Biscayne Apparel: Form 10-K 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, 1996 ---------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------------------------- Commission file number 1-9635 BISCAYNE APPAREL, INC. (Exact name of registrant as specified in its charter) FLORIDA 65-0200397 - --------------------------------- ----------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1373 BROAD STREET, CLIFTON, NEW JERSEY 07013 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including Area Code) (201) 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 28, 1997, was as follows: COMMON STOCK, PAR VALUE $.01 10,741,819 ---------------------------- ----------------- (Title of each class) (Number of shares) The aggregate market value of common stock held by non-affiliates of the registrant at February 28, 1997 was $8,257,823, based on a $1.16 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). - -------------------------------------------------------------------------------- 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. BAII operates 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. 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. Andy Johns is a designer and distributor of women's and children's outerwear; Varon is a designer and manufacturer of girl's and boy's underwear and girl's daywear; Mackintosh is a designer and manufacturer of women's wool coats and active outerwear; and M&L is a designer, manufacturer and distributor of infants', toddlers' 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, 1996, three customers represented approximately 34% of total sales. These customers, Target and Mervyn, divisions of Dayton Hudson Corporation ("Target" and "Mervyn"), Wal-Mart Stores, Inc. ("Wal-Mart") and Sears, Roebuck and Co. ("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. Approximately 34% of the Company's total sales for the year ended December 31, 1994 were derived from two major customers. These customers, Wal-Mart and Target, represented 19% and 15% of total sales, respectively, in 1994. 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 2 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 women's outerwear design, merchandising, production and sales organization to better service its customer base at a lower cost (iv) identify the sale or closure of non-strategic assets and manufacturing facilities, and (v) implement an asset management program directed at reducing inventories, accounts receivable, outstanding indebtedness, and interest expense. 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 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. This action resulted in an annualized reduction in salaried personnel costs of approximately $1,750,000 million by December 31, 1996, compared to salaried personnel costs on an annual basis for the Company prior to the restructuring, excluding one-time severance and other personnel-related costs associated with the restructuring. IMPLEMENTATION OF COST REDUCTION PROGRAM TARGETING BOTH FIXED AND VARIABLE COSTS. Throughout 1996 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 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 higher gross margins and lower selling, general and administrative costs in 1996. THE RECONFIGURATION OF THE WOMEN'S 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 1996. During this same timeframe, the Company improved its 1996 women's outerwear sales and marketing effort with the addition of new and proven personnel. The results were a 16% increase in Andy Johns and Mackintosh's combined sales in 1996. Additionally, 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 MANUFACTURING FACILITIES. During the first quarter of 1996 the Company sold its 20% interest in Hartwell Sports, Inc. for 3 $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, and successfully moved these to its new manufacturing facility in Honduras. THE IMPLEMENTATION OF AN ASSET MANAGEMENT PROGRAM TO REDUCE WORKING CAPITAL AND DEBT. The Company successfully reduced accounts receivable from $18,271,000 at December 31, 1995 to $14,374,000 at December 31, 1996; inventories from $25,890,000 at December 31, 1995 to $14,554,000 at December 31, 1996 and debt from $31,794,000 at December 31, 1995 to $14,167,000 at December 31, 1996. Products and Customers: Andy Johns, Mackintosh's and M&L's principal products and customers are: /bullet/ WOMEN'S AND CHILDREN'S OUTERWEAR: Andy Johns/registered/, 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. To that end, it offers a line known as "active outerwear", which caters to the active woman. These products are made for daily use, with several styles doubling as exercise gear. Andy Johns produces a broad 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 to customer preferences, yet has a consistency to its appeal. Also, unlike many others in the outerwear industry that market almost exclusively fall lines, Andy Johns also produces a spring line. This provides continuing visibility and helps reduce the seasonality of its business. To expand its product lines, Andy Johns Kids/registered/ was begun in mid-1987, and sells outerwear targeted for children in the 2 to 14 age range. Andy Johns also markets its active outerwear under the KAOS/registered/ and KAOTIC/trademark/ labels. In 1995 Andy Johns introduced its Lee Lipton/trademark/ brand of outerwear, which initially had been offered on an exclusive basis to one customer. Andy Johns, Andy Johns Kids, KAOS, KAOTIC, and Lee Lipton share showroom space in New York. 4 Andy Johns imports the majority of its inventory, primarily from Asian manufacturers. Although not foreseen, should import quotas be substantially tightened, Andy Johns may need to import products from alternate overseas sources, or to engage in increased domestic production, which could increase costs. In 1991, the Company established Mackintosh/trademark/ to acquire the operations, through an asset purchase, of New England Mackintosh Co., Inc. ("Old Mackintosh"). Old Mackintosh was a well-known domestic manufacturer of fine women's wool coats. Mackintosh markets spring and fall lines. Mackintosh also markets its active outerwear under the All Outdoors/registered/ 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. During 1994 Mackintosh introduced a new imported active outerwear line. 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 expanded in 1996. Mackintosh primarily markets its products through a New York showroom. In November 1994, the Company acquired M&L International, Inc. M&L, which was founded in 1919, is one of the largest U.S. based manufacturers of children's outerwear. M&L markets its outerwear products under the Weather Tamer/registered/ brand name, which it owns, and the OshKosh B'Gosh/registered/ and Bon Jour/registered/ brand names, which it licenses. M&L also produces children's sportswear and swimwear products, which are marketed under its Eclipse/regsitered/ brand name. M&L markets spring and fall lines. M&L has showrooms in Chicago, New York, and Atlanta, 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 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, 1996, 1995, and 1994, Andy Johns', Mackintosh's and M&L's combined net sales represented 79%, 76%, and 72% respectively, of the Company's total net sales. M&L's net sales are included from November 30, 1994, the date of acquisition. 5 /bullet/ CHILDREN'S UNDERWEAR AND DAYWEAR: Varon has been operating for approximately 70 years as a manufacturer of girls' 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 girls' daywear sets and boys' 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, 1996, 1995 and 1994, Varon's net sales represented 21%, 24% and 28%, 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. Andy Johns' finished goods and Mackintosh's imported inventory are warehoused in Washington. Mackintosh manufactures and warehouses inventories in Massachusetts, Varon manufactures and 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, 1996 and 1995 were $15,941,000 and $17,712,000, respectively. The dollar amounts of backlog orders as of March 14, 1997 and March 15, 1996, were $63,470,000 and $52,148,000, respectively. COMPETITION The women's and children's outerwear business is highly competitive. The principal areas of competition in this industry are product quality, style and price. Andy Johns and M&L's products are primarily sold to department stores, specialty stores and mass merchandisers. Market entry is difficult, although many major garment manufacturers produce active outerwear. Historically, however, the majority of these companies tend not to remain in this market very long, principally due to slow turnover and seasonality. Andy Johns and M&L allocate their resources to produce contemporary and timely merchandise, rather than trying to become a fashion 6 leader, which could result in loss of sales. Mackintosh's principal area of competition in the women's wool business is also product quality, style, and price. Mackintosh's products are sold to department and specialty stores. 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's products are primarily classic in style, and are generally not subject to trends. 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 resulted in a broadening of its customer base. TRADEMARKS The Company has registered the Andy Johns/registered/, KAOS/registered/, Weather Tamer/registered/ and Eclipse/registered/ 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, M&L markets its outerwear under the OshKosh B'Gosh/registered/ and Bon Jour/registered/ brand names, which it licenses. SEASONALITY Sales of women's and children's outerwear are seasonal. Historically, Andy Johns, 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 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, and is not expected to have a material effect on the Company's future operations. 7 EMPLOYEES As of December 31, 1996, the Company employed approximately 930 persons. None of the Company's employees are represented by a labor union. The Company considers its relations with employees to be satisfactory. ITEM 2. PROPERTIES The following table describes, as of December 31, 1996, the operating facilities owned or leased by the Company containing an aggregate of approximately 508,300 square feet. Management believes that all of the Company's facilities are adequate for their respective purposes. 8 ANNUAL LEASE APPROXIMATE LOCATION SQUARE FEET RENTAL EXPIRATION DATE PRINCIPAL USE - -------------------- ----------- ------- --------------- -------------------------------- Arlington, GA 100,000 (1) (1) Manufacturing facility for Varon Atlanta, GA 500 $ 10,000 December 1997 Showroom for M&L Chicago, IL 27,100 $303,000 December 1997 and Administrative office and April 2002 retail outlet for M&L Clifton, NJ 8,600 $118,000 July 1998 Administrative offices Hong Kong 8,000 $130,000 February 1998 Administrative office for for M&L Miami, FL 40,200 $145,000 December 1997 Administrative office and distribution facility for Varon New Bedford, MA 48,700 $102,000 December 1997 Manufacturing and administration facilities for Mackintosh New York, NY 33,500 $575,000 May 1998, Showrooms December 2003 and July 2005 Colombo, Sri Lanka 5,500 $ 3,000 June 1997 Administrative office for M&L San Pedro Sula, Honduras 45,000 $239,000 July 2000 Manufacturing facility for Varon Auburn, WA 191,200 $654,000 April 2002 Warehousing facilities for M&L - ---------- (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. 9 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 the fiscal year covered by this report. 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 ------ ------- 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 1995 ---- First Quarter $2 1/2 $ 1 3/4 Second Quarter 2 1/8 1 1/2 Third Quarter 1 13/16 1 3/16 Fourth Quarter 1 3/8 3/4 APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK The Company had 1,346 holders of record of Common stock as of February 28, 1997. 10 DIVIDENDS The Company did not pay cash dividends on its common equity during the fiscal years ended 1996, 1995 and 1994. 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, 1996, 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. 11 BISCAYNE APPAREL,INC. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) AT AND FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992 -------- -------- ------- ------- ------- Financial Data Net sales .................................. $105,425 $100,294 $72,350 $65,258 $57,906 Operating income (loss) .................... (6,182) (5,261) 4,960 4,053 1,737 Earnings (loss) from continuing operations, less applicable income taxes ............. (8,724) (6,127) 2,048 3,687 (34) Cumulative effect of change in accounting for income taxes .............. -- -- -- 208 -- Extraordinary items ........................ -- -- -- -- 104 Net earnings (loss) ........................ (8,724) (6,127) 2,048 3,895 70 Working capital ............................ $ 19,540 $ 19,559 $23,167 $16,148 $12,045 Total assets ............................... 36,110 61,742 60,578 34,791 31,015 Long-term debt ............................. 10,944 12,694 7,944 6,444 6,444 Stockholders' equity ....................... 11,178 19,835 25,881 19,560 15,597 Earnings (loss) per common share: (1) Earnings (loss) from continuing operations . $ (0.81) $ (0.57) $ 0.21 $ 0.41 $ -- Cumulative effect of change in accounting for income taxes .............. -- -- -- 0.02 -- Extraordinary items ........................ -- -- -- -- 0.01 -------- -------- ------- ------- ------- Net earnings (loss) per common share ....... $ (0.81) $ (0.57) $ 0.21 $ 0.43 $ 0.01 ======== ======== ======= ======= ======= Other Per Share Data: Book value ................................. $ 1.04 $ 1.85 $ 2.41 $ 2.18 $ 1.79 Weighted average number of shares and share equivalents outstanding ............ 10,742 10,734 9,652 9,049 8,724 - --------------------- (1) Earnings per common share are based on the weighted average number of shares and share equivalents outstanding. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 OPERATIONS Net sales were $105,425,000, $100,294,000 and $72,350,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The 1996 increase of $5,131,000 includes a $6,016,000 increase in Andy Johns' sales and a $2,727,000 increase in M&L's sales, offset by Varon realizing a decrease of $2,079,000 and Mackintosh realizing a decrease of $1,533,000. The increase in Andy Johns' sales resulted from investments made in product development and marketing efforts. However, sales of Andy Johns were still below 1994 sales levels. M&L realized sales increases in both its outerwear and sportswear product lines, as it successfully increased its market share during 1996. Varon's sales reduction results from consciously eliminating sales of products with unacceptably low gross margins. Mackintosh actually exceeded its projected sales for 1996 due to a strong sell-through at retail. The 1995 increase of $27,944,000 includes a $44,739,000 increase in M&L's sales, a $3,886,000 increase in Varon's sales, offset by Andy Johns realizing a decrease of $17,634,000 in sales and Mackintosh realizing a decrease of $3,047,000 in sales. M&L was acquired on November 30, 1994. A significant portion of the decrease in Andy Johns' sales in 1995 was the result of Wal-Mart, its largest 1994 private label customer, which represented $12,700,000 of Andy Johns' 1994 sales, refraining from ordering any goods in 1995. Sales to this customer, along with other Andy Johns and Mackintosh customers, reflected the significant impact that the warm 1994-1995 winter had on 1995 outerwear coat sales. This factor resulted in high levels of inventory carryover from 1994 to 1995. The problem was exacerbated as stagnant apparel sales and warm weather continued into the 1995 season and prompted retailers to reduce their Fall 1995 programs. Cost of goods sold was $78,112,000 (74% of net sales), $80,121,000 (80% of net sales) and $51,697,000 (71% of net sales) for the years ended December 31, 1996, 1995 and 1994, respectively. Cost of goods sold decreased significantly in 1996 as a result of M&L lowering its production costs and Andy Johns and Mackintosh rebounding from the aftermath of the poor industrywide performance sustained in 1995; offset by Varon continuing to be effected by raw material and labor increases and production inefficiencies. The Company recorded inventory markdowns of $638,000, during the 1996 fourth quarter, $4,374,000, during the 1995 fourth quarter, and $179,000 during the 1994 fourth quarter. 13 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. Cost of goods sold increased in 1995 due to Andy Johns and Mackintosh selling off unsold inventory at low margins due to the effects of weather and the related softness of retail sales; Varon sustaining higher raw material costs, primarily cotton and labor costs; and M&L realized operating losses from its Philippines subsidiaries due to labor cost increases and production inefficiencies. Selling, general and administrative ("S,G&A") expenses, before restructuring expense and impairment of long-lived assets, were $24,394,000 (23% of net sales), $25,434,000 (25% of net sales) and $15,693,000 (22% of net sales), for the years ended December 31, 1996, 1995 and 1995, respectively. In 1996 S,G&A expenses declined to 23% of net sales 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. In 1995 S,G&A expenses increased to 25% of net sales due to lower sales volume at Andy Johns and Mackintosh. However, the 1995 S,G&A expenses actually decreased by $2,002,000 from the 1994 pro-forma S,G&A expenses, which assumed M&L was acquired as of January 1, 1994. 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. 14 During 1996, the Company also 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). During the fourth quarter of 1996, the Consumer Product Safety Commission ("CPSC") issued 1997/1998 rules for the manufacturing for 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. 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. 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. Although retail sales of outerwear strengthened in 1996, the Company believes that the severe weakness of retail sales of outerwear in 1995 continued to adversely affect its 1996 operating results. 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 availablity, 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 $3,643,000, $3,805,000 and $1,673,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 15 The 1996 decrease of $162,000 is a result of lower bank borrowings. The increases in 1995 and 1994 are due to higher interest rates and increased borrowings from higher inventory levels, 1995 losses and increased M&L acquisition debt. Other expenses were $37,000, $90,000 and $11,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The 1996 other expense relates primarily to foreign currency exchange losses. The 1995 and 1994 other expense amounts relate to losses on disposal of assets. Interest and other income was $246,000, $109,000, and $115,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The increase in interest and other income in 1996 relates to the closedown of M&L's Philippine operations. In March 1994, the Company paid $1,500,000 for a 20% interest in Hartwell Sports, Inc. ("Hartwell"), a manufacturer of casual shirts and jackets. The investment resulted in the Company recognizing $122,000 and $5,000 of equity in the income from Hartwell in 1995 and 1994, respectively. On March 27, 1996, the Company sold its 20% interest in Hartwell for $1,750,000, which resulted in a 1996 gain of $123,000. Proceeds were used to reduce notes payable to banks. On November 30, 1994, the Company acquired M&L International, Inc. ("M&L"). The Company paid $1,723,500 in cash, retired $2,064,000 of M&L's existing debt, assumed $1,500,000 of Junior Subordinated Sub Notes, issued $776,500 of Bridge Notes and issued 1,666,997 shares of its common stock in connection with the acquisition. The Acquisition has been accounted for under the purchase method of accounting, therefore, M&L's operating results are included with the Company's from November 30, 1994. INCOME TAXES The Company's effective tax rates during 1996 were affected by the non-deductibility of the impairment of long-lived assets (primarily goodwill) and valuation allowances related to Federal net operating loss carryforwards (see Note 11 to the consolidated financial statements). 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, Andy Johns, 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 16 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 $327,000 and $312,000 at December 31, 1996 and 1995, respectively. At December 31, 1996, the Company's working capital was $19,540,000, representing a current ratio of 2.45 to 1.00. This compares to working capital of $19,559,000 and a current ratio of 1.68 to 1.00 at December 31, 1995. The positive change in the 1996 current ratio was primarily a result of management's successful efforts to reduce debt through reductions in accounts receivable and inventory in 1996. 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, versus 1994, 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. 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, except that the warrants will be canceled, if prior to March 31, 1998, the Company repays the Term Loan through the sale of assets or operations, or if the Term Loan is reduced to $1,250,000, or lower, through operating cashflows or the infusion of additional equity or subordinated debt. 17 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. 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, 1996, decreased to $257,000 from $941,000 in 1995 primarily due to 1995 purchases of machinery and equipment relating to the establishment of Varon's Honduran manufacturing facility. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages F-1 through F-25 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. 18 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. 19 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. 20 *10.1 Amended and Restated Management Agreement, dated as of November 30, 1994, by and between the Registrant and Trivest, Inc., incorporated by reference to Exhibit 10.1 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. *10.2 First Amendment to Amended and Restated Management Agreement dated as of March 26, 1996 by and between the Registrant and Trivest, Inc., incorporated by reference to Exhibit 10.1 filed with the Registrant's Quarterly Report on Form 10-Q, for the quarter ended June 30, 1996. 10.3 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. *10.4 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. *10.5 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). *10.6 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). *10.7 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). *10.8 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). *10.9 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. (1) 21 *10.11 Salary Deferral Agreement between the Registrant and Peter Vandenberg, Jr. (1) *10.12 Warrant for the Purchase of Shares of Common Stock, dated as of December 30, 1996 issued to Peter Vandenberg, Jr. (1) 10.13 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. 10.14 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. 10.15 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. 10.16 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. 10.17 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. 10.18 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. 10.19 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. 22 10.20 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. 10.21 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. 10.22 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. 10.23 Unsecured Promissory Note from Quality Prints, Inc. to E&B Acquisition, Inc., Elliot Estes and Becky Estes, in the amount of $150,000, dated November 24, 1994, incorporated by reference to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.24 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. *10.25 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. 10.26 Amended and Restated Credit Agreement and Guaranty dated as of March 28, 1996 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co. and M&L International, Inc. and The Chase Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.) 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 March 31, 1996. 10.27 First Amendment and Waiver to Amended and Restated Credit Agreement and Guaranty dated as of August 30, 1996 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co. and M&L International, Inc. and The Chase Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.) as Agent and Milberg Factors, Inc. as Servicing Agent. (1) 23 10.28 Second Amendment and Waiver to Amended and Restated Credit Agreement and Guaranty dated as of February 24, 1997 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co. and M&L International, Inc. and The Chase Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.) as Agent and Milberg Factors, Inc. as Servicing Agent. (1) 10.29 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. 10.30 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. 11 Statement re: Computation of Per Share Earnings.(1) 21 Subsidiaries of the Registrant.(1) 23 Consent of Coopers and Lybrand L.L.P.(1) 27 Financial Data Schedule. - ------------------- (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. 24 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 27, 1997 By: /s/ PETER VANDENBERG, JR. ---------------------------- Peter Vandenberg, Jr. Executive Vice President, 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 27, 1997 By: /s/ EARL W. POWELL --------------------------- Earl W. Powell Chairman, President and Chief Executive Officer Date: March 27, 1997 By: /s/ PETER VANDENBERG, JR. --------------------------- Peter Vandenberg, Jr. Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 27, 1997 By: /s/ KURT C. GUTFREUND --------------------------- Kurt C. Gutfreund Vice Chairman Date: March 27, 1997 By: /s/ HAROLD E. BERRIT --------------------------- Harold E. Berritt Director Date: March 27, 1997 By: /s/ PHILLIP T. GEORGE, M.D. --------------------------- Director Date: March 27, 1997 By: /s/ JOSEPH B. GILDENHORN --------------------------- Joseph B. Gildenhorn Director Date: March 27, 1997 By: /s/ R. STEPHEN LEFLER --------------------------- R. Stephen Lefler Director Date: March 27, 1997 By: /s/ JAMES J. PINTO --------------------------- James J. Pinto Director 25 BISCAYNE APPAREL, INC. INDEX TO FINANCIAL STATEMENTS (ITEM 14 (A)) BISCAYNE APPAREL, INC. PAGE ---- Report of Independent Accountants F-2 Consolidated balance sheets at December 31, 1996 F-3 and 1995 Consolidated statements of operations for each of the F-4 three years in the period ended December 31, 1996 Consolidated statements of stockholders' equity for F-5 each of the three years in the period ended December 31, 1996 Consolidated statements of cash flows for each of the F-6 three years in the period ended December 31, 1996 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 REPORT OF INDEPENDENT PUBLIC 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 as of December 31, 1996 and 1995, and for the years in the period ended December 31, 1996 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 audit. 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 audit provides 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, 1996 and 1995, and the consolidated results of its operations and its cash flows for the three years in the period ended December 31, 1996, 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. Coopers & Lybrand L.L.P. Parsippany, New Jersey March 7, 1997, except for Note 7, for which the date is March 24, 1997. F-2 BISCAYNE APPAREL, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS) ASSETS 1996 1995 -------- ------- Current assets: Cash and cash equivalents ............................ $ 327 $ 312 Trade accounts receivable, less allowances of $2,018 in 1996 and $1,967 in 1995 ................ 14,374 18,271 Inventories .......................................... 14,554 25,890 Federal income tax receivable ........................ 1,455 1,969 Prepaid expenses and other ........................... 2,261 1,972 -------- ------- Total current assets .............................. 32,971 48,414 Property, plant and equipment, net ..................... 2,864 3,652 Investment in Hartwell Sports, Inc. .................... -- 1,627 Goodwill, net .......................................... -- 6,532 Other assets, net ...................................... 275 1,517 -------- ------- $ 36,110 $61,742 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ..................................... $ 4,024 $ 3,841 Accrued liabilities .................................. 6,184 5,914 Notes payable to banks ............................... 1,473 17,850 Current portion of long-term debt .................... 1,750 1,250 -------- ------- Total current liabilities ......................... 13,431 28,855 Subordinated notes ..................................... 6,444 6,444 Long-term debt ......................................... 4,500 6,250 Other liabilities ...................................... 557 358 Commitments and contingencies .......................... -- -- Stockholders' Equity: Common stock ......................................... 107 107 Additional paid-in capital ........................... 26,311 26,309 Unearned stock award ................................. (68) (135) Accumulated deficit .................................. (15,172) (6,446) -------- ------- Total stockholders' equity ......................... 11,178 19,835 -------- ------- $ 36,110 $61,742 ======== ======= See accompanying notes. F-3 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 ----------- ----------- ----------- Net sales ...................................... $ 105,425 $ 100,294 $ 72,350 Operating costs and expenses: Cost of goods sold ............................ 78,112 80,121 51,697 Selling, general and administrative ........... 24,394 25,434 15,693 Restructuring charges ......................... 2,039 -- -- Impairment of long-lived assets ............... 7,062 -- -- ----------- ----------- ----------- 111,607 105,555 67,390 ----------- ----------- ----------- Operating income (loss) ........................ (6,182) (5,261) 4,960 Other income and (expenses): Interest and other expenses ................... (3,643) (3,805) (1,673) Interest and other income ..................... 246 109 115 Gain on sale and equity in net income of investee...................................... 123 122 5 ----------- ----------- ----------- Earnings (loss) before provision (benefit) for income taxes .............................. (9,456) (8,835) 3,407 Provision (benefit) for income taxes ........... (732) (2,708) 1,359 ----------- ----------- ----------- Net earnings (loss) ............................ $ (8,724) $ (6,127) $ 2,048 =========== =========== =========== Net earnings (loss) per common share ........... $ (0.81) $ (0.57) $ 0.21 =========== =========== =========== Shares used in computing earnings (loss) per common share .................................. 10,741,748 10,733,551 9,651,637 =========== =========== =========== See accompanying notes. F-4 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) RETAINED ADDITIONAL EARNINGS COMMON PAID-IN UNEARNED (ACCUMULATED STOCK CAPITAL STOCK AWARD DEFICIT) TOTAL ------ ---------- ----------- --------- ------- Balance at December 31, 1993 ....................... $ 81 $19,838 $ (270) $ (89) $19,560 Issuance of 400,440 shares of common stock due to stock dividend ............................. 4 1,198 -- (1,202) -- Issuance of 1,666,997 shares of restricted common stock due to acquisition of M&L International, Inc. 17 4,150 -- -- 4,167 Exercise of employee stock options ................. -- 39 -- -- 39 Amortization of unearned stock award ............... -- -- 67 -- 67 Net earnings ....................................... -- -- -- 2,048 2,048 ----- ------- ------ -------- ------- Balance at December 31, 1994 ....................... 102 25,225 (203) 757 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 (135) (6,446) 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 $ (68) $(15,172) $11,178 ===== ======= ====== ======== ======= See accompanying notes. F-5 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) 1996 1995 1994 -------- -------- -------- OPERATING ACTIVITIES: Net earnings (loss) ............................. $ (8,724) $ (6,127) $ 2,048 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Noncash stock compensation expense ............ 67 68 67 (Gain) loss on sale of assets ................. (11) 91 (2) Gain on sale and equity in net income of investee ..................................... (123) (122) (5) Depreciation expense .......................... 544 584 409 Amortization expense .......................... 95 (35) 230 Provision for losses and sales allowances on receivables................................ 5158 4,584 3,558 Impairment of long-lived assets ............... 7062 -- -- (Increase) decrease in operating assets: Trade accounts receivable ..................... (951) (1,846) (1,151) Inventories ................................... 11,588 (3,737) (4,901) Prepaid expenses and other .................... (360) (410) (613) Federal income tax receivable ................. 514 (1,969) -- Other assets .................................. 1516 (499) 583 Increase (decrease) in operating liabilities: Accounts payable .............................. 60 (2,398) 1,994 Accrued liabilities ........................... (511) (1,178) (1,476) Other liabilities ............................. 286 (501) 269 -------- -------- -------- Net cash provided by (used in) operating activities ................................. 16,210 (13,495) 1,010 -------- -------- -------- INVESTING ACTIVITIES: Proceeds from net sale of assets ................ 11 9 15 Capital expenditures ............................ (257) (941) (1,090) Purchase of subsidiary, net of cash acquired .... -- -- 1,858 Proceeds on sale of, and (investment) in, Hartwell Sports, Inc. .......................... 1,750 -- (1,500) -------- -------- -------- Net cash provided by (used in) investing activities .................................. 1,504 (932) (717) -------- -------- -------- FINANCING ACTIVITIES: Payments under notes payable to banks ........... (87,402) (72,155) (66,845) Borrowings under notes payable to banks ......... 71,025 81,505 69,160 Proceeds from term loan ......................... -- 7,500 -- Repayment of subordinated notes ................. -- (6,276) -- Principal payments of long-term debt and capital leases ................................. (1,322) (26) (37) Proceeds from exercise of employee stock options. -- 13 39 -------- -------- -------- Net cash (used in) provided by financing activities ................................. (17,699) 10,561 2,317 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ..................................... 15 (3,866) 2,610 Cash and cash equivalents at beginning of year ... 312 4,178 1,568 -------- -------- -------- Cash and cash equivalents at end of year ......... $ 327 $ 312 $ 4,178 ======== ======== ======== See accompanying notes. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 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"), which was acquired in 1994 (see Note 2), 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. BAII operates 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. All material intercompany balances and transactions have been eliminated. Certain amounts in the 1995 and 1994 financial statements and related notes have been reclassified to conform with the 1996 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 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, which range from 3 to 30 years. Maintenance and repair costs are charged to expense as incurred, and renewals and improvements are capitalized. When capital assets are retired or disposed, 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 Goodwill and negative goodwill have 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. Accumulated amortization of negative goodwill, which relates to the acquisition of M&L (see Note 2), was $20,000 for the year ending December 31, 1996 and is included in Other assets, net. 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). Accumulated amortization of goodwill was approximately $1,812,000, net of $12,000 of accumulated amortization of negative goodwill at December 31, 1995. 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, F-8 DEBT (CONT'D) 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. EARNINGS PER COMMON SHARE Earnings per common share is based upon the weighted average number of common and common equivalent shares outstanding during the period, if dilutive. Common stock equivalents include incremental shares from the exercise of stock options and warrants under the treasury stock method. For the years ended December 31, 1996, 1995 and 1994, fully diluted earnings per common share approximate primary earnings per common share. All prior period earnings per common share amounts have been restated due to the Company's stock dividends in 1995 and 1994 (see Note 9). Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS No. 128") was issued in February 1997 and is effective for fiscal years ending after December 15, 1997. FAS No. 128 establishes the standards for computing basic earnings per share (excluding dilution) and diluted earnings per share (reflecting the dilutive effect if securities or other contracts to issue common stock were exercised or converted) and applies to entities with publicly held common stock. This standard simplifies the computation of earnings per share as required under Accounting Principles Board Opinion No. 15, Earnings Per Share and makes them comparable to international earnings per share standards. FAS No. 128 requires the restatement of all prior period earnings per share data presented including interim periods. The Company is currently evaluating the impact of this standard on previously reported earnings per share. CONCENTRATION OF CREDIT RISK The Company performs ongoing credit evaluations of its customers' financial condition. At December 31, 1996, the Company had no significant concentrations of credit risk due to a large, geographically dispersed customer base. Generally, the Company does not require collateral against its trade accounts receivable. 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. For the year ended December 31, 1994, two major customers represented approximately 19% and 15% of total sales, respectively. F-9 2. ACQUISITIONS/DISPOSITIONS On March 4, 1994, the Company paid $1,500,000 for a 20% interest in Hartwell Sports, Inc. ("Hartwell"), a manufacturer of casual shirts and jackets. On March 27, 1996, the Company sold its 20% interest in Hartwell for $1,750,000. Proceeds from the sale were used to reduce notes payable to banks. On November 30, 1994, the Company acquired M&L International, Inc. ("M&L"), a Chicago-based designer, manufacturer and marketer of infants', toddlers' and children's outerwear, sportswear and swimwear, with showrooms in Chicago, New York, Atlanta and Los Angeles and manufacturing and sourcing operations in the Philippines, Hong Kong, Bangladesh and Sri Lanka ("the Acquisition"). The Company paid $1,723,500 in cash, retired $2,064,000 of M&L's existing debt, assumed $1,500,000 (paid on March 16, 1995) of Junior Subordinated Sub Notes, issued $776,500 (paid on March 16, 1995) of Bridge Notes and issued 1,666,997 shares of its common stock in connection with the Acquisition. The Acquisition has been accounted for under the purchase method of accounting. Therefore, M&L's operating results are included with the Company's from November 30, 1994. The following table summarizes the cash payment relating to the acquisition of M&L (in thousands): Fair value of assets acquired $ 20,755 Less: liabilities assumed (9,636) Less: cash acquired (2,173) -------- Total purchase price less cash acquired 8,946 Less: debt issued (6,637) Less: common stock issued (4,167) --------- Purchase of M&L, net of cash acquired $ (1,858) ========= The excess of net assets acquired over the purchase price, as adjusted, amounted to $739,000 of negative goodwill, which is being amortized over forty years from the date of acquisition (see Note 1). The following pro forma consolidated financial data reflects the results of the Company and M&L as if the Acquisition had occurred on January 1, 1994 (in thousands): PRO FORMA DATA FOR THE YEAR ENDED (UNAUDITED) DECEMBER 31, 1994 ------------------ Net sales $ 119,506 ========== Income before cumulative effect of change in accounting for income taxes $ 3,617 ========== Net income $ 3,617 ========== Earnings per share $ 0.32 ========== Shares used in computing pro forma earnings per share 11,172,486 F-10 3. INVENTORIES Inventories at December 31, 1996 and 1995 are comprised of the following: (IN THOUSANDS) 1996 1995 ------- ------- Raw materials $ 3,684 $ 5,037 Work-in-process 785 1,075 Finished goods 10,085 19,778 ------- ------- $14,554 $25,890 ======= ======= Included in inventory at December 31, 1996 and 1995 respectively, is $5,739,000 and $10,524,000 relating to M&L's inventory, which is valued under the LIFO method. M&L's inventory at December 31, 1996 would have been $220,000 higher had the inventory been valued under FIFO. There was no LIFO reserve for 1995. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1996 and 1995 is as follows: (IN THOUSANDS) 1996 1995 ------- ------- Land $ 17 $ 17 Buildings and building improvements 972 2,015 Machinery and equipment 3,787 3,537 ------- ------- 4,776 5,569 Less accumulated depreciation and amortization $(1,912) $(1,917) ======== ======= $ 2,864 $ 3,652 ======== ======= 5. WRITEDOWN OF GOODWILL, IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES Principally, 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 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. Principally, 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. F-11 5. WRITEDOWN OF GOODWILL, IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES (CONT'D) During 1996, the Company also 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). As of December 31, 1996, $951,000 of the Company's restructuring charges were paid. 6. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31, 1996 and 1995: (IN THOUSANDS) 1996 1995 ------ ------ Wages, commissions and bonus $3,071 $2,247 Other 3,113 3,667 ------ ------ $6,184 $5,914 ====== ====== 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, 1996 and 1995 of $1,473,000 and $17,850,000, respectively. Additionally, at December 31, 1996 and 1995, the Company had letters of credit outstanding of $10,650,000 and $4,958,000, respectively. At December 31, 1996, the Company had $9,398,000 of available credit under the Revolver Agreement. At December 31, 1995, the Company was at its available credit limits. The interest rate was prime (8.25%) plus 1.0% at December 31, 1996 and prime (8.5%) plus 1.25% at December 31, 1995 on the Revolver Agreement. The weighted average interest rate on outstanding short-term borrowings and the term loan at December 31, 1996 and 1995, was 9.91% and 9.26%, respectively. Principal payments of the Term Loan are payable on March 31 in each of the following years: 1997 $1,750,000 1998 $2,000,000 1999 $2,500,000 ---------- Total $6,250,000 ========== F-12 7. DEBT (CONT'D) 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, except that the warrants will be canceled if, prior to March 31, 1998, the Company repays the Term Loan through the sale of assets or operations, or if the Term Loan is reduced to $1,250,000, or lower, through operations or infusion of additional equity or subordinated debt. 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. 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 $3,688,000, $3,715,000, and $1,665,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 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 $2,279,000 in 1996, $2,385,000 in 1995, and $860,000 in 1994. F-13 8. COMMITMENTS AND CONTINGENCIES (CONT'D) Future minimum operating lease payments at December 31, 1996 are as follows (in thousands): 1997 $2,237 1998 1,774 1999 1,638 2000 1,522 2001 1,412 Thereafter 1,283 ------ $9,866 ====== At December 31, 1996, the present value of future minimum capital lease payments was $310,000, which is included in other liabilities on the balance sheets. 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 1998 in the amount of approximately $1,400,000. 9. SUBORDINATED DEBT At December 31, 1996, 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 60% ($3,544,000 to $3,866,000) of face amount at December 31, 1996, based on nominal trading activity during the year. 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, 1996 and 1995, the Company had 10,741,748 and 10,741,253 shares of common stock, issued and outstanding, respectively. No shares of preferred stock have been issued. In March 1995 and 1994, 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 and April 1, 1994, respectively, received one share of common stock for every 20 shares held, with cash being paid in lieu of F-14 10. STOCKHOLDERS' EQUITY (CONT'D) issuing fractional shares. The distribution dates were May 31, 1995 and April 15, 1994, respectively. 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 and 1994 stock dividends. In November 1994, the Company issued 1,666,997 shares of its common stock, par value $0.01, per share in connection with the acquisition of M&L (see Note 2). 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 a total of 240,000 shares of Common Stock at an exercise price of $0.75 per share, as follows: 200,000 shares to Trivest, as part of the amendment to the Company's management agreement (see Note 13) and 40,000 shares to two executives of the Company. These warrants are fully exercisable effective January 1, 1997 and expire December 31, 2001. The value of the above warrants is not material to the consolidated financial statements. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. The application of FAS 123 would not result in a significant difference from reported net income and earnings per share. There is no related compensation expense for 1996. The Company has three nonqualified stock option plans, the 1987 Stock Option Plan ("1987 SOP"), the 1990 Stock Option Plan ("1990 SOP") and the 1994 Stock Option Plan ("1994 SOP"). Under the terms of the 1987 SOP, 1990 SOP, and 1994 SOP, 550,000 shares, 650,000 shares, and 150,000 shares, 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 10. STOCKHOLDERS' EQUITY (CONT'D) The following table summarizes the activity of the Company's stock option plans: 1996 1995 1994 ---------- ---------- ------- Balance outstanding at beginning of year 1,225,637 1,248,403 1,086,703 Granted 45,000 5,250 193,200 Canceled (68,027) (16,991) - Exercised - (11,025) (31,500) ---------- ---------- ---------- Balance outstanding at December 31 1,202,610 1,225,637 1,248,403 =========== =========== =========== Price range per share $0.75-$2.44 $0.79-$2.44 $0.79-$2.44 =========== =========== =========== Exercisable at December 31 928,367 751,465 541,217 =========== =========== ========== Available for grant at December 31 110,428 87,401 75,647 =========== =========== ========== Weighted-average fair value of options granted during the year $0.75 =========== The following table summarizes information about fixed-price stock options outstanding at December 31, 1996: OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED- ---------------------- ----------------------- AVERAGE WEIGHTED- WEIGHTED- RANGE OF REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICE LIFE AT 12/31/96 PRICE AT 12/31/96 PRICE - -------- ----------- ----------- -------- ----------- -------- $0.75 9 yrs 45,000 $0.75 45,000 $0.75 $0.7936 5 yrs 102,536 $0.7936 102,536 $0.7936 $1.2471 1/2-4 yrs 426,779 $1.2471 426,779 $1.2471 $1.9274 7 yrs 471,322 $1.9274 282,793 $1.9274 $2.2619 8 yrs 5,250 $2.2619 2,100 $2.2619 $2.2675 7 yrs 2,756 $2.2675 1,653 $2.2675 $2.3810 8 yrs 96,705 $2.3810 39,060 $2.3810 $2.4376 8 yrs 52,262 $2.4376 28,446 $2.4376 --------- ------- 1,202,610 928,367 ========= ======= F-16 11. INCOME TAXES The components of the provision (benefit) for income taxes for each of the three years in the period ended December 31, 1996 are as follows: (IN THOUSANDS) 1996 1995 1994 ------- ------- ------ Current $(1,577) $(2,039) $1,333 Deferred 845 (669) 26 ------- ------- ------ $ (732) $(2,708) $1,359 ------- ------- ------ The total Federal and state provision (benefit) for income taxes is as follows: (IN THOUSANDS) 1996 1995 1994 ------ -------- ------ Federal $(498) $(2,712) $1,082 State (234) 4 277 ----- ------- ------ $(732) $(2,708) $1,359 ===== ======= ====== A reconciliation of the statutory provision and the effective provision for income taxes is as follows: (IN THOUSANDS) 1996 1995 1994 -------- -------- ------ Income tax at statutory rate $(3,215) $(3,004) $1,158 State income taxes, net of federal benefit 7 200 185 Impairment of goodwill 2,173 - - Tax exempt interest income - (3) (1) Amortization of goodwill 45 70 72 Refund of prior year's income taxes and related adjustments (473) (37) (17) Other, net (157) 66 (38) ------- ------- ------ (1,620) (2,708) 1,359 Valuation allowance 888 - - ------- -------- ------ $ (732) $(2,708) $ 1,359 ======= ======= ======= F-17 11. INCOME TAXES (CONT'D) The components of the net deferred tax (assets) and liabilities recorded on the balance sheets at December 31, 1996 and 1995 are as follows: (IN THOUSANDS) 1996 1995 ---- ---- Deferred Tax Liabilities: LIFO inventory adjustments $ 1,167 $ 1,245 Depreciation - 111 Equity in investee - 41 ------- ------- 1,167 1,397 Deferred Tax (Assets): Federal net operating loss carryovers $(1,855) $ - State net operating loss carryover (900) (829) State jobs credit carryover (237) (208) Accounts receivable and sales allowances (870) (2,164) Capitalized trademarks (590) (598) Capitalized inventory (310) (498) Deferred compensation (260) (33) Employee benefit reserves (121) (109) Operating leases (100) (99) Depreciation (16) - Other (71) (30) ------- ------- (5,330) (4,568) Valuation allowance on deferred tax assets 2,922 1,032 ------- ------- (2,408) (3,536) ------- ------- Total ($1,241) $(2,139) ======= ======= The Company has recorded a valuation allowance of $2,922,000 and $1,032,000 in 1996 and 1995, respectively, to reflect the estimated amount of deferred federal and state tax assets, which arose due to net operating loss and tax credit carryforwards. This increase is due to continued operating losses in 1996. The majority of these carryforwards expire in the year 2011. This valuation allowance reflects management's estimate of the total amount of deferred tax assets which may not be realized depending on future operating results of the Company. Remaining deferred tax assets considered realizable would be reduced in the near term if future taxable income is not achieved. Income taxes paid during 1996, 1995 and 1994 were $82,000, $215,000 and $2,022,000, 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, 1996 and 1995. The Company made a contribution of $150,000 to the plan for the year ended December 31, 1994. F-18 13. RELATED PARTY TRANSACTIONS As of January 1, 1987, the Company entered into a management agreement with Trivest, 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 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 $67,000, $68,000 and $67,000 of management fee expense for the years ended December 31, 1996, 1995 and 1994, respectively. Effective December 1, 1994, the management agreement was amended and restated due to the acquisition of M&L (see Note 2). 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 for the issuance of a warrant to purchase 200,000 shares of the Company's stock. The Company expensed approximately $180,000, $366,000 and $265,000 for services rendered under the management agreement during the years ended December 31, 1996, 1995 and 1994, respectively. Certain 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, which has been included as part of restructuring expenses (see Note 5.) During the years ended December 31, 1996, 1995 and 1994, actual warehousing and shipping expenses to this vendor totaled approximately $884,000, $633,000 and $938,000, respectively. F-19 14. QUARTERLY FINANCIAL DATA (UNAUDITED) Unaudited consolidated quarterly financial data for fiscal years 1996 and 1995 is as follows (in thousands, except Per Share amounts): 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) ======== ======== ======= ======== Net earnings (loss) per common share $ (0.13) $ (0.20) $ 0.26 $ (0.74) ======== ======== ======= ======== FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 1995 1995 1995 1995(1) -------- -------- ------- ------- Net sales $15,389 $14,517 $40,898 $29,490 ======== ======== ======= ======= Gross profit $ 3,865 $ 3,323 $10,607 $ 2,378 ======== ======== ======= ======= Net earnings (loss) $(1,588) $(1,787) $ 1,355 $(4,107) ======== ======== ======= ======== Net earnings (loss) per common share $ (0.15) $ (0.17) $ 0.12 $ (0.38) ======== ======== ======= ======== (1) Each quarter is calculated independently and as such does not total year-end 1995 earnings (loss) per share of $(0.57). 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 $9,100,000, 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 princippally 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. The 1995 fourth quarter includes the adverse results on the outerwear industry of high levels of carryover inventory, at both the retail and manufacturer's level, from 1994 to 1995, due to the effects of the 1994-1995 warm Winter season. This caused retailers to delay and reduce ordering Fall 1995 merchandise, including the Company's largest 1994 customer, who refrained from ordering any F-20 14. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONT'D) Fall 1995 outerwear. The weather in early Fall 1995 was also unseasonably warm, which further mitigated the demand for outerwear. These factors caused the Company to sustain significant losses due to the sale of inventory during the 1995 third and fourth quarters at low margins and markdowns of remaining Fall 1995 and 1994 inventory. During the 1995 fourth quarter, the Company expensed inventory markdowns of $4,374,000, compared to $179,000 during the 1994 fourth quarter. F-21 SCHEDULE I BISCAYNE APPAREL, INC. (PARENT COMPANY ONLY) BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS) ASSETS 1996 1995 ------- ------- Current assets: Cash and cash equivalents ........................... $ 29 $ 29 Accounts receivable ................................. 25 28 Intercompany accounts receivable .................... 4,191 2,455 Federal income tax receivable ....................... 1,455 1,969 Prepaid expenses and other .......................... 31 31 ------- ------- Total current assets .................. 5,731 4,512 Investments in subsidiaries .......................... 12,346 20,519 Intercompany subordinated notes receivable ........... -- -- Property, plant and equipment, net ................... 18 23 Investment in Hartwell Sports, Inc. .................. -- 1,627 Other assets, net .................................... 69 27 ------- ------- $18,164 $26,708 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................... $ 49 $ -- Accrued liabilities ................................. 455 381 ------- ------- Total current liabilities ............. 504 381 Subordinated notes ................................... 6,444 6,444 Other liabilities .................................... 38 48 Stockholders' Equity: Common stock ........................................ 107 107 Additional paid-in capital .......................... 26,311 26,309 Unearned stock award ................................ (68) (135) Accumulated deficit ................................. (15,172) (6,446) ------- ------- Total stockholders' equity ............ 11,178 19,835 ------- ------- $18,164 $26,708 ======= ======= F-22 SCHEDULE I CONT'D BISCAYNE APPAREL, INC. (PARENT COMPANY ONLY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) 1996 1995 1994 ------- ------- ------ Expenses: General and administrative expenses ...... $ 67 $ 35 $ (72) Management fee to Trivest, Inc. .......... 180 366 265 ------- ------- ------ Operating expenses ......................... (247) (401) (193) Other income and (expenses): Interest and other expenses .............. (838) (954) (889) Intercompany interest income ............. 519 551 365 Interest and other income ................ 37 40 75 Equity in and gain on sale of investee ... 123 122 5 Equity in earnings (loss) of subsidiaries, net of applicable income taxes .......... (8,673) (5,826) 2,271 Management fee from subsidiaries ......... 180 366 265 ------- ------- ------ Earnings (loss) before provision (benefit) for income taxes ......................... (8,899) (6,102) 1,899 Provision (benefit) for income taxes ....... (175) 25 (149) ------- ------- ------ Net earnings (loss) ........................ $(8,724) $(6,127) $2,048 ======= ======= ====== F-23 SCHEDULE I BISCAYNE APPAREL, INC. (PARENT COMPANY ONLY) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) 1996 1995 1994 ------- ------- ------- OPERATING ACTIVITIES: Net earnings (loss) ....................................... $(8,724) $(6,127) $ 2,048 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Noncash stock compensation expense ...................... 67 68 67 Equity in earnings (loss) of subsidiaries ............... 8,673 5,826 (2,271) Gain on sale and equity in net income of investee ....... (123) (122) (5) Depreciation expense .................................... 6 5 4 (Increase) decrease in operating assets: Trade accounts receivable ............................... 3 36 (39) Prepaid expenses and other .............................. -- 54 10 Federal income tax receivable ........................... 514 (1,969) -- Other assets ............................................ (42) 49 22 Increase (decrease) in operating liabilities: Accounts payable ........................................ 49 (45) 9 Accrued liabilities ..................................... 74 (536) (508) Other liabilities ....................................... (10) (6) (9) ------- ------- ------- Net cash provided by (used in) operating activities ..... 487 (2,767) (672) INVESTING ACTIVITIES: Capital expenditures ...................................... (1) (6) (10) Purchase of subsidiary, net of cash acquired .............. -- -- (315) Proceeds on sale and (investment) in Hartwell Sports, Inc. 1,750 -- (1,500) ------- ------- ------- Net cash provided by (used in) investing activities ..... 1,749 (6) (1,825) FINANCING ACTIVITIES: Repayments (advances) of intercompany loans ............... (2,236) 6,761 2,462 Payment on subordinated notes ............................. -- (4,776) -- Proceeds from exercise of employee stock options .......... -- 13 39 ------- ------- ------- Net cash (used in) provided by financing activities ... (2,236) 1,998 2,501 ------- ------- ------- Net increase (decrease) in cash and cash equivalents ....... 0 (775) 4 Cash and cash equivalents at beginning of year ............. 29 804 800 ------- ------- ------- Cash and cash equivalents at end of year ................... $ 29 $ 29 $ 804 ======= ======= ======= (Continued on following page) F-24 SCHEDULE I CONT'D BISCAYNE APPAREL, INC. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS (CONT'D) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) 1996 1995 1994 ----- ----- ------- Supplemental disclosure: Interest paid $ 838 $ 957 $ 838 Income taxes paid $ 1 $ 10 $ 1,603 Supplemental schedule of noncash financing activities: Net changes in investments in subsidiaries $ 500 $ - $ 139 Acquisition of subsidiary: Fair value of assets acquired $20,755 Liabilities assumed (9,636) ------- Total purchase price 11,119 Less: debt issued (6,637) Less: common stock issued (4,167) ------- Net cash paid for acquisition of subsidiary(1) $ 315 ======= (1) Exclusive of cash acquired of $2,173,000 which is included in the Statement of Cash Flows for M&L International, Inc. F-25 SCHEDULE II BISCAYNE APPAREL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ----------- ---------- ------------------------- ---------- -------- ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR ----------- ---------- ---------- ---------- ---------- -------- 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 Year ended December 31, 1994: Allowance for doubtful accounts $ 344 $ 763 $ - $ 685 $ 422 Allowance for sales discounts 288 686 - 818 156 Reserve for sales allowance 226 1,157 - 1,049 334 Reserve for advertising allowance 57 313 - 273 97 Reserve for freight and warehouse discounts 18 157 - 160 15 Reserve for returns 491 1,359 - 1,120 730 - ------------------- (1) For the year ended December 31, 1994, additions per Column C include amounts from M&L International, Inc.'s date of acquisition, November 30, 1994. F-26 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ------- ----------- 10.10 Waiver Letter, dated as of December 30, 1996 relating to Warrant No. W-2, dated as of March 26, 1996. 10.11 Salary Deferral Agreement between the Registrant and Peter Vandenberg, Jr. 10.12 Warrant for the Purchase of Shares of Common Stock, dated as of December 30, 1996 issued to Peter Vandenberg, Jr. 10.27 First Amendment and Waiver to Amended and Restated Credit Agreement and Guaranty dated as of August 30, 1996 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co. and M&L International, Inc. and The Chase Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.) as Agent and Milberg Factors, Inc. as Servicing Agent. 10.28 Second Amendment and Waiver to Amended and Restated Credit Agreement and Guaranty dated as of February 24, 1997 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co. and M&L International, Inc. and The Chase Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.) as Agent and Milberg Factors, Inc. as Servicing Agent. 11 Statement re: Computation of Per Share Earnings. 21 Subsidiaries of the Registrant. 23 Consent of Coopers and Lybrand L.L.P. 27 Financial Data Schedule. EXHIBIT 10.1 FIRST AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY FIRST AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "Amendment and Waiver") dated as of August 30, 1996 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 (successor by merger to The Chase Manhattan Bank, N.A.), CORESTATES BANK, N.A., THE FIRST NATIONAL BANK OF BOSTON, FLEET BANK N.A. (successor by merger to Natwest Bank, N.A.), and MILBERG FACTORS, INC. (individually, each a "Lender" and collectively, the "Lenders"), THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.), 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"). PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Lenders and the Agents have entered into an Amended and Restated Credit Agreement and Guaranty dated as of March 28, 1996 (the "Credit Agreement"). The terms defined in the Credit Agreement are used in this Amendment and Waiver as in the Credit Agreement unless otherwise defined in this Amendment and Waiver. The Borrowers, the Lenders and the Agents have agreed to amend and waive 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 following definition is added in its proper alphabetical order: "Andy Johns" means Andy Johns Fashions International. (b) The definition of "Revolving Credit Loans Borrowing Base" is amended by deleting the first sentence thereof in its entirety and inserting in its place the following: "Revolving Credit Loans Borrowing Base" means for each date or period specified below the lesser of (1) an amount equal to the total of (a) the Collateral Borrowing Base, and to the extent the amount is a positive number plus, and to the extent the amount is a negative number minus, the integer of (b) the Revolving Credit Loans Permitted Overadvance or (2) column A set forth below for such date or period: DATE OR PERIOD A -------------- - August 30, 1996 to and including August 31, Thirty Million Dollars ($30,000,000) 1996 September 1, 1996 to and including Thirty-Three Million Dollars ($33,000,000) October 30, 1996 October 31, 1996 to and including Twenty-Five Million Dollars ($25,000,000) November 29, 1996 November 30, 1996 to and including Sixteen Million Dollars ($16,000,000) December 30, 1996 On December 31, 1996 Eight Million Dollars ($8,000,000) January 1, 1997 to the Revolving Credit Fifty Million Dollars ($50,000,000) Termination Date (c) The definition of "Revolving Credit Loans Permitted Overadvance (During the Month)" is amended by deleting the months of August, September, October, November and December and the amounts corresponding to such months and inserting in their place the following: MONTH AMOUNT ----- ------ August $ 14,750,000 September $ 7,000,000 October $ 2,500,000 November ($ 2,000,000) December ($ 3,500,000) (d) The definition of "Revolving Credit Loans Permitted Overadvance (Month End)" is amended by (i) deleting the months of August, September and October and the amounts corresponding to such months and inserting in their place the following: 2 MONTH AMOUNT ----- ------ August $ 5,250,000 September $ 0 October ($ 5,000,000) and (ii) inserting at the end thereof the following: Notwithstanding the foregoing, the proceeds of the Revolving Credit Loans made to BAI which are used to finance its Andy Johns division shall be equal to or less than the Eligible Accounts of the Andy Johns division relied on in computing the Collateral Borrowing Base as set forth on the Reconciliation Report for the months ended November and December. In addition, the proceeds of the Revolving Credit Loans made to BAI for its Varon division shall be less than the Eligible Accounts of the Varon division relied on in computing the Collateral Borrowing Base as set forth on the Reconciliation Report in amounts of at least $1,000,000, $2,000,000 and $3,000,000 for the months ended October, November, and December, respectively. In addition, notwithstanding the foregoing (1) the proceeds of intercompany loans or advances made to BAI which are used to finance the Andy Johns division of BAI (excluding amounts related to corporate expenses, management fee expenses, and state and federal income taxes between BAI and Apparel) shall not exceed an amount equal to Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000) in the aggregate at any time, and (2) the proceeds of intercompany loans or advances made to BAI which are used to finance the Varon division of BAI (excluding amounts related to corporate expenses, management fee expenses, and state and federal income taxes between BAI and Apparel) shall not exceed Three Million Nine Hundred Fifty-Three Dollars ($3,000,953) in the aggregate at any time. (e) The definition of "Working Capital Borrowing Base" is amended by inserting after "time" in the first line thereof the following: "prior to August 30, 1996 and on and after January 1, 1997,". (f) Section 3.01, LETTERS OF CREDIT, is amended by adding at the end thereof the following: Notwithstanding the foregoing, during the period from August 15, 1996 to December 31, 1996 3 Chase will not be required to issue a Letter of Credit or amend an outstanding Letter of Credit if after giving effect to the issuance thereof or amendment thereto the total of (a) the aggregate face amount of all Letters of Credit issued during such period plus (b) the increase in the face amount of all outstanding Letters of Credit during such period less (c) the aggregate face amount of all Letters of Credit cancelled during such period, is equal to or greater than Eleven Million Five Hundred Thousand Dollars ($11,500,000). In addition, during such period, Chase will not be required to issue a Letter of Credit or amend an outstanding Letter of Credit issued for the account of BAI where the goods covered by such Letter of Credit are for or such Letter of Credit otherwise relates to the Andy Johns division of BAI if after giving effect to the issuance thereof or amendment thereto the total of (a) the aggregate face amount of all such Letters of Credit issued during such period plus (b) the increase in the face amount of all such outstanding Letters of Credit during such period less (c) the aggregate face amount of all Letters of Credit cancelled during such period, is equal to or greater than Two Million Five Hundred Thousand Dollars ($2,500,000). SECTION 2. WAIVER. Because the August 7, 1996 and August 15, 1996 Reconciliation Reports reflected that Outstanding Working Capital Obligations exceeded the Working Capital Borrowing Base and the Borrowers failed to make a prepayment in the amount of such excess within one (1) day thereof, the Borrowers are not in compliance with Section 2.08, MANDATORY PREPAYMENTS of the Credit Agreement. Such noncompliance constitutes Events of Default under the Credit Agreement. The Borrowers have requested that each Lender and each Agent waive such Events of Default. Upon the conditions set forth below, each Lender and each Agent waive the Borrowers failure to comply with Section 2.08, MANDATORY PREPAYMENTS for the periods set forth in the August 7, 1996 and August 15, 1996 Reconciliation Reports. No Lender nor Agent waives any future noncompliance with such Section. SECTION 3. CONDITIONS OF EFFECTIVENESS TO THIS AMENDMENT AND WAIVER. This Amendment and Waiver shall become effective on the date on which the Agent shall have received each of the following documents, in form and substance satisfactory to the Agent and its counsel and the Lenders, and each of the following requirements shall have been fulfilled: 4 (1) THIS AMENDMENT AND WAIVER. The Borrowers, the Lenders and the Agents shall each have executed and delivered this Amendment and Waiver; (2) INTERCOMPANY LOAN SCHEDULE. The Borrowers shall have delivered its most recent Intercompany Loan Schedule for each Borrower and each Borrower's divisions prior to the date of this Amendment, and such Intercompany Loan Schedule shall be in form and substance satisfactory to the Lenders and the Agents in their sole discretion; (3) OFFICER'S CERTIFICATE. The following statements shall be true and the Agent shall have received a certificate signed by a duly authorized officer of each Borrower dated the effective date of this Amendment and Waiver stating that: (a) The representations and warranties contained in the Credit Agreement and in each of the other Facility Documents are true and correct on and as of the effective date of this Amendment and Waiver as though made on and as of such date; (b) After giving effect to this Amendment and Waiver, no Default or Event of Default has occurred and is continuing; and (c) The amounts set forth on the Intercompany Loan Schedule delivered in connection with this Amendment are true and correct; (4) LENDERS' FEES. The Borrowers shall have paid to the Agent a fee of Twenty-Five Thousand Dollars ($25,000) for the account of the Lenders. The Agent will promptly thereafter cause to be distributed to each Lender such Lender's Pro Rata Share of such fees; (5) LEGAL BILL. Dewey Ballantine will be paid in full for all legal fees, costs and expenses in connection with the preparation of the Amendment and Waiver and all past due legal fees, costs and expenses; (6) ADDITIONAL DOCUMENTATION. The Agent shall have received such other approvals, opinions or documents as any Lender may reasonably request. SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. (a) 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 5 and be a reference to the Credit Agreement as amended hereby. (b) 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. (c) The execution, delivery and effectiveness of this Amendment and Waiver shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or Agent under any of the Facility Documents, nor, except as expressly provided herein, 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 Amendment and Waiver 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 Amendment and Waiver shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. HEADINGS. Section headings in this Amendment and Waiver are included herein for convenience of reference only and shall not constitute a part of this Amendment and Waiver for any other purpose. SECTION 8. COUNTERPARTS. This Amendment and Waiver 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 Amendment and Waiver by signing any such counterpart. [INTENTIONALLY LEFT BLANK.] 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed as of the day and year first above written. BISCAYNE APPAREL, INC. By______________________________ Name: Peter Vandenberg Jr. Title: Vice President BISCAYNE APPAREL INTERNATIONAL, INC. By______________________________ Name: Peter Vandenberg Jr. Title: Vice President MACKINTOSH OF NEW ENGLAND CO. By______________________________ Name: Peter Vandenberg Jr. Title: Vice President M & L INTERNATIONAL, INC. By______________________________ Name: Peter Vandenberg Jr. Title: Vice President THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.; "Chase"), as Lender By___________________________ Name: Title: MILBERG FACTORS, INC., as Lender By:_____________________________ Name: Title: 7 CORESTATES BANK, N.A., as Lender By:_____________________________ Name: Title: THE FIRST NATIONAL BANK OF BOSTON, as Lender By:_____________________________ Name: Title: FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), as Lender By___________________________ Name: Title: THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.; "Chase"), as Agent By____________________________ Name: Title: MILBERG FACTORS, INC., as Servicing Agent By:_____________________________ Name: Title: 8 EXHIBIT 10.2 SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "Second Amendment") dated as of February 24, 1997 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 (successor by merger with The Chase Manhattan Bank, N.A.), CORESTATES BANK, N.A., THE FIRST NATIONAL BANK OF BOSTON, FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), and MILBERG FACTORS, INC. (individually, each a "Lender" and collectively, the "Lenders"), THE CHASE MANHATTAN BANK (successor by merger with The Chase Manhattan Bank, N.A.), 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"). PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Lenders and the Agents have entered into an Amended and Restated Credit Agreement and Guaranty dated as of March 28, 1996, as amended by a First Amendment and Waiver to Amended and Restated Credit Agreement dated August 30, 1996 (as so amended and waived, the "Credit Agreement"). 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. 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) The following definition is added in its proper alphabetical order: "Cash Collateral" means a deposit by Borrowers, made in immediately available funds, to a savings, checking or time deposit account at the Agent or the purchase by the Borrowers of a certificate of deposit issued by the Agent and the execution of all documents and the taking of all steps required to give the Agent a perfected first priority Lien in such deposit or certificate of deposit. (b) Section 3.01, LETTERS OF CREDIT, is amended by (i) deleting the provisos which begin in line 15 and 16 of the first paragraph thereof and inserting in their place the following: "; provided, further, that Chase will not be required to issue a Letter of Credit with a maturity date later than September 30, 1997; provided; further, that Chase will not be required to issue or amend a Letter of Credit with a maturity date between April 1, 1997 and September 30, 1997 if after giving effect to the issuance thereof or the amendment thereto the aggregate face amount of all Letters of Credit issued by Chase with a maturity date between April 1, 1997 and September 30, 1997 is equal to or greater than Seventeen Million Six Hundred Thousand Dollars ($17,600,000)" and (ii) adding after the first paragraph thereof the following: "Notwithstanding the foregoing, on April 1, 1997, the Borrowers shall provide a standby letter of credit with an expiration date no earlier than November 30, 1997, in an amount equal to one hundred five percent (105%) of the undrawn face amount of all Letters of Credit outstanding on such date issued by a financial institution acceptable to the Required Lenders and pursuant to which Chase can draw for any unpaid reimbursement obligation in connection with any and all such outstanding Letters of Credit, or in the event that the Required Lenders determine that the proposed financial institutions are not acceptable, the Borrowers shall provide Cash Collateral in an amount equal to one hundred five percent (105%) of the undrawn face amount of all Letters of Credit outstanding on such date." (c) Section 3.03, PAYMENT OF COMMISSIONS, EXPENSES AND INTEREST, is amended deleting the last paragraph therein and inserting in its place the following: "In addition to any and all of Chase's customary issuance fees and other expenses to be paid by each Borrower to Chase for its own account 2 with respect to a Letter of Credit and Letters of Indemnity, the applicable Borrower shall pay to Chase for the account of the Lenders a drawing fee equal to the greater of: (1) five-sixteenths of one percent (5/16%) of the amount drawn under such Letter of Credit or (2) Chase's then effective minimum charge for a draw under a letter of credit. SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS SECOND AMENDMENT. This Second Amendment shall become effective on the date on which the Agent shall have received each of the following documents, in form and substance satisfactory to the Agent and its counsel and the Lenders, and each of the following requirements shall have been fulfilled: (1) THIS SECOND AMENDMENT. The Borrowers, the Lenders and the Agents shall each have executed and delivered this Second Amendment; and (2) ADDITIONAL DOCUMENTATION. The Agent shall have received such other approvals, opinions or documents as any Lender may reasonably request. SECTION 3. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. (a) 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. (b) 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. (c) The execution, delivery and effectiveness of this Second Amendment shall not operate as a waiver of any present or future 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, nor constitute a waiver of any Default or Event of Default. 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 Second Amendment and any other instruments and documents to be delivered hereunder, including, without limitation, the fees 3 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 Second 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 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 7. 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. [INTENTIONALLY LEFT BLANK.] 4 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______________________________ Name: Peter Vandenberg Jr. Title: Vice President BISCAYNE APPAREL INTERNATIONAL, INC. By______________________________ Name: Peter Vandenberg Jr. Title: Vice President MACKINTOSH OF NEW ENGLAND CO. By______________________________ Name: Peter Vandenberg Jr. Title: Vice President M & L INTERNATIONAL, INC. By______________________________ Name: Peter Vandenberg Jr. Title: Vice President THE CHASE MANHATTAN BANK (successor by merger with The Chase Manhattan Bank, N.A.), as Lender By___________________________ Name: Title: MILBERG FACTORS, INC., as Lender By:_____________________________ Name: Title: 5 CORESTATES BANK, N.A., as Lender By:_____________________________ Name: Title: THE FIRST NATIONAL BANK OF BOSTON, as Lender By:_____________________________ Name: Title: FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), as Lender By___________________________ Name: Title: THE CHASE MANHATTAN BANK (successor by merger with The Chase Manhattan Bank, N.A.), as Agent By____________________________ Name: Title: MILBERG FACTORS, INC., as Servicing Agent By:_____________________________ Name: Title: 6 [LETTERHEAD] EXHIBIT 10.10 December 30, 1996 Mr. Peter Vandenberg Jr. Vice President, Treasurer and Chief Financial Officer Biscayne Apparel, Inc. 1373 Broad Street, 3rd Floor Clifton, New Jersey 07013 RE: WARRANT NO. W-2, DATED MARCH 26, 1996 Dear Chip: Reference is made to Warrant No. W-2, dated March 26, 1996 (the "TRIVEST WARRANT"), entitling Trivest, Inc. to purchase 200,000 shares of the Common Stock, $.01 par value (the "COMMON STOCK"), of Biscayne Apparel, Inc. (the "COMPANY") Section 6.3 of the Trivest Warrant provides that the number of shares of Common Stock subject to the Trivest Warrant shall be adjusted in the event of certain issuances of Common Stock by the Company. These adjustment provisions do not apply to, among other things, shares issued pursuant to the Company's stock options for employees and directors. We understand that the Company intends to issue warrants to certain employees of the Company and its subsidiaries (Warrants No. W-3, W-4, W-5 and W-6), for an aggregate of 140,000 shares of Common Stock (collectively, the "EMPLOYEE WARRANTS"). This will confirm that we waive all provisions of the Trivest Warrant (including, without limitation, Section 6.3 thereof) that would cause the number of shares of Common Stock subject thereto to be adjusted by reason of (i) the issuance of the Employee Warrants, or (ii) the issuance of shares of Common Stock upon the exercise of the Employee Warrants. Sincerely, /s/ EARL W. POWELL ------------------ Earl W. Powell Chief Executive Officer EXHIBIT 10.11 SALARY DEFERRAL AGREEMENT This Agreement is made and entered into as of the 31st day of March, 1996, to be effective as of January 1, 1996, by and between BISCAYNE APPAREL, INC., a Florida corporation (the "COMPANY"), and PETER VANDENBERG, JR. (the "EXECUTIVE.") PRELIMINARY STATEMENTS: A. The Executive is employed as the Vice President and Chief Financial Officer of the Company, at an annual base salary of $185,000 (the "BASE SALARY.") B. The Executive is willing to reduce the amount of his Base Salary for the calendar year beginning January 1, 1996 by $15,000, on the terms and subject to the conditions set forth in this Agreement. AGREEMENT: NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. PREAMBLE AND RECITALS. The preamble and recitals hereinabove set forth are incorporated herein and made a part hereof. 2. WARRANT. On or before December 30, 1996, the Company shall cause to be issued to the Executive a warrant (the "WARRANT") to purchase 15,000 shares (individually, a "WARRANT SHARE" and collectively, the "WARRANT SHARES") of the Company's Common Stock, $.01 par value, and containing terms substantially as set forth on EXHIBIT A hereto. 3. SALARY DEFERRAL. (a) The Executive's Base Salary shall be reduced by $15,000 (the "1996 REDUCTION AMOUNT"), from $185,000 to $170,000, with respect to the period from January 1, 1996 through December 31, 1996. Effective January 1, 1997, the Executive's Base Salary shall be restored to $185,000, or such higher amount as shall be approved by the Compensation Committee of the Company's Board of Directors in its sole and absolute discretion. (b) At any time after February 15, 1997 and prior to February 15, 2000, the Executive may elect, by written notice to the Company, to receive cash payment of the 1996 Reduction Amount, in which case: (i) one-half of the 1996 Reduction Amount will be paid to the Executive (subject to applicable withholdings), in 52 equal weekly installments commencing with the second regular payroll date next succeeding such election (the "COMMENCEMENT DATE"); and (ii) the remaining one-half of the 1996 Reduction Amount will be paid to the Executive (subject to applicable withholdings) in a lump sum on the first anniversary of the Commencement Date. (c) Regardless of whether the Executive has made the election referred to in Section 3(b) hereof, if the combined pretax income plus management fees, corporate expense and amortization of goodwill ("OPERATING INCOME") of the Company's Andy Johns Fashions International divisions and Mackintosh of New England, Co. subsidiary for the fiscal years ending December 31, 1996, 1997 or 1998 exceeds 75% of the actual 1993 Operating Income of $3,400,000 (I.E., $2,550,000), the Company shall pay the Executive in cash (subject to applicable withholdings) an amount equal to 1% of the 1996 Reduction Amount for each 1% of Operating Income earned in any such fiscal year in excess of $2,550,000. Payment of any such amount with respect to any such fiscal year shall be made no later than 75 days after the close of such fiscal year. Notwithstanding any provision of this Agreement which may be to the contrary, any amounts otherwise payable to the Executive pursuant to the provisions of Section 3(b) hereof shall be reduced by the amount of any payments to the Executive pursuant to this Section 3(c). (d) In the event that the Executive's employment with the Company shall be terminated for any reason, then any and all unpaid amounts of the 1996 Reduction Amount shall become due and payable and the Company shall make payment thereof to the Executive (subject to applicable withholdings) no later than 30 days after the date of such termination of employment. (e) Notwithstanding any provision of this Agreement or the Warrant which may be to the contrary (but subject to the adjustment provisions contained in the Warrant), (i) the number of unexcercised Warrant Shares subject to the Warrant shall be reduced by one (1) share for each $1.00 of the 1996 Reduction Amount paid to the Executive pursuant to Sections 3(b), 3(c) or 3(d) hereof, and (ii) in no event shall the Executive be entitled to receive any payment of the 1996 Reduction Amount pursuant to Sections 3(b), 3(c) or 3(d) to the extent that the amount of any such payment, when aggregated with all prior payments, exceeds the remainder of (A) the 1996 Reduction Amount, MINUS (B) the number of Warrant Shares issued (or issuable) to the Executive under the Warrant pursuant to any exercise(s) of the Warrant occurring prior to the date of any such payment pursuant to the provisions thereof. 4. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey. 5. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings and arrangements, both oral and written, between the parties hereto with respect to such subject matter. This Agreement may not be modified in any way unless by a written instrument signed by each of the parties hereto. 6. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and shall be given by personal delivery, facsimile transmission, Federal Express (or other equivalent courier service) or by registered or certified mail, postage prepaid, return receipt requested (i) if to the Company, to the address of its principal offices in Clifton, New Jersey, Attention: President, with a copy to Trivest, Inc., 2665 South Bayshore Drive, Suite 800, Miami, Florida 33133, Attention: General Counsel, and (ii) if to the Executive, to his address as reflected on the payroll records of the Company, or to such other addresses as either party hereto may from time to time give notice of to the other. Notice by registered or certified mail will be effective three days after deposit in the United States mail. Notice by any other 2 permitted means will be effective upon receipt. 7. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns, including, without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise. 8. WAIVERS. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation. 9. ARBITRATION. ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR INVALIDITY THEREOF, SHALL BE FINALLY RESOLVED IN NEWARK, NEW JERSEY, IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION AS THEN IN EFFECT. SUCH ARBITRATION SHALL BE CONDUCTED BEFORE AN ARBITRATOR SELECTED BY THE PARTIES TO SUCH DISPUTE, CONTROVERSY OR CLAIM. IF THE PARTIES FAIL TO AGREE ON THE ARBITRATOR WITHIN 30 DAYS AFTER NOTICE BY ONE PARTY TO THE OTHER OF THE EXISTENCE OF A DISPUTE, CONTROVERSY OR CLAIM, THE ARBITRATOR SHALL BE SELECTED BY THE AMERICAN ARBITRATION ASSOCIATION. THE NON-PREVAILING PARTY SHALL PAY THE FEES AND EXPENSES OF THE ARBITRATOR, AS WELL AS ALL REASONABLE COSTS, FEES (INCLUDING REASONABLE ATTORNEYS' FEES) AND EXPENSES OF THE PREVAILING PARTY IN CONNECTION WITH ANY SUCH ARBITRATION. JUDGMENT ON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY COURT OF COMPETENT JURISDICTION. 10. SECTION HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. BISCAYNE APPAREL, INC. By:/s/ Earl W. Powell -------------------- Earl W. Powell Chairman of the Board 3 /s/ Peter Vandenburg, Jr. ------------------------- PETER VANDENBERG, JR. 4 EXHIBIT A WARRANT TERMS Exercise Price: $.75 per share Exercisable: From and after January 1, 1997 through and including December 31, 2001 Termination: December 31, 2001 Adjustment Provisions: Standard Registration Rights: Piggyback EXHIBIT 10.12 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO CERTAIN AGREEMENTS, INCLUDING, WITHOUT LIMITATION, REDUCTION OF THE NUMBER OF SHARES OF WARRANT STOCK AVAILABLE FOR ISSUE HEREUNDER, AS SET FORTH IN A SALARY DEFERRAL AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF, DATED AS OF MARCH 31, 1996, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE. DECEMBER 30, 1996 BISCAYNE APPAREL, INC. (INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA) WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK NO. W-6 FOR VALUE RECEIVED, BISCAYNE APPAREL, INC. (the "Company"), a Florida corporation, hereby certifies that PETER VANDENBERG, JR. or transferees or assigns (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, up to 15,000 fully paid and non-assessable shares of Common Stock at a price of $0.75 per share (the "Exercise Price"). The term "Common Stock" means the Common Stock, par value $.01 per share, of the Company as constituted on December 30, 1996 (the "Base Date"). The number of shares of Common Stock to be received upon the exercise of this Warrant may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as "Warrant Stock." The term "Other Securities" means any other equity or debt securities that may be issued by the Company in addition thereto or in substitution for the Warrant Stock. The term "Company" means and includes the corporation named above as well as (i) any immediate or more remote successor corporation resulting from the merger or consolidation of such corporation (or any immediate or more remote successor corporation of such corporation) with another corporation, or (ii) any corporation to which such corporation (or any immediate or more remote successor corporation of such corporation) has transferred its property or assets as an entirety or substantially as an entirety. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reason ably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held subject to, all of the conditions, limitations and provisions set forth herein. 1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part at any time, or from time to time during the period commencing on January 1, 1997 and expiring 5:00 p.m. Eastern Time on December 31, 2001 (the "Expiration Date") or, if such day is a day on which banking institutions in New York are authorized by law to close, then on the next succeeding day that shall not be such a day, by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Warrant Exercise Form attached hereto duly executed and accompanied by payment (either in cash or by bank check, payable to the order of the Company) of the Exercise Price for the number of shares specified in such form and instruments of transfer, if appropriate, duly executed by the Holder or his or her duly authorized attorney. In the alternative, the Exercise Price for the number of shares specified in the Warrant Exercise Form may be paid by (i) surrendering to the Company securities of the Company having a fair market value equal to the Exercise Price, or (ii) deducting from the number of shares of Warrant Stock to be delivered upon exercise of the Warrant a number of shares which has an aggregate fair market value equal to the Exercise Price. Fair market value shall be determined as provided in paragraph 3 hereof. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant, together with the Exercise Price, at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or 2 similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exercise of this Warrant. Notwithstanding any other provisions hereof, if an exercise of any portion of the Warrant is to be made in connection with a public offering of Common Stock, the exercise of any portion of this Warrant may at the election of the Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until the consummation of such transaction. 2. RESERVATION OF SHARES; LISTING OF SHARES. The Company will at all times reserve for issuance and delivery upon exercise of this Warrant all shares of Common Stock or other shares of capital stock of the Company (and Other Securities) from time to time receivable upon exercise of this Warrant. All such shares (and Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights. The Company will use its best efforts to cause the Warrant Stock, immediately upon such exercise, to be listed on any domestic securities exchange upon which shares of Common Stock are listed at the time of such exercise. 3. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but the Company shall pay the holder an amount equal to the fair market value of such fractional share of Common Stock in lieu of each fraction of a share otherwise called for upon any exercise of this Warrant. For purposes of this Warrant, the fair market value of a share of Common Stock shall be determined as follows: (a) If the Common Stock is listed on a National Securities Exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ system, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange or system; or (b) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or (c) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. 3 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations, entitling the Holder or Holders thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. 6. ANTI-DILUTION PROVISIONS. In order to prevent dilution of the rights granted under the Warrant, the following provisions shall apply: 6.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any time subdivide its outstanding shares of Common Stock (or other securities at the time receivable upon the exercise of the Warrant) by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its shareholders, the number of shares of Common Stock subject to this Warrant immediately prior to such subdivision shall be proportionately increased, and if the Company shall at any time combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock subject to this Warrant immediately prior to such combination shall be proportionately decreased. Any such adjustment and adjustment to the Exercise Price pursuant to this Section 6.1 shall be effective at the close of business on the effective date of such subdivision or combination or if any adjustment is the result of a stock dividend or distribution then the effective date for such adjustment based thereon shall be the record date therefor. 6.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of any reorganization of the Company (or any other corporation, the securities of which are at the time receivable on the exercise of this Warrant) after the Base Date or in case after such date the Company (or any such other corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation, then, and in each such case, the Holder of this Warrant upon the exercise thereof as provided in Section 1.1 at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled 4 to receive, in lieu of the securities and property receivable upon the exercise of this Warrant prior to such consummation, the securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto; in each such case, the terms of this Warrant shall be applicable to the securities or property receivable upon the exercise of this Warrant after such consummation. 6.3 ADJUSTMENT OF EXERCISE PRICE. Whenever the number of shares of Common Stock purchasable upon the exercise of this Warrant is adjusted, as provided in this Section 6, the Exercise Price shall be adjusted to the nearest cent by multiplying such Exercise Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise immediately prior to such adjustment, and (y) the denominator of which shall be the number of shares of Common Stock so purchasable immediately thereafter. 6.4 NO DILUTION. The Company will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, while any Warrant is outstanding, the Company (a) will not permit the par value, if any, of the shares of stock receivable upon the exercise of this Warrant to be above the amount payable therefor upon such exercise and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue or sell fully paid and non-assessable stock upon the exercise of all Warrants at the time outstanding. 6.5 CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment in the number of shares of Common Stock receivable on the exercise of the Warrant, the Company at its expense will promptly compute such adjustment in accordance with the terms of the Warrant and prepare a certificate executed by an executive officer of the Company setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company will forthwith mail a copy of each such certificate to each Holder. 6.6 NOTICES OF RECORD DATE, ETC. In case: (a) the Company shall take a record of the holders of its Common Stock (or Other Securities at the time receivable upon the exercise of the Warrant) for the purpose of entitling them to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, or to receive any other right; or 5 (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation; or (c) of any voluntary or involuntary dissolution, liquidation or winding up of the Company, then, and in each such case, the Company shall mail or cause to be mailed to each holder of the Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, and the time, if any is to be fixed, as to which the holders of record of Common Stock (or such other securities at the time receivable upon the exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such other securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be mailed at least 20 days prior to the date therein specified and the Warrant may be exercised prior to said date during the term of the Warrant. 7. REGISTRATION RIGHTS. 7.1 PIGGYBACK REGISTRATION RIGHTS. If the Company, at any time during the period commencing on the date hereof and ending on the Expiration Date, proposes to file a registration statement on a general form for registration under the Securities Act, other than a registration effected solely to implement any employee benefit plan or a transaction to which Rule 145 promulgated under the Securities Act is applicable, and relating to securities issued or to be issued by it, then it shall give written notice of such proposal to each Holder at least 30 days prior to filing such registration statement with the Securities and Exchange Commission. If, within 20 days after the giving of such notice, the Holder shall request in writing that all or any shares of Warrant Stock or Other Securities issued or issuable to the Holder upon exercise of this Warrant be included in such proposed registration, the Company will also register such securities as shall have been requested in writing; provided, however, that: (a) the Holder shall cooperate with the Company in the preparation of such registration statement to the extent required to furnish information concerning such owners therein; (b) the Holder may not request that its shares of Warrant Stock or Other Securities be included, pursuant to this Section 7.1, in more than two registration statements; 6 (c) if any underwriter or managing agent is purchasing or arranging for the sale of the securities then being offered by the Company under such registration statement, then the Holder (i) shall agree to have the securities being so registered sold to or by such underwriter or managing agent on terms substantially equivalent to the terms upon which the Company is selling the securities so registered, or (ii) if such underwriter or managing agent so requests, shall delay the sale of such securities for the 90 day period commencing with the effective date of the registration statement; and (d) (i) if in the written opinion of the Company's managing underwriter, if any, for the offering contemplated by such registration statement, the inclusion of all or a portion of the shares of Warrant Stock or Other Securities requested to be registered, when added to the securities being registered by the Company or any selling security holder, will exceed the maximum amount of the Company's securities which can be marketed (A) at a price reasonably related to their then current market value, or (B) without otherwise materially adversely affecting the entire offering, then the Company may exclude from such offering a pro rata portion of the shares of Warrant Stock or Other Securities requested to be registered as required by the managing underwriter; (ii) if securities are proposed to be offered for sale pursuant to such registration statement by other security holders of the Company and the total number of securities to be offered by the holders of all the Warrants and shares of Warrant Stock and Other Securities and such other selling security holders is required to be reduced pursuant to a request from the managing underwriter (which request shall be made only for the reasons and in the manner set forth above) the aggregate number of shares of Warrant Stock and Other Securities to be offered by the Holders pursuant to such registration statement shall equal the number which bears the same ratio to the maximum number of securities that the underwriter believes may be included for all the selling security holders (including the Holders of all the Warrants) as the original number of shares of Warrant Stock or Other Securities proposed to be sold by the Holders of all the Warrants bears to the total original number of securities proposed to be offered by the Holders of all the Warrants and the other selling security holders; and (iii) and in the event the Company exercises the rights granted under this Section 7.1, the Holder(s) shall retain any remaining piggyback registration rights for their shares of Warrant Stock or Other Securities (to the extent not registered) as set forth in this Section 7.1. 7.2 COMPANY OBLIGATIONS. In connection with the filing of a registration statement pursuant to Section 7.1, the Company shall: (a) notify the Holders as to the filing thereof and of all amendments thereto filed prior to the effective date of said registration statement; 7 (b) notify the Holders promptly after it shall have received notice of the time when the registration statement becomes effective or any supplement to any prospectus forming a part of the registration statement has been filed; (c) prepare and file without expense to the Holders any necessary amendment or supplement to such registration statement or prospectus as may be necessary to comply with Section 10(a)(3) of the Securities Act or advisable in connection with the proposed distribution of the securities by the Holders; (d) take all reasonable steps to qualify the shares of Warrant Stock or Other Securities, issued or issuable upon exercise of this Warrant for sale under the securities or blue sky laws of such reasonable number of states as such Holders may designate in writing and to register or obtain the approval of any federal or state authority which may be required in connection with the proposed distribution, except, in each case, in jurisdictions in which the Company must either qualify to do business or file a general consent to service of process as a condition to the qualification of such securities; (e) notify the Holders of any stop order suspending the effectiveness of the registration statement and use its reasonable best efforts to remove such stop order; (f) undertake to keep such registration statement and prospectus effective for a period of nine months after its effective date; and (g) furnish to the Holders as soon as available, copies of any such registration statement and each preliminary or final prospectus and any supplement or amendment required to be prepared pursuant to the foregoing provisions of Section 7.1 hereof, all in such quantities as the Holders may from time to time reasonably request. 7.3 FEES AND EXPENSES. The Holders of the shares of Warrant Stock or Other Securities being so registered agree to pay all applicable underwriting discounts and commissions, brokerage commissions and transfer taxes with respect to the securities owned by them being registered. The Company will pay all other costs and expenses in connection with a registration statement to be filed pursuant to Section 7.1 hereof including, without limitation, the fees and expenses of counsel for the Company and the Holders, the fees and expenses of its accountants and all other costs and expenses incident to the preparation, printing and filing under the Securities Act of any such registration statement, each prospectus and all amendments and supplements thereto, the costs incurred in connection with the qualification of such securities for sale in such reasonable number of states as Holders have designated, including fees and disbursements of counsel for the Company, and the costs of supplying a reasonable number of copies of the registration statement, each preliminary prospectus, final prospectus and any supplements or amendments thereto to such Holders. 8 7.4 INDEMNIFICATION. The Company agrees to enter into an appropriate cross-indemnity agreement with any underwriter (as defined in the Securities Act) for such Holders in connection with the filing of a registration statement pursuant to Sections 7.1 hereof. If the Company shall file any registration statement including therein all or any part of the shares of Warrant Stock or Other Securities, the Company and each Holder shall enter into an appropriate cross-indemnity agreement whereby the Company shall indemnify and hold harmless the Holder against any losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make statements therein not misleading unless such statement or omission was made in reliance upon and in conformity with written information furnished or required to be furnished by any such Holder, and each such Holder shall indemnify and hold harmless the Company, each of its directors and officers who have signed the registration statement and each person, if any, who controls the Company, within the meaning of the Securities Act against any losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with written information furnished or required to be furnished by such Holder expressly for use in such registration statement. 7.5 MISCELLANEOUS. Nothing herein shall be construed to require any of the Holders who may desire to include any shares of Warrant Stock in any registration statement referred to in Section 7.1 hereof to exercise their Warrants prior to the effective date of any registration statement and such Holders, at their option, to the extent permissible by law, may exercise the Warrants against payment of the proceeds of the sale of such Warrant Stock or Other Securities pursuant to a registration statement. 8. TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant and any Warrant Stock or Other Securities may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock or Other Securities may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 8 with respect to any resale or other disposition of such securities; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 9 9. LEGEND. Unless the shares of Warrant Stock or Other Securities have been registered under the Securities Act, upon exercise of any of the Warrants and the issuance of any of the shares of Warrant Stock, all certificates representing shares shall bear on the face thereof substantially the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of, unless registered pursuant to the provisions of that Act or unless an opinion of counsel to the Corporation is obtained stating that such disposition is in compliance with an available exemption from such registration. 10. ADJUSTMENT FOR SALARY DEFERRAL. THE COMPANY HAS ENTERED INTO A SALARY DEFERRAL AGREEMENT, DATED AS OF MARCH 31, 1996, WITH THE HOLDER (THE "SALARY DEFERRAL AGREEMENT.") THE NUMBER OF SHARES OF WARRANT STOCK ISSUABLE TO THE HOLDER HEREUNDER SHALL BE SUBJECT TO REDUCTION AS PROVIDED IN THE SALARY DEFERRAL AGREEMENT. 11. NOTICES. All notices required hereunder shall be in writing and shall be deemed given when telegraphed, delivered personally or within two days after mailing when mailed by certified or registered mail, return receipt requested, to the Company or the Holder, as the case may be, for whom such notice is intended, at the address of such party as set forth on the first page, or at such other address of which the Company or the Holder has been advised by notice hereunder. 12. APPLICABLE LAW. The Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Florida. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written. BISCAYNE APPAREL, INC. By:/s/ EARL W. POWELL ---------------------- Earl W. Powell Chairman of the Board 10 WARRANT EXERCISE FORM The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ shares of Common Stock of Biscayne Apparel, Inc., a Florida corporation, and hereby makes payment of $__________ in payment therefor. - -------------------------------------------------------------------------------- Signature - -------------------------------------------------------------------------------- Signature, if jointly held - -------------------------------------------------------------------------------- Date INSTRUCTIONS FOR ISSUANCE OF STOCK (IF OTHER THAN TO THE REGISTERED HOLDER OF THE WITHIN WARRANT) Name___________________________________________________________________ (Please typewrite or print in block letters) Address________________________________________________________________ ________________________________________________________________ Social Security or Taxpayer Identification Number____________________________________________ ASSIGNMENT FORM FOR VALUE RECEIVED,______________________________________________________ hereby sells, assigns and transfers unto Name___________________________________________________________________________ (Please typewrite or print in block letters) the right to purchase Common Stock of Biscayne Apparel, Inc., a Florida corporation, represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint __________________________________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. DATED: _____________, 199__. _____________________________ Signature _____________________________ Signature, if jointly held EXHIBIT 10.27 Execution Copy FIRST AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY FIRST AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "Amendment and Waiver") dated as of August 30, 1996 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 (successor by merger to The Chase Manhattan Bank, N.A.), CORESTATES BANK, N.A., THE FIRST NATIONAL BANK OF BOSTON, FLEET BANK N.A. (successor by merger to Natwest Bank, N.A.), and MILBERG FACTORS, INC. (individually, each a "Lender" and collectively, the "Lenders"), THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.), 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"). PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Lenders and the Agents have entered into an Amended and Restated Credit Agreement and Guaranty dated as of March 28, 1996 (the "Credit Agreement"). The terms defined in the Credit Agreement are used in this Amendment and Waiver as in the Credit Agreement unless otherwise defined in this Amendment and Waiver. The Borrowers, the Lenders and the Agents have agreed to amend and waive 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 following definition is added in its proper alphabetical order: "Andy Johns" means Andy Johns Fashions International. (b) The definition of "Revolving Credit Loans Borrowing Base" is amended by deleting the first sentence thereof in its entirety and inserting in its place the following: "Revolving Credit Loans Borrowing Base" means for each date or period specified below the lesser of (1) an amount equal to the total of (a) the Collateral Borrowing Base, and to the extent the amount is a positive number plus, and to the extent the amount is a negative number minus, the integer of (b) the Revolving Credit Loans Permitted Overadvance or (2) column A set forth below for such date or period: DATE OR PERIOD A -------------- - August 30, 1996 to and including August 31, Thirty Million Dollars ($30,000,000) 1996 September 1, 1996 to and including Thirty-Three Million Dollars ($33,000,000) October 30, 1996 October 31, 1996 to and including Twenty-Five Million Dollars ($25,000,000) November 29, 1996 November 30, 1996 to and including Sixteen Million Dollars ($16,000,000) December 30, 1996 On December 31, 1996 Eight Million Dollars ($8,000,000) January 1, 1997 to the Revolving Credit Fifty Million Dollars ($50,000,000) Termination Date (c) The definition of "Revolving Credit Loans Permitted Overadvance (During the Month)" is amended by deleting the months of August, September, October, November and December and the amounts corresponding to such months and inserting in their place the following: MONTH AMOUNT ----- ------ August $ 14,750,000 September $ 7,000,000 October $ 2,500,000 November $ (2,000,000) December $ (3,500,000) (d) The definition of "Revolving Credit Loans Permitted Overadvance (Month End)" is amended by (i) deleting the months of August, September and October and the amounts corresponding to such months and inserting in their place the following: 2 MONTH AMOUNT ----- ------ August $ 5,250,000 September $ 0 October $ (5,000,000) and (ii) inserting at the end thereof the following: Notwithstanding the foregoing, the proceeds of the Revolving Credit Loans made to BAI which are used to finance its Andy Johns division shall be equal to or less than the Eligible Accounts of the Andy Johns division relied on in computing the Collateral Borrowing Base as set forth on the Reconciliation Report for the months ended November and December. In addition, the proceeds of the Revolving Credit Loans made to BAI for its Varon division shall be less than the Eligible Accounts of the Varon division relied on in computing the Collateral Borrowing Base as set forth on the Reconciliation Report in amounts of at least $1,000,000, $2,000,000 and $3,000,000 for the months ended October, November, and December, respectively. In addition, notwithstanding the foregoing (1) the proceeds of intercompany loans or advances made to BAI which are used to finance the Andy Johns division of BAI (excluding amounts related to corporate expenses, management fee expenses, and state and federal income taxes between BAI and Apparel) shall not exceed an amount equal to Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000) in the aggregate at any time, and (2) the proceeds of intercompany loans or advances made to BAI which are used to finance the Varon division of BAI (excluding amounts related to corporate expenses, management fee expenses, and state and federal income taxes between BAI and Apparel) shall not exceed Three Million Nine Hundred Fifty-Three Dollars ($3,000,953) in the aggregate at any time. (e) The definition of "Working Capital Borrowing Base" is amended by inserting after "time" in the first line thereof the following: "prior to August 30, 1996 and on and after January 1, 1997,". (f) Section 3.01, LETTERS OF CREDIT, is amended by adding at the end thereof the following: Notwithstanding the foregoing, during the period from August 15, 1996 to December 31, 1996 3 Chase will not be required to issue a Letter of Credit or amend an outstanding Letter of Credit if after giving effect to the issuance thereof or amendment thereto the total of (a) the aggregate face amount of all Letters of Credit issued during such period plus (b) the increase in the face amount of all outstanding Letters of Credit during such period less (c) the aggregate face amount of all Letters of Credit cancelled during such period, is equal to or greater than Eleven Million Five Hundred Thousand Dollars ($11,500,000). In addition, during such period, Chase will not be required to issue a Letter of Credit or amend an outstanding Letter of Credit issued for the account of BAI where the goods covered by such Letter of Credit are for or such Letter of Credit otherwise relates to the Andy Johns division of BAI if after giving effect to the issuance thereof or amendment thereto the total of (a) the aggregate face amount of all such Letters of Credit issued during such period plus (b) the increase in the face amount of all such outstanding Letters of Credit during such period less (c) the aggregate face amount of all Letters of Credit cancelled during such period, is equal to or greater than Two Million Five Hundred Thousand Dollars ($2,500,000). SECTION 2. WAIVER. Because the August 7, 1996 and August 15, 1996 Reconciliation Reports reflected that Outstanding Working Capital Obligations exceeded the Working Capital Borrowing Base and the Borrowers failed to make a prepayment in the amount of such excess within one (1) day thereof, the Borrowers are not in compliance with Section 2.08, MANDATORY PREPAYMENTS of the Credit Agreement. Such noncompliance constitutes Events of Default under the Credit Agreement. The Borrowers have requested that each Lender and each Agent waive such Events of Default. Upon the conditions set forth below, each Lender and each Agent waive the Borrowers failure to comply with Section 2.08, MANDATORY PREPAYMENTS for the periods set forth in the August 7, 1996 and August 15, 1996 Reconciliation Reports. No Lender nor Agent waives any future noncompliance with such Section. SECTION 3. CONDITIONS OF EFFECTIVENESS TO THIS AMENDMENT AND WAIVER. This Amendment and Waiver shall become effective on the date on which the Agent shall have received each of the following documents, in form and substance satisfactory to the Agent and its counsel and the Lenders, and each of the following requirements shall have been fulfilled: 4 (1) THIS AMENDMENT AND WAIVER. The Borrowers, the Lenders and the Agents shall each have executed and delivered this Amendment and Waiver; (2) INTERCOMPANY LOAN SCHEDULE. The Borrowers shall have delivered its most recent Intercompany Loan Schedule for each Borrower and each Borrower's divisions prior to the date of this Amendment, and such Intercompany Loan Schedule shall be in form and substance satisfactory to the Lenders and the Agents in their sole discretion; (3) OFFICER'S CERTIFICATE. The following statements shall be true and the Agent shall have received a certificate signed by a duly authorized officer of each Borrower dated the effective date of this Amendment and Waiver stating that: (a) The representations and warranties contained in the Credit Agreement and in each of the other Facility Documents are true and correct on and as of the effective date of this Amendment and Waiver as though made on and as of such date; (b) After giving effect to this Amendment and Waiver, no Default or Event of Default has occurred and is continuing; and (c) The amounts set forth on the Intercompany Loan Schedule delivered in connection with this Amendment are true and correct; (4) LENDERS' FEES. The Borrowers shall have paid to the Agent a fee of Twenty-Five Thousand Dollars ($25,000) for the account of the Lenders. The Agent will promptly thereafter cause to be distributed to each Lender such Lender's Pro Rata Share of such fees; (5) LEGAL BILL. Dewey Ballantine will be paid in full for all legal fees, costs and expenses in connection with the preparation of the Amendment and Waiver and all past due legal fees, costs and expenses; (6) ADDITIONAL DOCUMENTATION. The Agent shall have received such other approvals, opinions or documents as any Lender may reasonably request. SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. (a) 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 5 and be a reference to the Credit Agreement as amended hereby. (b) 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. (c) The execution, delivery and effectiveness of this Amendment and Waiver shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or Agent under any of the Facility Documents, nor, except as expressly provided herein, 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 Amendment and Waiver 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 Amendment and Waiver shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. HEADINGS. Section headings in this Amendment and Waiver are included herein for convenience of reference only and shall not constitute a part of this Amendment and Waiver for any other purpose. SECTION 8. COUNTERPARTS. This Amendment and Waiver 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 Amendment and Waiver by signing any such counterpart. [INTENTIONALLY LEFT BLANK.] 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver 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: Vice President BISCAYNE APPAREL INTERNATIONAL, INC. By: /s/ PETER VANDENBERG JR. -------------------- Name: Peter Vandenberg Jr. Title: Vice President MACKINTOSH OF NEW ENGLAND CO. By: /s/ PETER VANDENBERG JR. -------------------- Name: Peter Vandenberg Jr. Title: Vice President M & L INTERNATIONAL, INC. By: /s/ PETER VANDENBERG JR. -------------------- Name: Peter Vandenberg Jr. Title: Vice President THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.; "Chase"), as Lender By: /s/ JOHN MURPHY ------------------------ Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Lender By: /s/ ----------------------- Name: Title: 7 CORESTATES BANK, N.A., as Lender By: /s/ JOHN A. GINTER ------------------------- Name: John A. Ginter Title: Commercial Officer THE FIRST NATIONAL BANK OF BOSTON, as Lender By: /s/ DAVID F. EUSDEN -------------------------- Name: David F. Eusden Title: Director FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), as Lender By: /s/ BRUCE WICKS --------------------------- Name: Bruce Wicks Title: Vice President THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.; "Chase"), as Agent By: /s/ JOHN MURPHY ------------------------- Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Servicing Agent By: /s/ -------------------------- Name: Title: 8 EXHIBIT 10.28 SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "Second Amendment") dated as of February 24, 1997 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 (successor by merger with The Chase Manhattan Bank, N.A.), CORESTATES BANK, N.A., THE FIRST NATIONAL BANK OF BOSTON, FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), and MILBERG FACTORS, INC. (individually, each a "Lender" and collectively, the "Lenders"), THE CHASE MANHATTAN BANK (successor by merger with The Chase Manhattan Bank, N.A.), 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"). PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Lenders and the Agents have entered into an Amended and Restated Credit Agreement and Guaranty dated as of March 28, 1996, as amended by a First Amendment and Waiver to Amended and Restated Credit Agreement dated August 30, 1996 (as so amended and waived, the "Credit Agreement"). 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. 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) The following definition is added in its proper alphabetical order: "Cash Collateral" means a deposit by Borrowers, made in immediately available funds, to a savings, checking or time deposit account at the Agent or the purchase by the Borrowers of a certificate of deposit issued by the Agent and the execution of all documents and the taking of all steps required to give the Agent a perfected first priority Lien in such deposit or certificate of deposit. (b) Section 3.01, LETTERS OF CREDIT, is amended by (i) deleting the provisos which begin in line 15 and 16 of the first paragraph thereof and inserting in their place the following: "; provided, further, that Chase will not be required to issue a Letter of Credit with a maturity date later than September 30, 1997; provided; further, that Chase will not be required to issue or amend a Letter of Credit with a maturity date between April 1, 1997 and September 30, 1997 if after giving effect to the issuance thereof or the amendment thereto the aggregate face amount of all Letters of Credit issued by Chase with a maturity date between April 1, 1997 and September 30, 1997 is equal to or greater than Seventeen Million Six Hundred Thousand Dollars ($17,600,000)" and (ii) adding after the first paragraph thereof the following: "Notwithstanding the foregoing, on April 1, 1997, the Borrowers shall provide a standby letter of credit with an expiration date no earlier than November 30, 1997, in an amount equal to one hundred five percent (105%) of the undrawn face amount of all Letters of Credit outstanding on such date issued by a financial institution acceptable to the Required Lenders and pursuant to which Chase can draw for any unpaid reimbursement obligation in connection with any and all such outstanding Letters of Credit, or in the event that the Required Lenders determine that the proposed financial institutions are not acceptable, the Borrowers shall provide Cash Collateral in an amount equal to one hundred five percent (105%) of the undrawn face amount of all Letters of Credit outstanding on such date." (c) Section 3.03, PAYMENT OF COMMISSIONS, EXPENSES AND INTEREST, is amended deleting the last paragraph therein and inserting in its place the following: "In addition to any and all of Chase's customary issuance fees and other expenses to be paid by each Borrower to Chase for its own account 2 with respect to a Letter of Credit and Letters of Indemnity, the applicable Borrower shall pay to Chase for the account of the Lenders a drawing fee equal to the greater of: (1) five-sixteenths of one percent (5/16%) of the amount drawn under such Letter of Credit or (2) Chase's then effective minimum charge for a draw under a letter of credit. SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS SECOND AMENDMENT. This Second Amendment shall become effective on the date on which the Agent shall have received each of the following documents, in form and substance satisfactory to the Agent and its counsel and the Lenders, and each of the following requirements shall have been fulfilled: (1) THIS SECOND AMENDMENT. The Borrowers, the Lenders and the Agents shall each have executed and delivered this Second Amendment; and (2) ADDITIONAL DOCUMENTATION. The Agent shall have received such other approvals, opinions or documents as any Lender may reasonably request. SECTION 3. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. (a) 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. (b) 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. (c) The execution, delivery and effectiveness of this Second Amendment shall not operate as a waiver of any present or future 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, nor constitute a waiver of any Default or Event of Default. 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 Second Amendment and any other instruments and documents to be delivered hereunder, including, without limitation, the fees 3 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 Second 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 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 7. 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. [INTENTIONALLY LEFT BLANK.] 4 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: Vice President BISCAYNE APPAREL INTERNATIONAL, INC. By /s/ PETER VANDENBERG JR. ----------------------------- Name: Peter Vandenberg Jr. Title: Vice President MACKINTOSH OF NEW ENGLAND CO. By /s/ PETER VANDENBERG JR. ----------------------------- Name: Peter Vandenberg Jr. Title: Vice President M & L INTERNATIONAL, INC. By /s/ PETER VANDENBERG JR. ----------------------------- Name: Peter Vandenberg Jr. Title: Vice President THE CHASE MANHATTAN BANK (successor by merger with The Chase Manhattan Bank, N.A.), as Lender By /s/ JOHN MURPHY ------------------------------ Name: John Murphy Title: Vice President 5 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/ JOHN A GUNTER ------------------------------ Name: John A. Gunter Title: Assistant Vice President THE FIRST NATIONAL BANK OF BOSTON, as Lender By: /s/ DAVID E. EUSDEN -------------------------------- Name: David E. Eusden Title: Director FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), as Lender By: /s/ A. SANTORO --------------------------------- Name: A. Santoro Title: Vice President THE CHASE MANHATTAN BANK (successor by merger with The Chase Manhattan Bank, N.A.), 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 6 EXHIBIT 11 BISCAYNE APPAREL, INC. COMPUTATION OF EARNINGS (LOSS) PER SHARE (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEARS ENDED DECEMBER 31, 1996 1995 1994 ----------- ----------- ---------- Net earnings (loss) $ (8,724) $ (6,127) $ 2,048 =========== =========== ========== PRIMARY: Common and common equivalent shares: Weighted average common shares outstanding 10,741,748 10,733,551 9,179,461 Potential dilution upon excercise of stock options and warrants -- -- 472,176 ----------- ----------- ---------- Shares used in computation of earnings (loss) per common share 10,741,748 10,733,551 9,651,637 =========== =========== ========== PER SHARE AMOUNTS: Net earnings (loss) per share $ (0.81) $ (0.57) $ 0.21 =========== =========== ========== FULLY DILUTED: Common and common equivalent shares: Weighted average common shares outstanding 10,741,748 10,733,551 9,179,461 Potential dilution upon exercise of stock options and warrants -- -- 472,176 ----------- ----------- ---------- Shares used in computation of earnings (loss) per common share 10,741,748 10,733,551 9,651,637 =========== =========== ========== PER SHARE AMOUNTS: Net earnings (loss) per share $ (0.81) $ (0.57) $ 0.21 =========== =========== ========== EXHIBIT 21 BISCAYNE APPAREL, INC. SUBSIDIARIES OF THE REGISTRANT FOR THE YEAR ENDING DECEMBER 31, 1996 Biscayne Apparel International, Inc., a Delaware corporation d/b/a: Andy Johns Fashions International Andy Johns Kids KAOS 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 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Biscayne Apparel, Inc. and Subsidiaries on Forms S-8 and S-3 of our report dated March 7, 1997, except for Note 7, for which the date is March 24, 1997, on our audit of the consolidated financial statements and financial statement schedules of Biscayne Apparel, Inc. and Subsidiaries as of December 31, 1996, and for the year then ended, which report is included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Coopers & Lybrand L.L.P. Parsippany, New Jersey March 7, 1997 End.