ -- $(1,241) ======= ======= As of December 31, 1997, the Company had approximately $8,948,000 of net operating loss carryforwards for U.S. Federal income tax purposes. These carryforwards expire through the year 2012. The timing and manner in which $2,147,000 of these loss carryforwards may be utilized in any year by the Company will be limited in accordance with Internal Revenue Code Section 382 and other provisions of the Internal Revenue Code and its applicable regulations. F-18 45 The Company has valuation allowances of $5,800,000 and $2,922,000 in 1997 and 1996, respectively, to reflect management's estimate of the total amount of deferred tax assets and net operating loss carryforwards, which may not be realized depending on future operating results of the Company. The increase in the valuation allowance in 1997 is due to continuing operating losses. Income taxes paid during 1997, 1996 and 1995 were $2,000, $82,000, and $215,000, respectively. 12. EMPLOYEE BENEFIT PLANS The Company maintains employee profit sharing plans covering all domestic employees. No contribution was made for the years ended December 31, 1997, 1996 and 1995. 13. RELATED PARTY TRANSACTIONS As of January 1, 1987, the Company entered into a management agreement with Trivest, Inc. ("Trivest"). Trivest and the Company have certain common shareholders, officers and directors. Pursuant to the management agreement, Trivest provides corporate finance, financial relations, strategic and capital planning and other management advice to the Company. The term of the management agreement was for a seven-year period, which required payment of an annual cash management fee of $675,000 (subject to inflation adjustments), payable in advance in equal quarterly installments. The management agreement was amended, effective January 1, 1992, to reduce the annual management fee to $475,000 (subject to inflation adjustments) and was again amended, effective January 1, 1993, to further reduce the annual management fee to $250,000 (subject to inflation adjustments). Pursuant to the second amendment, the term of the management agreement was extended four years (expiring December 31, 1997) and Trivest received a restricted stock award consisting of 225,000 shares of the Company's $.01 par value common stock. The stock award restrictions lapse in five equal annual installments commencing January 1, 1994, subject to acceleration of vesting in certain circumstances, including a change of control of the Company. The Company recognized $338,000 of deferred management fee expense, relating to the stock award, based upon the fair market value at date of grant. The $338,000 is being amortized over the five year vesting period and accordingly, the Company recognized approximately $68,000, $67,000, and $68,000 of management fee expense for the years ended December 31, 1997, 1996, and 1995, respectively. Effective December 1, 1994, the management agreement was amended and restated due to the acquisition of M&L. This amendment increased the yearly fee to $350,000 (subject to inflation adjustments). Effective January 1, 1996, the management agreement was amended to reduce the yearly fee to $180,000 (subject to inflation adjustments). Additionally, the agreement provided F-19 46 for the issuance of a warrant to purchase 200,000 shares of the Company's stock. The Company recognized expense of approximately $109,000 in 1997 relating to the valuation of this warrant. Effective January 1, 1998, the Company entered into a new management agreement with Trivest (the "New Agreement"). The New Agreement requires an annual cash management fee of $200,000, payable in advance in equal quarterly installments and expires December 31, 1998. The Company expensed approximately $186,000, $180,000, and $366,000 for services rendered under the management agreement during the years ended December 31, 1997, 1996, and 1995 respectively. Certain former officers of the Company have a minority interest in the equity securities of a vendor. The vendor supplies warehousing and distribution facilities to Andy Johns and Mackintosh. This vendor relationship, which was under contract until 1999, was terminated as of December 31, 1996 for a negotiated payment of $525,000 (of which $125,000 was paid out in 1997), and has been included as part of restructuring expenses in 1996 (see Note 5.) During the years ended December 31, 1996 and 1995, actual warehousing and shipping expenses to this vendor totaled approximately $884,000 and $633,000, respectively. 14. QUARTERLY FINANCIAL DATA (UNAUDITED) Unaudited consolidated quarterly financial data for fiscal years 1997 and 1996 is as follows (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 1997 1997 1997 1997 ---------- ---------- --------- -------- Net sales $ 14,849 $ 12,845 $ 41,798 $ 23,714 ========== ========== ========= ======== Gross profit $ 3,812 $ 3,021 $ 11,682 $ 4,646 ========== ========== ========= ======== Net earnings (loss) $ (1,110) $ (1,458) $ 2,504 $ (3,807) ========== ========== ========= ======== Basic and diluted earnings (loss) per common share $ (0.10) $ (0.14) $ 0.23 $ (0.35) ========== ========== ========= ======== FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 1996 1996 1996 1996 ---------- ---------- --------- -------- Net sales $ 16,236 $ 12,893 $ 46,301 $ 29,995 ========== ========== ========= ======== Gross profit $ 3,966 $ 2,557 $ 12,517 $ 8,273 ========== ========== ========= ======== Net earnings (loss) $ (1,413) $ (2,181) $ 2,830 $ (7,960) ========== ========== ========= ======== Basic and diluted earnings (loss) per common share $ (0.13) $ (0.20) $ 0.26 $ (0.74) ========== ========== ========= ========
F-20 47 The 1997 fourth quarter includes restructuring charges of $465,000 relating to salary and separation costs and $1,069,000 of tax expense relating to the valuation of deferred tax assets for a total effect of $0.14 per common share, net of taxes. The 1997 fourth quarter also includes the adverse effects on the outerwear industry of higher levels of carryover inventory, at both the retail and manufacturer/importer level, from 1996 to 1997, due to the effects of the 1996/1997 warm Fall/Winter season. This caused retailers to delay and reduce ordering Fall 1997 merchandise. These factors caused the Company to sustain losses in the fourth quarter due to the sale of inventory during the 1997 fourth quarter at low margins and markdown of remaining Fall 1997 inventory. During the 1997 fourth quarter, the Company expensed inventory markdowns of $1,758,000, compared to $638,000 during the 1996 fourth quarter. The 1996 fourth quarter includes the effects of restructuring expenses, impairment of long-lived assets and valuation allowances on Federal tax net operating loss carryforwards totaling $9,101,000, net of taxes, or $0.85 per share. These charges primarily resulted from the evaluation of recoverability of such assets, particularly considering certain events, which principally occurred in the fourth quarter, including: changes in key members of management, government regulations regarding cotton sleepwear, loss of market share, and loss of a key customer. F-21 48 Schedule I BISCAYNE APPAREL, INC. (PARENT COMPANY ONLY) BALANCE SHEETS December 31, 1997 and 1996 (Dollars in thousands)
1997 1996 -------- -------- ASSETS Current assets: Cash and cash equivalents............................... $ -- $ 29 Accounts receivable..................................... 7 25 Intercompany accounts receivable........................ 1,095 4,191 Federal income tax receivable........................... -- 1,455 Prepaid expenses and other.............................. 5 31 -------- -------- Total current assets...................... 1,107 5,731 Investments in subsidiaries.............................. 13,220 12,346 Property, plant and equipment, net....................... 32 18 Other assets, net........................................ 88 69 -------- -------- $ 14,447 $ 18,164 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....................................... $ 110 $ 49 Accrued liabilities.................................... 214 455 -------- -------- Total current liabilities................ 324 504 Subordinated notes...................................... 6,444 6,444 Other liabilities....................................... 21 38 Stockholders' Equity: Common stock........................................... 108 107 Additional paid-in capital............................. 26,610 26,311 Accumulated deficit.................................... (19,060) (15,240) -------- -------- Total stockholders' equity............... 7,658 11,178 -------- -------- $ 14,447 $ 18,164 ======== ========
F-22 49 Schedule I Cont'd BISCAYNE APPAREL, INC. (PARENT COMPANY ONLY) STATEMENTS OF OPERATIONS Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
1997 1996 1995 ------- ------- ------- Expenses: General and administrative expenses.............. $ 200 $ 67 $ 35 Management fee to Trivest, Inc................... 186 180 366 ------- ------- ------- Operating expenses................................. (386) (247) (401) Other income and (expenses): Interest and other expenses...................... (883) (838) (954) Intercompany interest income..................... 495 519 551 Interest and other income........................ 11 37 40 Equity in and gain on sale of investee........... -- 123 122 Equity in loss of subsidiaries, net of applicable income taxes......................... (2,089) (8,673) (5,826) Management fee from subsidiaries................. 186 180 366 ------- ------- ------- Loss before provision (benefit) for income taxes... (2,666) (8,899) (6,102) Provision (benefit) for income taxes............... 1,205 (175) 25 ------- ------- ------- Net loss........................................... $(3,871) $(8,724) $(6,127) ======= ======= =======
F-23 50 Schedule I BISCAYNE APPAREL, INC. (PARENT COMPANY ONLY) STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
1997 1996 1995 ------- ------- ------- OPERATING ACTIVITIES: Net loss $(3,871) $(8,724) $(6,127) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Noncash stock compensation expense 68 67 68 Equity in loss of subsidiaries 2,089 8,673 5,826 Gain on sale and equity in net income of investee -- (123) (122) Depreciation expense 5 6 5 Amortization expense 69 -- -- Amortization of debt issuance costs 109 (Increase) decrease in operating assets: Trade accounts receivable 17 3 36 Prepaid expenses and other 26 -- 54 Federal income tax receivable 1,455 514 (1,969) Other assets 68 (42) 49 Increase (decrease) in operating liabilities: Accounts payable 62 49 (45) Accrued liabilities (242) 74 (536) Other liabilities (17) (10) (6) ------- ------- ------- Net cash (used in) provided by operating activities (162) 487 (2,767) INVESTING ACTIVITIES: Capital expenditures (19) (1) (6) Proceeds on sale of Hartwell Sports, Inc. -- 1,750 -- ------- ------- ------- Net cash (used in) provided by investing activities (19) 1,749 (6) FINANCING ACTIVITIES: Repayments (advances) of intercompany loans 134 (2,236) 6,761 Payment on subordinated notes -- -- (4,776) Proceeds from exercise of employee stock options 18 -- 13 ------- ------- ------- Net cash provided (used in) by financing activities 152 (2,236) 1,998 ------- ------- ------- Net (decrease) increase in cash and cash equivalents (29) 0 (775) Cash and cash equivalents at beginning of year 29 29 804 ------- ------- ------- Cash and cash equivalents at end of year $ 0 $ 29 $ 29 ======= ======= =======
(Continued on following page) F-24 51 Schedule I Cont'd BISCAYNE APPAREL, INC. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS (Cont'd) Years Ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
1997 1996 1995 ------ ------ ------ Supplemental disclosure: Interest paid $ 838 $ 838 $ 957 Income taxes paid $ 2 $ 1 $ 10 Supplemental schedule of noncash financing activities: Net changes in investments in subsidiaries $2,963 $ 500 $ --
F-25 52 Schedule II BISCAYNE APPAREL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1997, 1996 and 1995 (Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------- COLUMN A | COLUMN B | COLUMN C | COLUMN D | COLUMN E | - ---------------------------------------------------------------------------------------------------------------------------------- Description | Balance at | Additions | Deductions | Balance | | beginning | Charged to Charged to | at end | | of year | costs and other | | of year | | | expenses accounts | | | - ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1997: Allowance for doubtful accounts $ 169 $ 204 $ 205 $ 168 Allowance for sales discounts 96 456 452 100 Reserve for sales allowance 300 566 339 527 Reserve for advertising allowance 123 248 203 168 Reserve for freight and warehouse discounts 105 272 254 123 Reserve for returns 1,225 3,075 3,108 1,192 Year ended December 31, 1996: Allowance for doubtful accounts $ 227 $ 223 $ 44 $ 325 $ 169 Allowance for sales discounts 162 522 -- 588 96 Reserve for sales allowance 404 671 -- 775 300 Reserve for advertising allowance 99 222 -- 198 123 Reserve for freight and warehouse discounts 72 396 -- 363 105 Reserve for returns 1,003 3,875 -- 3,653 1,225 Year ended December 31, 1995: Allowance for doubtful accounts $ 422 $ 400 $(71) $ 524 $ 227 Allowance for sales discounts 156 561 -- 555 162 Reserve for sales allowance 334 371 -- 301 404 Reserve for advertising allowance 97 203 -- 201 99 Reserve for freight and warehouse discounts 15 258 -- 201 72 Reserve for returns 730 2,866 -- 2,593 1,003
F-26 EX-10.1 2 MANAGEMENT AGREEMENT DATED 01/01/98 1 Exhibit 10.1 MANAGEMENT AGREEMENT This Agreement is made and entered into as of January 1, 1998, by and between BISCAYNE APPAREL, INC., a Florida corporation (the "COMPANY"), and TRIVEST, INC., a Delaware corporation or its successors (the "MANAGER"). PRELIMINARY STATEMENTS: A. The Manager and the Company are parties to that certain Amended and Restated Management Agreement, dated as of November 30, 1994, as amended (the "PRIOR AGREEMENT"). B. The Prior Agreement terminated on January 1, 1998 and the Company desires to continue to engage the services of the Manager on the terms and subject to the conditions contained in this Agreement. In consideration of the premises and the respective mutual agreements, covenants, representations and warranties contained in this Agreement, the parties agree as follows: AGREEMENT: 1. CONTINUATION OF MANAGER. The Company continues the engagement of the Manager and the Manager accepts such continuation on the terms and conditions provided in this Agreement as the sole and exclusive manager and consultant of the Company's business, including without limitation, the business of the Company's subsidiaries, as well as any other corporations or entities now existing or hereafter formed or acquired by the Company or any of its subsidiaries to engage in any business. The Manager's duties hereunder shall include, but shall not be limited to, identifying executive personnel for the Company (including a President, a Chief Financial Officer and/or Controller and such additional officers approved by the Board of Directors of the Company (the "BOARD")), whose compensation shall be the responsibility of the Company. 2. BOARD OF DIRECTORS SUPERVISION. The activities of the Manager to be performed under this Agreement shall be subject to the supervision of the Board to the extent required by applicable law or regulation and subject to reasonable policies not inconsistent with the terms of this Agreement adopted by the Board and in effect from time to time. Where not required by applicable law or regulation, the Manager shall not require the prior approval of the Board to perform its duties under this Agreement. 3. AUTHORITY OF MANAGER. Subject to any limitations imposed by applicable law or regulation, the Manager shall render management, consulting and financial services to the Company and its subsidiaries which services shall include advice and assistance concerning any and all aspects of the operations, planning and financing of the Company and its subsidiaries as needed from time to time. In addition, the Manager shall render advice and expertise in connection with an acquisition 2 program for the Company and shall from time to time bring to the attention of the Company and its subsidiaries, such investment and business opportunities as the Manager, in its sole discretion, deems appropriate. 4. REIMBURSEMENT OF EXPENSES; INDEPENDENT CONTRACTOR. All obligations or expenses incurred by the Manager in the performance of its duties under this Agreement shall be for the account of, on behalf of, and at the expense of the Company and/or its subsidiaries, as the case may be. The Manager shall not be obligated to make any advance to or for the account of the Company (or any subsidiary) or to pay any sums, except out of funds held in accounts maintained by the Company (or a subsidiary) nor shall the Manager be obligated to incur any liability or obligation for the account of the Company or any subsidiary without assurance that the necessary funds for the discharge of such liability or obligation will be provided. The Manager shall be an independent contractor, and nothing contained in this Agreement shall be deemed or construed (i) to create a partnership or joint venture between the Company and/or any subsidiary of the Company and the Manager, or (ii) to cause the Manager to be responsible in any way for the debts, liabilities or obligations of the Company or any of its subsidiaries, or any other party, or (iii) to constitute the Manager or any of its employees as employees, officers, or agents of the Company or any of its subsidiaries. 5. OTHER ACTIVITIES OF MANAGER; INVESTMENT OPPORTUNITIES. The Company and its subsidiaries acknowledge and agree that the Manager shall not devote the Manager's (or any employee, officer, director, affiliate or associate of the Manager) full time and business efforts to the duties of the Manager specified in this Agreement, but only so much of such time and efforts as the Manager reasonably deems necessary. The Company and its subsidiaries further acknowledge and agree that the Manager and its affiliates are engaged in the business of investing in, acquiring and/or managing businesses for the Manager's own account, for the account of the Manager's affiliates and associates and for the account of other unaffiliated parties, and plans to continue to be engaged in such business (and any other business or investment activities) during the term of this Agreement. No aspect or element of such activities shall be deemed to be engaged in for the benefit of the Company or any of its subsidiaries nor to constitute a conflict of interest. The Manager shall be required to bring only such investments and/or business opportunities to the attention of the Company and its subsidiaries as the Manager, in its sole discretion, deems appropriate. 6. COMPENSATION OF MANAGER. 6.1 MANAGEMENT FEE. During the term of this Agreement, the Manager will receive annually with respect to the management of the business operations of the Company, a cash consulting and management fee in the amount of $200,000 ("BASE COMPENSATION"). The Base Compensation will be paid to the Manager by the Company in advance in equal quarterly installments. 6.2 ADDITIONAL BUSINESS OPERATIONS. If the Company or its subsidiaries acquire or enter into any additional business operations after the date of this Agreement (each an "ADDITIONAL 2 3 BUSINESS"), the Board and the Manager will, prior to the acquisition or prior to entering into the business operations, in good faith, determine whether and to what extent the Base Compensation should be increased as a result thereof. Any increase will be evidenced by a written supplement to this Agreement signed by the Company and the Manager. 6.3 ADDITIONAL COMPENSATION. As additional compensation, the Manager will be entitled to a one-time fee with respect to the acquisition or disposition of any business operation by the Company or its subsidiaries introduced or negotiated by the Manager or its affiliates or with respect to any other transaction not in the ordinary course of business, including any public or private debt or equity financing or unusual efforts extended or results obtained by the Manager on behalf or for the benefit of the Company or its subsidiaries ("ADDITIONAL INCENTIVE COMPENSATION"). The Additional Incentive Compensation will be paid at the closing of any such transaction. The amount of any Additional Incentive Compensation will be determined through good faith negotiations between the Board and the Manager. If the Board and the Manager are unable to agree upon the amount of Additional Incentive Compensation, the Additional Incentive Compensation amount will be determined by arbitration in Miami, Florida in accordance with the rules of the American Arbitration Association, which determination will be final. The parties will share equally the cost of arbitration. 7. TERM. This Agreement shall commence as of the date hereof and shall remain in effect until December 31, 1998, unless terminated earlier in accordance with the provisions of this Agreement. 8. TERMINATION. 8.1 BY SHAREHOLDER ACTION. The Board may terminate the Manager's engagement under this Agreement at any time upon a majority vote of all of the then outstanding voting shares of capital stock of the Company at the time of such vote (including capital stock held by the Manager, its officers, directors and affiliates, each of whom shall be entitled to vote). 8.2 UPON BREACH. Either the Company or the Manager may terminate the Manager's engagement under this Agreement in the event of the breach of any of the material terms or provisions of this Agreement by the other party, which breach is not cured within 10 business days after notice of the same is given to the party alleged to be in breach by the other party. In the event this Agreement is terminated by the Manager because of the breach of any of the material terms or provisions hereof by the Company, the Manager shall be entitled to recover damages from the Company and shall not be required to mitigate or reduce damages by seeking or undertaking other management arrangements or business opportunities. 9. STANDARD OF CARE. The Manager (including any person or entity acting for or on behalf of the Manager) shall not be liable for any mistakes of fact, errors of judgment, for losses sustained by the Company or any subsidiary or for any acts or omissions of any kind, unless caused by intentional misconduct of the Manager engaged by the Manager in bad faith. 3 4 10. INDEMNIFICATION OF MANAGER. The Company and its present and future subsidiaries agree to indemnify and hold harmless the Manager and its present and future officers, directors, affiliates, employees and agents ("INDEMNIFIED PARTIES") to the fullest extent permitted by corporate law as if any of the Indemnified Parties were an officer or director to the Company and/or its subsidiaries. The Company and its subsidiaries agree to reimburse the Indemnified Parties on a monthly basis for any cost of defending any action or investigation (including attorney's fees and expenses) subject to an undertaking from such Indemnified Party to repay the Company or its subsidiaries if such party is determined not to be entitled to such indemnity. 11. NO ASSIGNMENT. Without the consent of the Manager, the Company shall not assign, transfer or convey any of its rights, duties or interest under this Agreement, nor shall it delegate any of the obligations or duties required to be kept or performed by it hereunder. Without the prior written consent of the Company, the Manager shall not assign, transfer or convey any of its rights, duties or interests under this Agreement, nor shall it delegate any of the obligations or duties required to be kept or performed by the Manager under this Agreement; provided, however, that the Manager may assign its rights, duties, obligations hereunder to any affiliate of the Manager so long as George or Powell are affiliates or executive officers of the assignee. 12. NOTICES. All notices, demands, consents, approvals and requests given by either party to the other hereunder shall be in writing and shall be personally delivered or sent by registered or certified mail, return receipt requested, postage prepaid, to the parties at the following addresses: If to the Company: Biscayne Apparel, Inc. 1373 Broad Street 3rd Floor Clifton, New Jersey 07013 Attention: President If to the Manager: Trivest, Inc. 2665 South Bayshore Drive Suite 800 Miami, Florida 33133 Attention: Chief Executive Officer Any party may at any time change its respective address by sending written notice to the other party of the change in the manner hereinabove prescribed. 13. SEVERABILITY. If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or enforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 4 5 14. NO WAIVER. The failure of the Company or the Manager to seek redress for any violation of, or to insist upon the strict performance of, any term or condition of this Agreement shall not prevent a subsequent act by the Company or the Manager, which would have originally constituted a violation of this Agreement by the Company or the Manager, from having all the force and effect of any original violation. The failure by the Company or the Manager to insist upon the strict performance of any one of the terms or conditions of the Agreement or to exercise any right, remedy or elections herein contained or permitted by law shall not constitute or be construed as a waiver or relinquishment for the future of such term, condition, right, remedy or election, but the same shall continue and remain in full force and effect. Except as the Company's rights of termination are limited herein, all rights and remedies that the Company or the Manager may have at law, in equity or otherwise upon breach of any term or condition of this Agreement, shall be distinct, separate and cumulative rights and remedies and no one of them, whether exercised by the Company or the Manager or not, shall be deemed to be in exclusion of any other right or remedy of the Company or the Manager. 15. ENTIRE AGREEMENT; CERTAIN TERMS. This Agreement contains the entire agreement between the parties hereto with respect to the matters herein contained and supersedes all prior agreements between the parties hereto with respect to such matters. Any agreement hereafter made shall be ineffective to effect any change or modification to this Agreement, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the change or modification is sought. 16. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without reference to the laws of any other state. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly exercised by their authorized representatives as of the date first above written. BISCAYNE APPAREL, INC. By: /s/ Peter Vandenberg, Jr. ---------------------------------- Peter Vandenberg, Jr. President TRIVEST, INC. By: /s/ Earl W. Powell ---------------------------------- Earl W. Powell President and Chief Executive Officer 5 EX-10.25 3 EMPLOYMENT AGREEMENT 1 Exhibit 10.25 LICENSE AGREEMENT HEALTHTEX APPAREL CORP. LICENSOR AND M & L INTERNATIONAL, INC. LICENSEE Distribution and Sale in: United States of America, its territories and possessions and military exchanges Manufacture in: Bangladesh, China, Egypt, Hong Kong, India, Indonesia, Pakistan, Philippines, South Korea, Sri Lanka and Thailand 2 INDEX ARTICLE 1 - Definitions ARTICLE 2 - Trademark License ARTICLE 3 - Trademark Ownership and License Recordation ARTICLE 4 - Infringement by Third Parties ARTICLE 5 - Royalty Fee, Minimum Net Sales and Advertising Expenditure ARTICLE 6 - Accounting and Reporting ARTICLE 7 - Quality Control ARTICLE 8 - Product Approvals and Related Issues ARTICLE 9 - Aid and Assistance; Non-Competition by Licensor ARTICLE 10 - Termination ARTICLE 11 - Products on Hand at Termination and Payments ARTICLE 12 - Records after Termination ARTICLE 13 - Relinquishment of Licensed Matter ARTICLE 14 - Fair Practices ARTICLE 15 - No Joint Venture; Indemnification; Maintenance of Insurance ARTICLE 16 - Binding Nature; Assignment ARTICLE 17 - Notices ARTICLE 18 - Compliance and Operation of Law ARTICLE 19 - Consent to Jurisdiction; Waiver of Jury Trial ARTICLE 20 - Arbitration ARTICLE 21 - Licensor's Representative ARTICLE 22 - Entire Agreement ARTICLE 23 - Term ARTICLE 24 - Governing Law ARTICLE 25 - Confidentiality ARTICLE 26 - Equitable Relief ARTICLE 27 - Prohibition Against Use of Illegal Child Labor and Against Prison or Forced Labor Schedule I - Description of Licensed Products Schedule II - Registered Trademarks Schedule III - Letter to Subcontractor Schedule IV - List of Manufacturers Schedule V - Quality Standards Schedule VI - Approved Distribution Schedule VII - Financial Reporting Forms 3 LICENSE AGREEMENT THIS LICENSE AGREEMENT dated and effective as of November 1, 1997, is made in the State of Delaware by and between: HEALTHTEX APPAREL CORP., a corporation organized under the laws of the State of Delaware, United States of America, with principal offices at 200 Weldin Building, Concord Plaza, 3411 Silverside Road, Wilmington, Delaware 19810, United States of America (hereinafter referred to as "Licensor"); and M & L INTERNATIONAL, INC. a corporation, organized under the laws of the State of Illinois, with principal offices at 1333 North Kingsbury Street, Chicago, Illinois 60622, United States of America (hereinafter referred to as "Licensee"); W I T N E S S E T H : WHEREAS, Licensor, through one or more related companies, is engaged in the business of making, selling and distributing children's apparel, and in connection therewith uses or licenses for use in commerce the trademark HEALTHTEX and other trademarks, all of which are used in the sale of such articles in the United States of America and elsewhere throughout the world; and WHEREAS, Licensee is engaged in the business of making, having made, selling and distributing children's outerwear; and WHEREAS, Licensee desires to acquire from Licensor, and Licensor is willing to grant to Licensee, a license to use the trademark HEALTHTEX in the manufacture, distribution, sale and promotion of children's outerwear, subject to the terms and conditions of this Agreement; 4 NOW, THEREFORE, in consideration of the mutual terms, agreements and conditions herein contained, and for other good and valuable consideration, it is agreed as follows: ARTICLE 1 - DEFINITIONS In this Agreement, the following terms are defined as: 1.1 "Advertising": any and all brochures, catalogs, point-of-sale materials, consumer and trade media, sales promotion and support materials and marketing support funds . 1.2 "Affiliate": any person or entity directly or indirectly controlling, controlled by or under common control with another person or entity. 1.3 "Licensed Products": children's outerwear, more particularly described on Schedule I hereto, bearing the Licensed Trademarks. Such items shall be expressly designed for or selected by Licensee, and approved in writing by Licensor for manufacture by Licensee under this Agreement, such approval to have been received by Licensee before commencement of such manufacture, as specified in the provisions of Article 8 (herein incorporated by reference). 1.4 "Licensed Territory": (a) for the purpose of manufacture, the locations specified in Schedule IV hereto (incorporated herein by reference); (b) for the purpose of distribution and sale, the territory consisting of the United States of America, its territories and possessions and military exchanges. Licensee may expand the territory solely for the purpose of manufacturing Licensed Products only upon Licensor's prior written consent, which shall not be unreasonably withheld or delayed. 1.5 "Licensed Trademarks": Licensor's trademarks enumerated on Schedule II attached hereto and all derivatives based thereon that are created by Licensee. 1.6 "Licensor's Representative": Licensor's Affiliate, Healthtex, Inc. 2 5 1.7 "Termination" of License: extinguishing of this Agreement at any time before its expiration the end of its initial term. ARTICLE 2 - TRADEMARK LICENSE 2.l Licensor is the owner of the trademarks enumerated on Schedule II. Licensor hereby grants to Licensee, subject to the terms and conditions herein contained, the exclusive and non-assignable right and license to use the Licensed Trademarks within the Licensed Territory, upon Licensed Products manufactured, sold and distributed by Licensee in accordance with this Agreement. 2.2 Licensee agrees and undertakes that it will not sublicense the rights herein granted and that it will not, without the prior written consent of Licensor, authorize other persons, firms, corporations or other entities to use any of the Licensed Trademarks (except as provided herein), or any trademarks or trade names confusingly similar thereto. 2.3 All Licensed Products manufactured, sold or distributed by Licensee shall bear one or more of the Licensed Trademarks as prescribed by Licensor. No Licensed Trademark, including specifically the trademark HEALTHTEX, shall be used by Licensee or its third party manufacturers except on and in connection with the Licensed Products. No product bearing a Licensed Trademark shall bear any trademarks or trade names other than Licensed Trademarks except with the prior written authorization of Licensor. Licensee covenants on behalf of itself, its Affiliates and related parties, and such third party manufacturers with which it may contract, that during the term of this Agreement and thereafter it will refrain from using any trademark or trade name confusingly similar to any of the Licensed Trademarks, or confusingly similar to any other trademarks or trade names of Licensor, except upon such terms and conditions as may be approved in advance, in writing, by Licensor. During the term of this Agreement, Licensee shall promptly terminate its manufacturing relationship with any third party manufacturer that uses any trademark or trades names confusingly similar to any of the Licensed Trademarks or confusingly similar to any other trademarks or trade names of Licensor. 3 6 2.4 Licensee shall submit, for prior written approval by Licensor, specimens of all labels and advertising copy that Licensee intends to use in identifying, selling or advertising Licensed Products bearing the Licensed Trademarks. Licensor shall provide Licensee with written notice of approval or disapproval within ten (10) business days from the date that Licensor receives such a request for approval; if no notice of approval or disapproval is provided by Licensor to Licensee, then the request will be deemed to have been disapproved. 2.5 Nothing herein shall entitle Licensee to use the Licensed Trademarks in combination with other marks not owned by Licensor, which Licensee expressly agrees not to do, nor to include any of the Licensed Trademarks in its corporate or trading name irrespective of whether registered or not. During the term of this Agreement, with respect to Licensed Products, Licensee must include on its stationery, business cards, invoices and packing slips and the phrase "Authorized Healthex Apparel Corp. licensee" or such other words to that effect as have been previously approved, in writing, by Licensor. ARTICLE 3 - TRADEMARK OWNERSHIP AND LICENSE RECORDATION 3.1 Licensor at its own cost will, insofar as possible and as reasonably requested by Licensee, register and/or renew relevant trademarks in the Licensed Territory and will cooperate in registering or recording Licensee as a registered user or recorded Licensee of the Licensed Trademarks in the Licensed Territory if appropriate and necessary in Licensor's sole judgment. Licensee agrees to execute and deliver to Licensor such lawful documents as Licensor may request for this purpose. Licensee shall not register or attempt to register any of the Licensed Trademarks or marks similar thereto in its own name or in any other name in or outside the Licensed Territory unless so authorized by Licensor in writing. 3.2 Licensee acknowledges that Licensor is the owner of all the Licensed Trademarks, whether registered or unregistered. All trademarks subsequently adopted and used by Licensee under the provisions of this Agreement shall be deemed to be Licensed Trademarks and owned by Licensor (except as otherwise expressly provided in writing by Licensor). Licensee acknowledges that Licensor is entitled to all of the rights in and to the Licensed Trademarks, including the sole and exclusive right to register said 4 7 trademarks in the Licensed Territory and elsewhere throughout the world, and Licensee shall assist Licensor in so doing at Licensor's expense. 3.3 Licensee further agrees never to contest, deny or dispute the validity of the Licensed Trademarks or Licensor's title therein; agrees never, either directly or indirectly, or in any other way, to encourage or assist others in doing so; and agrees never to take any action of any kind inconsistent with Licensor's holding of all such trademark rights. Nothing in this Agreement shall confer upon Licensee a proprietary interest of any kind in and to any of the Licensed Trademarks or any trademarks or trade names confusingly similar thereto. Any and all use of the Licensed Trademarks by Licensee shall inure to the benefit of Licensor. ARTICLE 4 - INFRINGEMENT BY THIRD PARTIES 4.1 Licensee shall, insofar as possible, report immediately in writing to Licensor any and all infringements of the Licensed Trademarks, or of Licensor's trade names and/or trade dress and any and all attempts by any third party to use, copy, register, infringe upon or otherwise imitate the Licensed Trademarks or Licensor's trade names or trade dress, or any design features of the Licensed Products. 4.2 Except upon the written request and authorization of Licensor, Licensee shall not take any action to prevent infringements, imitation or illegal use of the Licensed Trademarks, trade dress associated with the Licensed Products or trade name of Licensor. However, Licensee shall render to Licensor all assistance reasonably requested, fully and without reservation, in connection with any matter pertaining to protection or enforcement of the Licensed Trademarks before administrative and quasi-judicial agencies and the courts, and shall make available to Licensor, its representatives, agents and attorneys, all of Licensee's records, files and other information pertaining to the Licensed Trademarks, including the purchase, manufacture, sale, distribution and advertising of the Licensed Products sold and distributed under said trademarks. 5 8 4.3 Licensor, at its cost, shall take such steps and institute such legal proceedings as shall be reasonably necessary to protect the Licensed Trademarks and Licensee's license therein as set forth in this Agreement. 4.4 Licensor shall indemnify and defend Licensee and hold it harmless from and against any claims, suits and expenses (including reasonable attorney's fees) arising solely from Licensee's use of the Licensed Trademarks in accordance with the terms of this Agreement on or in connection with Licensed Products sold in the Licensed Territory. Licensor's indemnification and defense obligations are expressly conditioned upon (a) Licensee's giving Licensor prompt written notice of such claim or suit against Licensee after assertion thereof and (b) Licensee's full and prompt cooperation and assistance, to the extent reasonably requested by Licensor, in connection with the defense of such claim or suit. Licensor shall have the right, at its own expense, to undertake and conduct the defense and/or negotiation of any settlement of any such suit or claim. ARTICLE 5 - ROYALTY FEE, MINIMUM NET SALES AND ADVERTISING EXPENDITURE 5.1 In consideration of the licenses herein granted and of the other benefits that accrue to Licensee hereunder, Licensee agrees to use its best commercial efforts to promote the sale of the Licensed Products in the Licensed Territory and Licensee further agrees to pay to Licensor, for use of the Licensed Trademarks, a royalty fee (the "Royalty Fee") or a minimum royalty (the "Minimum Royalty"), whichever is greater, on the Net Sales of Licensed Products sold by Licensee for each period stated below (a "Contract Year") as follows: FIRST CONTRACT YEAR ROYALTY FEE MINIMUM ROYALTY ------------------- ----------- --------------- 11/1/97 - 5/31/99 5% $ 160,000 SECOND CONTRACT YEAR ROYALTY FEE MINIMUM ROYALTY -------------------- ----------- --------------- 6/1/99 - 5/31/00 5% $ 180,000 THIRD CONTRACT YEAR ROYALTY FEE MINIMUM ROYALTY ------------------- ----------- --------------- 6/1/00 - 5/31/01 5% $ 200,000 6 9 Said Royalty Fee shall be calculated on actual Net Sales of Licensed Products. "Net Sales" means (a) the total number of units of Licensed Products sold or otherwise transferred by Licensee to Affiliates or non-Affiliates, multiplied by Licensee's published unit list price (excluding shipping/freight charges separately listed as payable by the customer) charged by Licensee to its customers who are not its Affiliates, LESS (b) trade discounts and allowances given by Licensee and returns. If Licensee's actual price to its non-Affiliate customers is higher than as calculated above, the actual price shall replace the list price in the calculation. Net Sales shall be computed without deducting uncollectible accounts, anticipations or financial discounts and shall include all transactions of Licensed Products distributed by or for Licensee. 5.2 Licensee and Licensor have established the following minimum Net Sales ("Minimum Net Sales") for the sales of Licensed Products in the Licensed Territory: CONTRACT YEAR MINIMUM NET SALES ------------- ----------------- November 1, 1997 - May 31, 1999 $ 4,000,000 June 1, 1999 - May 31, 2000 $ 4,500,000 June 1, 2000 - May 31, 2001 $ 5,000,000 Licensor may terminate this Agreement in accordance with Article 10.1(i) if Licensee fails to achieve Net Sales of at least the Minimum Net Sales for each Contract Year specified above 5.3 With respect to the business done by Licensee under this Agreement, Licensee shall pay said Royalty Fee and Minimum Royalties to Licensor quarter-annually for the quarters ending on the last days of March, June, September and December of each year, payment for each said quarter to be made to Licensor within twenty-five (25) days after the end of the quarter for which such payment is made. On the date payment is due for the last quarter of each Contract Year, Licensee shall also pay to Licensor the deficiency, if any, from the minimum royalty payable for the applicable Contract Year. 5.4 Payment of the Royalty Fee shall be made either by check made payable to Healthtex Apparel Corp., mailed to the address for Licensor set forth in Article 17 or to such other 7 10 address as Licensor may subsequently designate in writing or by wire transfer to Licensor in United States Dollars at the following address: PNC Bank Wilmington, Delaware 19899 ABA No.: 0311-000-89 Credit to: Healthtex Apparel Corp. Account No.: 56-8427-6940 5.5 Time is of the essence with regard to the Royalty Fees and Minimum Royalties due under this Agreement and Licensee shall make each of said payments on time. Each and every late payment shall, for each day the payment is late, bear interest at two percent (2%) over the Morgan Guaranty Trust Company of New York prime rate in effect on the twenty-sixth (26th) day following the quarter for which such payment is due. Licensor shall have the right to terminate this Agreement upon notice to Licensee if Licensee fails to cure a payment default within five (5) business days after receiving written notice of such default from Licensor. 5.6 Licensee agrees to expend each Contract Year in advertising Licensed Products a sum not less than two percent (2%) of its Net Sales thereof, one percent (1%) of which shall be paid directly to Licensor's Representative, which sum shall be expended for advertising, consumer and trade media, production cost, consumer and promotional materials, point-of-sale materials, sales aids and Licensee's share of marketing support funds as approved by Licensor. In trade advertising and under any marketing support fund, Licensee shall closely follow the advertising image and copy concepts indicated by Licensor in advertising its products for sale under the Licensed Trademarks. Licensee is obliged to provide Licensor with proof of performance pursuant to this paragraph for each Contract Year by the twenty-fifth (25th) day following the end of the applicable Contract Year. Licensee also agrees to pay to Licensor's Representative Licensee's proportionate share of expense, as agreed between Licensor's Representative and Licensee, of showroom display and trade show space owned by Licensor's Representative and utilized by Licensee with Licensor's Representative's consent. 8 11 5.7 If Licensor or any of its Affiliates (including VF Factory Outlet, Inc.) wishes to purchase available Licensed Products, Licensee agrees to sell such Products to Licensor or any of its Affiliates at a price equal to the then lowest wholesale price at which Licensee sells such Licensed Products. Licensee shall pay royalties and promotional fees with respect to such sales. 5.8 Termination or expiration of this Agreement for any reason whatsoever shall not relieve Licensee of its accrued payment obligations or such obligations incurred by sale of Licensed Products after the effective date of such termination or expiration. ARTICLE 6 - ACCOUNTING AND REPORTING 6.1 Licensee shall submit to Licensor's Representative an Annual Marketing Plan in the format approved by Licensor's Representative within sixty (60) days of the execution of this Agreement and at least sixty (60) days before the start of each Contract Year thereafter. 6.2 Licensee shall keep a true and accurate account of all Licensed Products manufactured, ordered, received, sold and distributed under this Agreement, and render to Licensor a just and true account in writing, sworn to and verified by an officer of Licensee, specifying: (a) the number of Licensed Products manufactured by or for Licensee in the preceding three (3) month period, (b) the number of such Licensed Products distributed or sold in said three (3) month period and (c) the list prices and sales prices of all such Licensed Products, within twenty-five (25) days of the last day of March, June, September and December (the "Quarterly Sales Report"). 6.3 The Quarterly Sales Report shall be submitted by Licensee to Licensor in the format prescribed by Schedule VII. Said Quarterly Sales Report shall be sent to: Chief Accountant Healthtex Apparel Corp. 200 Weldin Building Concord Plaza 3411 Silverside Road Wilmington, Delaware 19810 9 12 with a copy to: Anne Garvey, Licensing Director Healthtex, Inc. 2303 West Meadowview Road Suite 200, Kinston Building Greensboro, North Carolina 27407 6.4 Licensee shall submit to Licensor monthly sales reports, in the format and containing the information prescribed in Schedule VII, within fifteen (15) days after the first (1st) day of each month of each calendar year (the "Monthly Sales Report"). Licensee shall also submit such other reports, as specified by Licensor and within a reasonable time after Licensor so specifies, as will enable Licensor to evaluate the success of Licensee's marketing , sales and activities relating to this Agreement. Such reports shall be sent to the addresses set forth in Article 6.3. 6.5 Licensor, its agents, attorneys and accountants shall have the right to audit and investigate once each calendar year during normal business hours, at Licensor's expense, the books, accounts, audits, and other things and matters showing or reflecting all business conducted by Licensee pertaining to the manufacture, sale or distribution of the Licensed Products under this Agreement. In the event that an audit of Licensee's books and records reveals that Licensee's Royalty Fees were underpaid by an amount equal to five percent (5%) or more in any year, Licensee shall bear Licensor's reasonable direct costs of said audit. Licensee shall provide Licensor annually with audited financial statements of Licensee as soon as possible, and in any event within ninety (90) days, after the close of Licensee's fiscal year. In the absence of actual fraud by Licensee, all reports shall become final two (2) years after they are submitted to Licensor. ARTICLE 7 - QUALITY CONTROL Licensee further covenants and agrees as follows: 7.1 Licensee may have Licensed Products manufactured for it by third party manufacturers for sale only within the Licensed Territory. For purposes of this Agreement, "third party manufacturers" shall mean such manufacturers as are listed on Schedule IV. No changes 10 13 may be made to Schedule IV without the prior written approval of Licensor. The third party manufacturers shall be subject to the quality control requirements stipulated in this Article 7. For purposes only of understanding reference to "manufacture," "manufacturing" and "manufactured" as these words may be used hereafter in this Agreement, Licensed Products made for Licensee by third party manufacturers in accordance herewith shall be deemed manufactured by Licensee. Not less than ten (10) days prior to engaging any third party manufacturer, Licensee shall advise Licensor of the specific Licensed Products to be so manufactured. Licensee shall provide Licensor with the name and address of such manufacturer, and shall cause such manufacturer to execute ANNUALLY, in duplicate, a letter agreement in the form set forth in Schedule III, shall forthwith provide a duplicate original thereof to Licensor by registered or certified mail, and shall guarantee such manufacturer's compliance with the quality standards of Licensor and the terms of such letter agreement. Licensee shall strictly prohibit any such third party manufacturer from sub-contracting the manufacture of Licensed Products. Licensee shall remain primarily and completely responsible to Licensor for the acts of such third party manufacturers under all of the provisions of this Agreement and the acts of such third party manufacturers shall be deemed to be the acts of Licensee. To the extent requested by Licensor, Licensee shall assist representatives of Licensor in visiting and inspecting such third party manufacturers from time to time. Licensee further covenants to obtain in writing from any such manufacturers, undertakings in form satisfactory to Licensor, regarding the disposition of unused branded materials and defective finished products to Licensee. Licensee shall, upon request of Licensor, cease using any third party manufacturer whose activities would be in violation of any of the terms of this Agreement or the provisions of Schedule III, whether or not such third party manufacturer has actually executed a letter in the form of Schedule III. Upon the request of Licensor, Licensee shall take reasonable action in conjunction with Licensor against any such manufacture that violates the provisions of this Agreement or of Schedule III. 7.2 All Licensed Products manufactured by or for Licensee and sold or distributed by Licensee under the Licensed Trademarks shall conform to the standards set forth in Schedule V and shall as all times be at least equal in quality to the quality of children's apparel manufactured, sold and distributed by Licensor's Representative in the United States of America under the trademarks licensed herein. Licensor, its agents, attorneys 11 14 and representatives are hereby authorized, at any reasonable time during normal working hours, to inspect the physical manufacturing and storage facilities used by Licensee or under its direction to ascertain whether such products conform to Licensee's standards of quality. Repeated failure on the part of Licensee to meet Licensor's quality standards shall be grounds for Licensor to terminate this Agreement by giving Licensee written notice of termination under the provision of Article 10.1(b). 7.3 Licensee shall at all times keep Licensor currently informed as to the price and discount structure employed by Licensee in the sale of Licensed Products under this Agreement. Licensee's prices of Licensed Products shall be made official by the publication of a price list (or lists), and each such price list shall be submitted to Licensor in advance of publication. 7.4 Licensee agrees to sell its production of Licensed Products under the Licensed Trademarks directly to approved retailers and approved wholesalers for resale within the Licensed Territory only. Licensee shall send written notice to all approved wholesalers, with a copy of such notice to Licensor, advising them of the Licensed Territory. Retail and wholesale outlets approved as of the date of this Agreement are listed on Schedule VI. Schedule VI may be amended from time to time by Licensor upon fifteen (15) business days' written notice to Licensee. 7.5 Licensee shall not, during the term of this Agreement or thereafter, manufacture, have manufactured, sell or distribute the Licensed Products outside the Licensed Territory, nor shall Licensee sell Licensed Products to any person who it knows, should know, has reason to believe or should have reason to believe intends to export Licensed Products outside the Licensed Territory. 7.6 Licensee agrees to mark each Licensed Product manufactured by it with the country of origin permanently affixed at the time of manufacture to each Licensed Product. Country of origin shall be affixed to all Licensed Products regardless of the country in which the Licensed Product will be sold. Licensee warrants that the genuine and true origin of all merchandise subject to this Agreement will be the origin as stated on invoice, visa, country of origin declaration or other document made in conjunction with the importation 12 15 of the merchandise into the United States of America, and further warrants that no shipment has been or will be illegally transshipped from any other country. 7.7 Solely for the benefit of Licensor, Licensee shall guarantee to its ultimate consumer the quality, materials and workmanship of the Licensed Products sold under the provisions of this Agreement. If the ultimate consumer is dissatisfied with any such product and Licensee fails to make an adjustment satisfactory to such consumer, Licensor may at its option either replace the product at Licensee's expense and without cost to the purchaser or refund the purchase price and charge Licensee for such refund. 7.8 Licensee agrees not to sell more than ten percent (10%) of its annual sales volume as branded seconds or irregulars bearing the Licensed Trademark. Licensee has the option to re-label such products and remove all Licensed Trademarks prior to sale. ARTICLE 8 - PRODUCT APPROVALS AND RELATED ISSUES Licensee and Licensor agree to the following with respect to Licensor's rights of approval of the product to be developed, manufactured and marketed by Licensee: 8.1 On or before November 1st of each year, Licensee shall provide to Licensor its annual product planning calendar for the forthcoming year. This annual product planning calendar will indicate the dates by which Licensor is required to approve or disapprove any item which is to be included in the relevant product line. In no event will such date be less than seven (7) business days from the date on which Licensor is provided with product samples. In the event that Licensee submits additional product samples at a time which is outside the submitted product planning calendar, then Licensor will have seven (7) business days from the date on which Licensor is provided with product samples to approve such product. Approval or disapproval shall be at Licensor's discretion and any product on or in connection with which the Licensed Trademarks are to be used that is not approved by Licensor in writing shall be deemed unlicensed and shall not be manufactured or sold. If the product to be produced by Licensee is a simple extension of previously approved products, (i.e., the pattern, fabric, threads, buttons, embroidery, colors and material components have all been previously approved by Licensor for use in 13 16 Licensed Products), then no additional approvals will be required. For purposes of this Agreement, "product planning" shall include the review of current in-line products. After approval has been given, Licensee shall provide to Licensor, at no cost to Licensor, one (1) production sample from the first production run. Licensee shall also from time to time apply to Licensor for approval of concepts and designs for Licensed Product to be manufactured hereunder. Such approval shall not be unreasonably withheld. 8.2 If any Licensed Product to be included in the product line is to include "innovative" elements or components, Licensor shall have the right to require the testing of the Licensed Product and/or the innovative element or component. For purposes of this Agreement, "innovative" elements or components is defined as those elements or components that have not previously been used in the manufacture of items comparable to the Licensed Products. 8.3 Licensor shall have the right to approve the items set forth below, with respect to the Licensed Products to be developed, manufactured and marketed by Licensee. Licensor shall provide written notice of approval or disapproval to Licensee within ten (10) business days from the date that Licensor receives such a request for approval; if no notice of approval or disapproval is provided by Licensor to Licensee, such request will be deemed to have been disapproved: (a) Retail outlets, in addition to those listed on Schedule VI (as may be amended from time to time), that will purchase Licensed Products directly from Licensee or its manufacturing sources; (b) Wholesale distributors, in addition to those listed on Schedule VI (as may be amended from time to time), that will purchase licensed products directly from Licensee or its manufacturing sources; (c) Point of purchase displays; (d) Advertising, as more fully described in Article 5; 14 17 (e) Any and all methods of distribution to be used by Licensee in order to dispose of manufacturers' "seconds" and "irregulars" and any product overruns that are to be disposed of outside previously approved retail or wholesale distribution outlets. Licensee may dispose of seconds, irregulars and overruns outside the Licensed Territory provided all trademarked labels, hang tags and HEALTHTEX adornments are completely removed. The neck labels of all "irregulars" must be stamped "irregular"; and (f) The labels, hang tags and other packaging to be included with or on the Licensed Products. 8.4 Licensee warrants that each Licensed Product and component thereof shall comply with all applicable laws, regulations and voluntary industry standards and shall conform to the samples thereof approved by Licensor. ARTICLE 9 - AID AND ASSISTANCE; NON-COMPETITION BY LICENSOR 9.1 So long as this Agreement remains in full force and effect, Licensor agrees to provide to Licensee available material and information on merchandising, planning of Licensor's products, including colors, merchandising, sales promotion and advertising, as appropriate to Licensed Products. 9.2 So long as Licensee is not in default under this Agreement, Licensor agrees not to sell or distribute Licensed Products bearing its trademark HEALTHTEX or any other trademark licensed under this Agreement within the Licensed Territory. ARTICLE 10 - TERMINATION 10.1 In addition to the provisions contained in Article 5.5 for the termination of this Agreement, this Agreement may be terminated as follows: (a) If, at any time during the term of this Agreement, either party thereto is unable to pay its debts when due, becomes insolvent, or there is filed by or against it in any 15 18 court a petition for bankruptcy , insolvency, reorganization, or the appointment of a receiver or trustee for all or a portion of its property; or if either party makes an assignment for the benefit of creditors, this Agreement may be canceled and terminated at the option of the non-acting party upon written notice to the acting party; such cancellation to be effective immediately if the act giving rise to cancellation be voluntary; otherwise such cancellation to be effective upon adjudication of bankruptcy or insolvency or upon a court of competent jurisdiction taking and retaining jurisdiction over the acting party and/or its assets for a period of sixty (60) days or more; (b) Except as to a monetary default, which shall be governed by Article 5.5, by either party by giving thirty (30) days' written notice to the other party for any breach or default by the other party in its obligations under this Agreement, such termination to be effective unless the other party remedies the breach or default specified in the notice before the end of such thirty (30) days; (c) By Licensor by giving thirty (30) days' written notice if there is a change in control of Licensee by way of merger, sale of assets or stock, consolidation or otherwise unless such change has been approved in writing by Licensor; (d) By Licensor upon written notice to Licensee if production samples submitted by Licensee fail to meet Licensor's quality standards for three (3) consecutive months; (e) By Licensor upon written notice to Licensee if Licensee discontinues manufacture, distribution, product development or sale of the Licensed Products for any three (3) consecutive months during the term of this Agreement; (f) By Licensor upon written notice to Licensee if Licensee fails to submit reports as and when due under paragraph 6.4 on three (3) or more consecutive occasions; (g) By Licensor upon written notice to Licensee if Licensee exhibits a pattern of failing to make "timely delivery" of sufficient quantities of the Licensed Products 16 19 to its retail accounts. For purposes of this provision, "timely delivery" means 75% of deliveries (by volume) are made within customer delivery windows, excluding cancellations prior to the expiration of the delivery window; (h) By Licensor upon written notice to Licensee should Licensee become an Affiliate of any competitor of Licensor or Licensor's Representative without Licensor's prior written approval; (i) By Licensor, upon written notice to Licensee, if Licensee does not achieve the Minimum Net Sales for any Contract Year. If, however, Licensee shall develop and submit to Licensor, simultaneously with the submission of the Annual Marketing Plan for a Contract Year, (a) an explanation of why the Minimum Net Sales were not attained for the prior Contract Year and (b) a plan of action as to how the Minimum Net Sales for the current Contract Year will be achieved, which explanation and plan are accepted by Licensor in its sole discretion, the default shall be waived; or (j) By Licensor should there occur any change of corporate control or ownership of a majority interest in Licensor or Licensor's Representative, by way of merger, sale or consolidation. In addition to Licensor's other rights and remedies hereunder, at law or inequity, upon termination of this Agreement by Licensor pursuant to Article 5.5 hereof or clauses (a) and (b) and (d) through (i) above, Licensee shall pay to Licensor, within thirty (30) days of such termination of this Agreement, the total Minimum Royalties that would have been payable over the remaining term of this Agreement had such termination not occurred. 10.2 At any time within six (6) months before the date of termination of this Agreement, Licensor may appoint a new Licensee or distributor for the Licensed Products in the Licensed Territory. Licensor directly or its newly appointed Licensee or distributor may sell Licensed Products in the Licensed Territory at any time within six (6) months of the date of expiration for shipment subsequent to the date of expiration. 17 20 10.3 Failure of either party to exercise any right or option to terminate this Agreement shall not constitute a waiver of such right or any other right. ARTICLE 11 - PRODUCTS ON HAND AT TERMINATION AND PAYMENTS 11.1 Termination or cancellation or expiration of this Agreement for any reason shall not relieve Licensee of its obligation to pay to Licensor the Royalty Fee specified in Article 5.1 with respect to Licensed Products manufactured and/or sold by Licensee prior to such termination or cancellation. Licensee further agrees to pay Licensor, at the same royalty rate in effect at the date of termination, for all Licensed Products sold by Licensee after termination of this Agreement that Licensee has on hand or are in process of manufacture at the effective date of termination of this Agreement. For Licensed Products sold after the termination or cancellation of this Agreement, Royalty Fees shall be payable not later than the twenty-fifth (25th) day after the end of the month in which the Licensed Products were sold. 11.2 Within twenty (20) days after termination of this Agreement, Licensee shall provide Licensor with a complete inventory of all remaining Licensed Products and all Licensed Products on order from third party manufacturers, as well as the anticipated delivery date(s) thereof. Licensor shall have the right to purchase all or any portion of Licensee's remaining inventory of Licensed Products at a price equal to seventy percent (70%) of Licensee's list price, in which case no Royalties thereon shall be payable. Such right shall be exercisable by giving written notice to Licensee within ten (10) business days after Licensor receives Licensee's inventory listing. Such purchase shall be completed and the purchase price for the inventory Licensor elects to purchase shall be paid within ten (10) business days after Licensor exercises its purchase option. 11.3 To the extent that Licensor does not exercise its right to purchase Licensee's remaining inventory, Licensee shall have six (6) months from the date of termination of this Agreement in which to sell unsold Licensed Products through previously approved retail and wholesale distribution outlets only. As to any Licensed Products on order on the date of termination, Licensee shall have six (6) months from the last date on which such Licensed Products are received in which to sell such goods through previously-approved 18 21 retail and wholesale distribution outlets only. However, such six (6) month sell-off periods shall be available to Licensee if, and only if, (a) Licensee has paid all Royalty Fees and Minimum Royalties and all plans and reports in accordance with Articles 5 and 6, and (b) an audit during the current Contract Year in accordance with the terms of Article 6.5 has been completed by or on behalf of Licensor to its satisfaction. ARTICLE 12 - RECORDS AFTER TERMINATION Upon termination or expiration of this Agreement, Licensee agrees to permit Licensor, its agents, attorneys and accountants to inspect, upon reasonable notice, the records and books of account of Licensee referred to in Article 6.5, and to investigate generally all business transactions carried on by Licensee under and pursuant to this Agreement from time to time for a period of twelve (12) months following the last sale of Licensed Products, and Licensee agrees not to destroy any of such records prior to the expiration of said twelve (12) months. ARTICLE 13 - RELINQUISHMENT OF LICENSED MATTER 13.1 At the expiration or termination of this Agreement for any reason, Licensee shall not have acquired and will not claim any right to use the trademark HEALTHTEX or any other trademark licensed hereunder, or any other trademark of Licensor, or any trade name containing the term HEALTHTEX or any part thereof, and Licensee agrees that it will not thereafter use or adopt any such trademark or trade name or any related trade dress, or any trademark, trade name, or trade dress confusingly similar thereto. Licensee further agrees that, after termination or expiration of this Agreement, except as provided in Article 11, it will refrain from using any trade dress or distinctive features of the Licensed Products' labeling or design theretofore employed by Licensee in carrying out the provisions of this Agreement. 13.2 Further, upon expiration or termination of this Agreement for any reason whatsoever, Licensee shall return to Licensor any and all materials furnished to Licensee by Licensor (including, but not limited to, promotional and product development materials), as such material remains the property of Licensor. 19 22 ARTICLE 14 - FAIR PRACTICES Licensor and Licensee each covenants and agrees that during the term of this Agreement or thereafter it will not encourage, induce or assist any third party in doing any act or thing which, were it done by Licensor or Licensee, as applicable, would be contrary to the provisions of this Agreement. ARTICLE 15 - NO JOINT VENTURE; INDEMNIFICATION; MAINTENANCE OF INSURANCE 15.1 This Agreement shall not in any way be deemed or construed to establish any relationship between the parties by way of agency, distributorship, partnership or joint venture. Neither party will nor will have the authority, directly or indirectly, to contract or purport to contract any bills or other obligations of any kind in the name of, or chargeable against the other party, its agents or employees, or in any way, directly or indirectly, involve the other party in any expense or liability. 15.2 Except for claims for which Licensor is obligated to indemnify Licensee under Article 4.4, Licensee shall indemnify, defend, and hold harmless Licensor, its officers, directors, affiliates, employees and agents from any and all claims, liabilities and expenses which may be imposed or sought to be imposed upon it or them by virtue of any representation, act or agency, made by or on the part of Licensee or any of Licensee's agents or employees including, without limitation, any of the foregoing arising out of any defect (whether obvious or hidden and whether or nor present in any sample approved by Licensor) in a Licensed Product, or any packaging or promotional materials or arising from personal injury or from any failure on the part of Licensee or its agents or affiliates to comply with applicable laws, regulations and standards. Any and all such claims made or suits brought by anyone in connection with the products manufactured by Licensee under this Agreement shall be the sole responsibility of Licensee, and Licensor shall be held harmless by Licensee in all respects from any and all loss, damage, expense, claim or liability of any kind by reason thereof, including reasonable attorney's fees. In the event that a judgment, levy, attachment or other seizure is entered against Licensor arising from any claim as to which indemnification is provided hereunder, Licensee shall promptly post the necessary bond to prevent execution against any property of Licensor. 20 23 The provisions of this Article 15.2 shall survive termination or expiration of this Agreement. Licensor will endeavor to give Licensee prompt written notice of any claim or suit which may give rise to a claim for indemnification hereunder. 15.3 Licensee shall procure and maintain in full force and effect, at its sole cost and expense, at all times during which Licensed Products are being sold and for three (3) years thereafter, a product liability insurance policy (on an occurrence rather than a claims-made basis) with respect to the Licensed Products with a limit of liability of not less than $5,000,000. Such insurance policy shall include Licensor as an additional insured thereunder and shall provide for at least thirty (30) days' prior written notice to Licensor of the cancellation or substantial modification thereof. Such insurance may be obtained by Licensee in conjunction with a policy of products liability insurance which covers products other than the Licensed Products. Licensee will deliver a certificate of such insurance to Licensor promptly upon issuance of said insurance policy and shall, from time to time upon reasonable request by Licensor, promptly furnish to Licensor evidence of the maintenance of said insurance policy. Nothing contained in this Article 15.3 shall be deemed to limit in any way the indemnification provisions of Article 15.2. ARTICLE 16 - BINDING NATURE; ASSIGNMENT This Agreement is binding upon and for the benefit of Licensee and Licensor, their respective legal successors and permitted assigns. The rights and license given to Licensee by this Agreement are strictly personal. Neither this Agreement nor any interest in it may be transferred, pledged, mortgaged or hypothecated by Licensee (including by assignment, sublicense, operation of law or otherwise) without the prior written consent of Licensor. Any attempted assignment, sublicense, transfer, encumbrance or other disposal without such consent shall be void and shall constitute a material default of this Agreement. Nothing herein shall be deemed to prevent or restrict Licensor's ability to sell, transfer or assign the Licensed Trademarks or this Agreement to any party, subject only to Licensee's rights to continue use thereof as provided herein, subject to the terms and conditions of this Agreement in all respects. 21 24 ARTICLE 17 - NOTICES All notices given or required to be given hereunder shall be deemed to be given and received (a) as of the date sent if sent by telecopier, promptly confirmed by United States registered mail, postage paid, return receipt requested, or (b) three (3) business days after being sent by United States registered mail, postage paid, return receipt requested and addressed as follows: LICENSOR: Healthtex Apparel Corp. 200 Weldin Building Concord Plaza 3411 Silverside Road Wilmington, Delaware 19810 Telephone: 302/477-3930 Fax: 302/477-3932 with a copy to: Anne Garvey, Licensing Director Healthtex, Inc. 2303 West Meadowview Road Suite 200, Kinston Building Greensboro, North Carolina 27407 LICENSEE: M & L International, Inc. 1333 North Kingsbury Street Chicago, Illinois 60622 Telephone: 312/944-3800 Fax: 312/944-3895 unless another address for either party is substituted by prior written notice. ARTICLE 18 - COMPLIANCE WITH AND OPERATION OF LAW 18.1 Licensee shall comply in all material respects with all applicable laws, rules and regulations. Licensee shall use all reasonable efforts to determine that each manufacturer of Licensed Products complies in all material respects with all applicable laws, rules and regulations, including applicable wage, hour, child labor and other employment laws and shall deal only with manufacturers who so comply and shall, from time to time as requested by Licensor, certify that to the best of Licensee's knowledge, after reasonable inquiry, such is the case. 22 25 18.2 Nothing in this Agreement shall require, encourage or oblige a party to perform any act or make any payment which is illegal or in contravention of any applicable statute, law or regulation. 18.3 If any provision of this Agreement is in violation of the present or future law of any relevant jurisdiction in such a way that it is void or voidable, the validity of the remaining provisions shall not be affected thereby unless such invalidity is of an essential and material part of this Agreement, in which event either party shall have the right to terminate this Agreement. ARTICLE 19 - CONSENT TO JURISDICTION: WAIVER OF JURY TRIAL 19.1 Licensee hereby irrevocably submits to the jurisdiction of any Delaware state court sitting in Wilmington, Delaware or the United States District Court for the District of Delaware over any action or proceeding arising out of or relating to this Agreement. Service of process in any such action or proceeding arising out of or relating to this Agreement may be made to Licensee by mailing or delivering a copy of such process to Licensee at Licensee's address as specified in Article 17 hereof. Nothing in this Article 19 shall affect the right of Licensor to serve legal process in any other manner permitted by law or affect the right of Licensor to bring any action or proceeding against Licensee or its property in the courts of any other jurisdictions. 19.2 Licensee hereby irrevocably agrees that any action or proceeding arising out of or relating to this Agreement may be brought against Licensor solely in Delaware state court sitting in Wilmington, Delaware or the United States District Court for the District of Delaware. 19.3 LICENSEE AND LICENSOR HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER AGREEMENT, INSTRUMENT OR OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH. 23 26 ARTICLE 20 - ARBITRATION At the election of Licensor, any controversy or claim arising out of or relating to this Agreement, or the breach thereof, except any claim or controversy relating to the performance of a third party manufacturer, may be finally settled by arbitration before three (3) arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). Each party to this Agreement shall appoint one (1) arbitrator, and a third shall be appointed by agreement of the named arbitrators. If any party fails to appoint an arbitrator within thirty (30) days after demand for arbitration is filed with the AAA, or if the named arbitrators are unable to agree on the appointment of a third arbitrator within sixty (60) days after the first two arbitrators have been appointed, the AAA shall select such unnamed or unappointed arbitrators in accordance with its standard procedures. Arbitration shall be conducted in the English language at Wilmington, Delaware. The award of the arbitrators shall be final and enforceable, and judgment upon any award rendered thereby may be entered in any Court having jurisdiction, or application may be made to such Court for a judicial acceptance of the award and an order of enforcement, as the case may be. Anything herein to the contrary notwithstanding, the arbitration provided for herein shall in no way limit, affect, hinder or become a precondition to or a qualification upon the rights of either party hereto to obtain immediate equitable relief to which it may be entitled. ARTICLE 21 - LICENSOR'S REPRESENTATIVE Licensor has appointed Licensor's Representative to perform Licensor's rights and obligations under Articles 2.4, 7, 8, 9, and 21 of this Agreement, and Licensee shall cooperate with Licensor's Representative under this Agreement with respect to such Articles and otherwise as Licensor may direct from time to time. ARTICLE 22 - ENTIRE AGREEMENT This Agreement constitutes the entire Agreement between the parties hereto, relating to the subject matter hereof, and supersedes any prior agreement or understanding. There are no terms, obligations, covenants, representations, statements or conditions other than those 24 27 contained herein. No variation or modification of this Agreement nor waiver of any of the terms and provisions hereof shall be deemed valid unless in a writing signed by both parties hereto. ARTICLE 23 - TERM 23.1 This Agreement shall be effective as of November 1, 1997, and shall expire on May 31, 2001, unless sooner terminated as herein provided. 23.2 If Licensee has complied in all material respects with the terms of this Agreement, and if its Net Sales of Licensed Products are in excess of $5,000,000 for the third Contract Year of this Agreement, Licensee may request that Licensor renew this Agreement for a single additional period of three (3) years commencing June 1, 2001, and terminating May 31, 2004 (the "Renewal Term"), with a royalty rate not to exceed eight percent (8%) a year, upon terms and conditions to be set by Licensor. Such request must be made in writing on or before January 1, 2001. ARTICLE 24 - GOVERNING LAW This Agreement shall be governed and construed in accordance with the internal laws of the State of Delaware, United States of America, without regard to its provisions governing conflicts of law. ARTICLE 25 - CONFIDENTIALITY Each party hereto agrees that the terms of this Agreement will be kept confidential by it and its representatives (which term shall include its directors, members, officers, employees, agents, banks, advisors, and in the case of Licensee, factors). Each party shall be responsible for any breach of this agreement of confidentiality by it or its representatives, and the other party shall be entitled to directly enforce such agreement. The foregoing to the contrary notwithstanding, disclosure of this Agreement may be made in a public announcement or filing with the Securities and Exchange Commission or a national securities exchange if and to the extent, in the written opinion of either party's counsel, such disclosure is required. 25 28 ARTICLE 26 - EQUITABLE RELIEF Licensee acknowledges that Licensor will have no adequate remedy at law if Licensee continues to manufacture, sell, advertise, promote or distribute the Licensed Products upon the expiration or termination of this Agreement. Licensee acknowledges and agree that, in addition to any and all other remedies available to Licensor, Licensor shall have the right to have any such activity by Licensee restrained by equitable relief, including, but not limited to, a temporary restraining order, a preliminary injunction, a permanent injunction, or such other alternative relief as may be appropriate, without the necessity of posting any bond. ARTICLE 27 - PROHIBITION AGAINST USE OF ILLEGAL CHILD LABOR AND AGAINST USE OF PRISON OR FORCED LABOR Licensee warrants that it and, to the best of its knowledge after reasonable investigation, each manufacturer, vendor or supplier utilized by Licensee in connection with the manufacture of Licensed Products, is in compliance with and will remain in compliance with all applicable laws governing the use of child labor and the importation of merchandise produced with child labor into the Licensed Territory. Licensee also warrants that to the best of its knowledge after reasonable investigation, no prison or forced labor is utilized in the production of any of the Licensed Products. Licensee shall certify to Licensor from time to time upon request its continued compliance with the terms of Article 18.1 and this Article 27. 26 29 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers in two (2) or more counterparts, each of which shall for all purposes be deemed an original, as of the day and year first above written. LICENSOR HEALTHTEX APPAREL CORP. By: /s/ Sharon A. Beard ------------------------------ Title: Authorized Signatory ---------------------------- Date: February 11, 1998 ---------------------------- LICENSEE M & L INTERNATIONAL, INC. By: /s/ Kurt C. Gutfreund ------------------------------ Title: President ---------------------------- Date: February 10, 1998 ---------------------------- 27 EX-10.27 4 1ST. AMENDMENT TO EMPLOYMENT AGREEMENT 1 Exhibit 10.27 M & L INTERNATIONAL INC. 1333 NORTH KINGSBURY ST. CHICAGO, IL 60622 February 4, 1998 Mr. Kurt C. Gutfreund President and Chief Executive Officer M&L International, Inc. 1333 North Kingsbury St. Chicago, IL 60622 Re: First Amendment to Employment Agreement Dear Kurt: Reference is made to the Employment Agreement, dated as of November 30, 1994, between M&L International, Inc., an Illinois corporation (the "COMPANY") and yourself (the "EMPLOYMENT AGREEMENT"). Except as set forth herein, capitalized terms used in this letter agreement have the meanings ascribed to them in the Employment Agreement. This letter agreement shall be deemed to be a Written Supplement contemplated by Section 2.2 of the Employment Agreement and shall otherwise amend the Employment Agreement as set forth herein. 1. The Initial Term and your employment under the Employment Agreement are hereby renewed and extended for a three-year period commencing January 1, 1998 and terminating December 31, 2000. 2. Your Base Salary shall be as follows for the periods set forth below: 1/1/98 - 12/31/98 $330,000 1/1/99 - 12/31/99 $340,000 1/1/00 - 12/31/00 $350,000 3. Section 5.6 of the Employment Agreement is hereby deleted in its entirety. 4. The definition of "NONCOMPETITION PERIOD" appearing in the last sentence of Section 6.1 of the Employment Agreement is hereby modified by (i) DELETING clause (b) thereof, (ii) REDESIGNATING clause (c) thereof as clause (b) and (iii) DELETING clause (a) thereof and SUBSTITUTING the following clause (a) in its place: 2 Kurt C. Gutfreund February 4, 1998 Page 2 "(a) in the event the Executive's employment is terminated pursuant to Section 5.4, a period of six months following the effective date of such termination, unless the Company shall specify a longer period in its notice of termination to the Executive (PROVIDED, HOWEVER, that any such longer period shall not exceed a period of six months)..." 5. The first sentence of Section 5.4 of the Employment Agreement is hereby DELETED and the following sentence is SUBSTITUTED in its place: "The Company shall have the right at any time to terminate the Executive's employment hereunder without cause upon at least 90 days' prior written notice to the Executive, PROVIDED, HOWEVER, that the Company shall pay to the Executive (i) on the effective date of termination specified in the notice, any unpaid Base Salary accrued through the effective date of termination, (ii) his then-effective Base Salary, in equal installments consistent with the Company's normal payroll practices, from the termination date until the end of the Non-Competition Period, and (iii) in accordance with Section 3.2(b), an amount equal to any earned but unpaid Incentive Compensation payable with respect to the prior calendar year plus the Incentive Compensation, if any, payable in respect of the calendar year in which such termination occurs, prorated for the period of service by the Executive from the beginning of such year through the date of termination." If the foregoing accurately reflects our agreement with respect to the foregoing modification to the Employment Agreement, kindly sign the duplicate copy of this letter agreement enclosed herewith and return it to me. Sincerely, /s/ Peter Vandenberg, Jr. ------------------------------- Peter Vandenberg, Jr. Vice President ACCEPTED AND AGREED: /s/ Kurt C. Gutfreund - --------------------------- KURT C. GUTFREUND EX-10.30 5 2ND AMEND. TO 2ND AMENDED & RESTATED CREDIT AGRMT. 1 Exhibit 10.30 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "SECOND AMENDMENT") dated as of February 18, 1998 among BISCAYNE APPAREL, INC., BISCAYNE APPAREL INTERNATIONAL, INC. MACKINTOSH OF NEW ENGLAND CO. AND M & L INTERNATIONAL, INC. (individually, each a "BORROWER" and collectively, the "BORROWERS" and individually, each a "GUARANTOR" and collectively, the "GUARANTORS"), THE CHASE MANHATTAN BANK, CORESTATES BANK, N.A., BANKBOSTON, N.A. (formerly known as The First National Bank of Boston), FLEET BANK N.A. and MILBERG FACTORS, INC. (individually, each a "LENDER" and collectively, the "LENDERS"), THE CHASE MANHATTAN BANK, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT") and MILBERG FACTORS, INC., as servicing agent for the Lenders (in such capacity, together with its successors in such capacity, the "SERVICING AGENT" and together with the Agent, the "AGENTS"). PRELIMINARY STATEMENTS: WHEREAS, the Borrowers, the Guarantors, the Lenders and the Agents have entered into a Second Amended and Restated Credit Agreement and Guaranty dated as of March 24, 1997, as amended by a First Amendment, dated as of May 22, 1997 (as so amended, the "CREDIT AGREEMENT"); and WHEREAS, the terms defined in the Credit Agreement are used in this Second Amendment as in the Credit Agreement unless otherwise defined in this Second Amendment; NOW, THEREFORE, the Borrowers, the Lenders and the Agents have agreed to amend certain provisions of the Credit Agreement as hereinafter set forth. SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (a) The definition of "Andy Johns" is hereby amended in its entirety as follows: "'Andy Johns' means Andy Johns Fashions International, a division of BAI during the period prior to January 1, 1998, and from and after January 1, 1998 a division of Mackintosh". (b) The definition of "Revolving Credit Loans Maximum Outstanding" is hereby amended by (i) deleting the amount "$7,000,000" contained therein and inserting in lieu thereof the amount "$9,300,000" and (ii) deleting the amount "9,000,000" contained therein and inserting in lieu thereof the amount "11,300,000". 2 (c) Section 3.01 of the Credit Agreement is hereby amended by amending and restating clause (b) contained in the first paragraph thereof in its entirety as follows: "(b) the Revolving Credit Commitment minus the Revolving Credit Loans and minus all unreimbursed obligations on Letters of Credit and minus any and all overdrafts created as a result of or in connection with the satisfaction of a reimbursement obligation under a Letter of Credit and minus the aggregate face amount of all outstanding Letters of Indemnity; provided that Chase will not be required to issue a Letter of Credit with an expiration date more than 180 days from the date of issuance of such Letter of Credit; it being understood that Chase will not be required to issue any Letter of Credit which permits the beneficiary of such Letter of Credit to make a drawing under such Letter of Credit without the presentation of documents or documents of title where the aggregate unused face amount of all such Letters of Credit outstanding at any time is greater than One Hundred Fifty Thousand Dollars ($150,000)." (d) Section 3.01 of the Credit Agreement is hereby further amended by deleting the last line of the chart that is set forth in the second paragraph of such Section and inserting in lieu thereof the following: "January 1, 1998 to and including March 6, 1998 $12,500,000" (e) Section 3.01 of the Credit Agreement is hereby further amended by (x) inserting immediately following the reference to "Andy Johns" appearing in the third and fourth lines of the third paragraph of such Section the parenthetical clause "(or, from and after January 1, 1998, Mackintosh, including, without limitation, Andy Johns and Mackintosh's other divisions)" and (y) deleting the last line of the chart that is set forth in such paragraph and inserting in lieu thereof the following: "January 1, 1998 to and including March 6, 1998 $1,500,000" SECTION 2. INTERCOMPANY ADVANCES. Each of the Borrowers agree that no further intercompany loans or advances shall be made by any Borrower from and after the date hereof and that intercompany loans and advances by and among the Borrowers outstanding as of the date hereof shall not be repaid or reduced by any amounts, other than reductions or repayments arising from non-cash offsets of federal income tax provisions among Apparel, BAI, Mackintosh and M&L conducted in the ordinary course of business in accordance with GAAP. SECTION 3. CONDITIONS OF EFFECTIVENESS TO THIS SECOND AMENDMENT. This Second Amendment shall become effective on the date on which each of the following conditions have been 2 3 satisfied: (i) the Borrowers, the Lenders and the Agents shall each have executed and delivered this Second Amendment; (ii) payment by the Borrower of a $50,000 amendment fee; (iii) payment by the Borrower of all costs and expenses of the Agents and the Lenders (including, without limitation, reasonable attorneys' fees and expenses) incurred in connection with this Second Amendment and the Credit Agreement; and (iv) receipt of such other documents, opinions or agreements as either of the Agents or any of the Lenders may reasonably request. SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. Upon the effectiveness of Section 1 hereof, on and after the date hereof each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the other Facility Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. Except as specifically amended above, the Credit Agreement and all other Facility Documents shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and effectiveness of this Second Amendment shall not operate as a waiver of any right, power or remedy of any Lender or Agent under any of the Facility Documents, nor constitute a waiver of any provision of the Facility Documents. SECTION 5. COSTS AND EXPENSES. The Borrowers agree to pay the Agent, the Servicing Agent, and the Lenders on demand all costs, expenses and charges, in connection with the preparation, reproduction, execution, delivery, filing, recording and administration of this Second Amendment and any other instruments and documents to be delivered hereunder, including, without limitation, the fees and out-of-pocket expenses of counsel for the Agent, the Servicing Agent, and each Lender with respect thereto and with respect to advising the Agent, the Servicing Agent, and each Lender as to its rights and responsibilities under such documents, and all costs and expenses, if any, in connection with the enforcement of any such documents. SECTION 6. GOVERNING LAW. This Second Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. HEADINGS. Section headings in this Second Amendment are included herein for convenience of reference only and shall not constitute a part of this Second Amendment for any other purpose. SECTION 8. COUNTERPARTS. This Second Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Second Amendment by signing any such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the day and year first above written. BISCAYNE APPAREL, INC. By: /s/ Peter Vandenberg, Jr. ------------------------------------ Name: Peter Vandenberg, Jr. Title: 3 4 BISCAYNE APPAREL INTERNATIONAL, INC. By: /s/ Peter Vandenberg, Jr. ------------------------------------ Name: Peter Vandenberg, Jr. Title: MACKINTOSH OF NEW ENGLAND CO. By: /s/ Peter Vandenberg, Jr. ------------------------------------ Name: Peter Vandenberg, Jr. Title: M & L INTERNATIONAL, INC. By: /s/ Peter Vandenberg, Jr. ------------------------------------ Name: Peter Vandenberg, Jr. Title: THE CHASE MANHATTAN BANK, as Lender By: /s/ John Murphy ------------------------------------ Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Lender By: /s/ David J. Milberg ------------------------------------ Name: David J. Milberg Title: Vice President CORESTATES BANK, N.A., as Lender By: /s/ C.B. Cook ------------------------------------ Name: C.B. Cook Title: Vice President 4 5 BANKBOSTON, N. A., as Lender By: /s/ David F. Eusden ------------------------------------ Name: David F. Eusden Title: Director FLEET BANK, N.A., as Lender By: /s/ Amy H. Witryol ------------------------------------ Name: Amy H. Witryol Title: Vice President THE CHASE MANHATTAN BANK, as Agent By: /s/ John Murphy ------------------------------------ Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Servicing Agent By: /s/ David J. Milberg ------------------------------------ Name: David J. Milberg Title: Vice President 5 EX-10.31 6 3RD AMEND. TO 2ND AMENDED & RESTATED CREDIT AGRMT. 1 Exhibit 10.31 THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "THIRD AMENDMENT") dated as of March 6, 1998 among BISCAYNE APPAREL, INC., BISCAYNE APPAREL INTERNATIONAL, INC. MACKINTOSH OF NEW ENGLAND CO. AND M & L INTERNATIONAL, INC. (individually, each a "BORROWER" and collectively, the "BORROWERS" and individually, each a "GUARANTOR" and collectively, the "GUARANTORS"), THE CHASE MANHATTAN BANK, CORESTATES BANK, N.A., BANKBOSTON, N.A. (formerly known as The First National Bank of Boston), FLEET BANK N.A. and MILBERG FACTORS, INC. (individually, each a "LENDER" and collectively, the "LENDERS"), THE CHASE MANHATTAN BANK, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT") and MILBERG FACTORS, INC., as servicing agent for the Lenders (in such capacity, together with its successors in such capacity, the "SERVICING AGENT" and together with the Agent, the "AGENTS"). PRELIMINARY STATEMENTS: WHEREAS, the Borrowers, the Guarantors, the Lenders and the Agents have entered into a Second Amended and Restated Credit Agreement and Guaranty dated as of March 24, 1997, as amended by a First Amendment, dated as of May 22, 1997 and a Second Amendment, dated as of February 18, 1998 (as so amended, the "CREDIT AGREEMENT"); and WHEREAS, the terms defined in the Credit Agreement are used in this Third Amendment as in the Credit Agreement unless otherwise defined in this Third Amendment; NOW, THEREFORE, the Borrowers, the Lenders and the Agents have agreed to amend certain provisions of the Credit Agreement as hereinafter set forth. SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) Section 3.01 of the Credit Agreement is hereby amended by deleting the last line of the chart that is set forth in the second paragraph of such Section and inserting in lieu thereof the following: "January 1, 1998 to and including March 31, 1998 $13,000,000" (b) Section 3.01 of the Credit Agreement is hereby further amended by deleting the last line of the chart that is set forth in third paragraph of such Section and inserting in lieu thereof the following: "January 1, 1998 to and including March 31, 1998 $1,750,000" 1 2 SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS THIRD AMENDMENT. This Third Amendment shall become effective on the date on which each of the following conditions have been satisfied: (i) the Borrowers, the Lenders and the Agents shall each have executed and delivered this Third Amendment; (ii) payment by the Borrower of all costs and expenses of the Agents and the Lenders (including, without limitation, reasonable attorneys' fees and expenses) incurred in connection with this Third Amendment and the Credit Agreement; and (iii) receipt of such other documents, opinions or agreements as either of the Agents or any of the Lenders may reasonably request. SECTION 3. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. Upon the effectiveness of Section 1 hereof, on and after the date hereof each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the other Facility Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. Except as specifically amended above, the Credit Agreement and all other Facility Documents shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and effectiveness of this Third Amendment shall not operate as a waiver of any right, power or remedy of any Lender or Agent under any of the Facility Documents, nor constitute a waiver of any provision of the Facility Documents. SECTION 4. COSTS AND EXPENSES. The Borrowers agree to pay the Agent, the Servicing Agent, and the Lenders on demand all costs, expenses and charges, in connection with the preparation, reproduction, execution, delivery, filing, recording and administration of this Third Amendment and any other instruments and documents to be delivered hereunder, including, without limitation, the fees and out-of-pocket expenses of counsel for the Agent, the Servicing Agent, and each Lender with respect thereto and with respect to advising the Agent, the Servicing Agent, and each Lender as to its rights and responsibilities under such documents, and all costs and expenses, if any, in connection with the enforcement of any such documents. SECTION 5. GOVERNING LAW. This Third Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. HEADINGS. Section headings in this Third Amendment are included herein for convenience of reference only and shall not constitute a part of this Third Amendment for any other purpose. SECTION 7. COUNTERPARTS. This Third Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Third Amendment by signing any such counterpart. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed as of the day and year first above written. BISCAYNE APPAREL, INC. By: /s/ Peter Vandenberg, Jr. ------------------------------------ Name: Peter Vandenberg, Jr. Title: BISCAYNE APPAREL INTERNATIONAL, INC. By: /s/ Peter Vandenberg, Jr. ------------------------------------ Name: Peter Vandenberg, Jr. Title: MACKINTOSH OF NEW ENGLAND CO. By: /s/ Peter Vandenberg, Jr. ------------------------------------ Name: Peter Vandenberg, Jr. Title: M & L INTERNATIONAL, INC. By: /s/ Peter Vandenberg, Jr. ------------------------------------ Name: Peter Vandenberg, Jr. Title: THE CHASE MANHATTAN BANK, as Lender By: /s/ John Murphy ------------------------------------ Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Lender By: /s/ David J. Milberg ------------------------------------ Name: David J. Milberg Title: Vice President 3 4 CORESTATES BANK, N.A., as Lender By: /s/ C.B. Cook ------------------------------------ Name: C.B. Cook Title: Vice President BANKBOSTON, N. A., as Lender By: /s/ David F. Eusden ------------------------------------ Name: David F. Eusden Title: Director FLEET BANK, N.A., as Lender By: /s/ Amy H. Witryol ------------------------------------ Name: Amy H. Witryol Title: Vice President THE CHASE MANHATTAN BANK, as Agent By: /s/ John Murphy ------------------------------------ Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Servicing Agent By: /s/ David J. Milberg ------------------------------------ Name: David J. Milberg Title: Vice President 4 EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Biscayne Apparel, Inc. Subsidiaries of the Registrant For the Year Ending December 31, 1997 Biscayne Apparel International, Inc., a Delaware corporation d/b/a: Andy Johns Fashions International Andy Johns Kids KAOS KAOTIC Judy Simon Varon, Inc. Varon & Sons, Inc. Amy Industries Mackintosh of New England Co., a Delaware corporation Mackintosh (UK) Limited, a United Kingdom corporation Amy Industries De Honduras, S.A. de C.V., a Honduran corporation Scientific Products, Inc. M&L International, Inc., an Illinois corporation Unidex Garments (Philippines), Inc., a Philippine corporation Watersports Garment Manufacturing, Inc., a Philippine corporation GES Sportswear Manufacturing Corporation, a Philippine corporation Teri Outerwear Manufacturing, Inc., a Philippine corporation M&L Holding (Hong Kong) Limited, a Hong Kong corporation EX-23 8 CONSENT OF COOPERS & LYBRAND 1 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Biscayne Apparel, Inc. and Subsidiaries on Form S-8 and S-3 of our report dated March 6, 1998, except for Note 7, for which the date is March 25, 1998, on our audits of the consolidated financial statements and financial statement schedules of Biscayne Apparel, Inc. and Subsidiaries as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995, which report is included in this Annual Report on Form 10-K. Parsippany, New Jersey March 25, 1998 EX-27 9 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 268 0 15,787 (2,278) 17,258 31,997 5,256 (2,517) 34,817 18,053 0 0 0 108 7,550 34,817 93,206 93,206 70,045 70,045 0 0 3,270 (2,714) 1,157 (3,871) 0 0 0 (3,871) (0.36) (0.36)
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