Biscayne Apparel: 10-Q for Quarter to 03/31/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended MARCH 31, 1998 ---------------------------------------------------------- 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 (I.R.S. Employer of incorporation or organization) Identification No.) 1373 BROAD STREET, CLIFTON, NEW JERSEY 07013 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (973) 473-3240 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all the 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 [ ] At March 31, 1998, there were 10,771,622 outstanding shares of the registrant's Common Stock, $0.01 par value. ================================================================================ BISCAYNE APPAREL, INC. INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION Consolidated Balance Sheets March 31, 1998 and December 31, 1997 .............. 2 Consolidated Statements of Operations Three Months Ended March 31, 1998 and 1997 ........ 3 Consolidated Statements of Cash Flows Three Months Ended March 31, 1998 and 1997 ........ 4 Notes to Consolidated Financial Statements ........ 5-7 Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 7 PART II. OTHER INFORMATION Item 1 - Legal Proceedings ........................ 10 Item 6 - Exhibits and Reports on Form 8-K ......... 10 Signatures ........................................ 11 1 BISCAYNE APPAREL, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) MARCH 31, DECEMBER 31, 1998 1997 -------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ................................ $ 356 $ 268 Trade accounts receivable, less allowances of $1,361 in 1998 and $2,278 in 1997 .................... 7,382 13,509 Inventories .............................................. 21,532 17,258 Prepaid expenses and other ............................... 1,164 962 Federal income tax receivable ............................ 1,170 -- -------- -------- Total current assets .................................. 31,604 31,997 Property, plant and equipment, less accumulated depreciation of $2,679 in 1998 and $2,517 in 1997 ....................................... 2,732 2,739 Other assets, net .......................................... 367 81 -------- -------- $ 34,703 $ 34,817 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ......................................... $ 5,763 $ 4,320 Accrued liabilities ...................................... 3,077 4,878 Notes payable to banks ................................... 10,777 6,855 Current portion of long-term debt ........................ 2,500 2,000 -------- -------- Total current liabilities ............................. 22,117 18,053 Subordinated notes ......................................... 6,444 6,444 Long-term debt ............................................. -- 2,500 Other liabilities .......................................... 387 162 Commitments and contingencies .............................. -- -- Stockholders' Equity: Preferred stock - par value $0.01; 5,000,000 shares authorized; no shares issued Common stock - par value $0.01; 25,000,000 shares authorized; 10,771,622 and 10,771,308 shares outstanding at March 31, 1998 and December 31, 1997, respectively .......................... 108 108 Additional paid-in capital ................................. 26,610 26,610 Accumulated deficit ........................................ (20,963) (19,060) -------- -------- 5,755 7,658 -------- -------- Total stockholders' equity ............................ $ 34,703 $ 34,817 ======== ======== See accompanying notes. 2 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of dollars, except per share data) (Unaudited) THREE MONTHS ENDED MARCH 31, ------------------------------- 1998 1997 ------------ ------------ Net sales ..................................................... $ 11,311 $ 14,849 Operating costs and expenses: Cost of goods sold .......................................... 8,902 11,037 Selling, general and administrative ......................... 4,559 4,947 ------------ ------------ Operating loss ................................................ (2,150) (1,135) Other income and (expenses): Interest and other expenses .................................. (660) (555) Interest and other income .................................... 4 13 ------------ ------------ Loss before income tax benefit ................................ (2,806) (1,677) Income tax benefit ............................................ (903) (567) ------------ ------------ Net loss ...................................................... $ (1,903) $ (1,110) ============ ============ Basic and diluted loss per common share ....................... $ (0.18) $ (0.10) ============ ============ Shares used in computing basic and diluted loss per common share ........................................................ 10,771,622 10,741,819 ============ ============ See accompanying notes. 3 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) THREE MONTHS ENDED MARCH 31, --------------------- 1998 1997 ------- ------- Operating activities: Net loss ....................................................... $(1,903) $(1,110) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation expense ......................................... 161 144 Amortization expense ......................................... (4) 78 Amortization of unearned stock award compensation ............ -- 17 Amortization of warrant costs ................................ 17 33 Provision for losses and sales allowances on receivables ..... 637 635 (Increase) decrease in operating assets: Trade accounts receivable ..................................... 5,490 4,421 Inventories ................................................... (4,274) (920) Prepaid expenses and other .................................... (202) 140 Federal income tax receivable ................................. (1,170) (640) Other assets .................................................. (300) (306) Increase (decrease) in operating liabilities: Accounts payable .............................................. 1,443 534 Accrued liabilities ........................................... (1,798) (1,670) Other liabilities ............................................. 245 (58) ------- ------- Net cash (used in) provided by operating activities ......... (1,658) 1,298 Investing activities: Capital expenditures ........................................... (154) (124) ------- ------- Net cash used in investing activities ........................ (154) (124) Financing activities: Payments under notes payable to banks .......................... (5,009) (5,306) Borrowings under notes payable to banks ........................ 8,931 6,190 Principal payments under term loan ............................. (2,000) (1,750) Principal payments of long-term debt and capital leases ........ (22) (22) ------- ------- Net cash provided by (used in) financing activities .......... 1,900 (888) Net increase in cash and cash equivalents ....................... 88 286 Cash and cash equivalents at beginning of year .................. 268 327 ------- ------- Cash and cash equivalents at end of period ...................... $ 356 $ 613 ======= ======= Supplemental disclosure information: Interest expense paid .......................................... $ 457 $ 366 Income taxes paid .............................................. $ 12 $ -- See accompanying notes. 4 BISCAYNE APPAREL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited consolidated financial statements, which are for an interim period, do not include all disclosures provided in the annual consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the footnotes with respect thereto, contained in the Biscayne Apparel, Inc., ("Company") 1997 Annual Report on Form 10-K. The consolidated financial statements of the Company include the accounts of the parent company, and its wholly-owned subsidiaries, Biscayne Apparel International, Inc. ("BAII"), and M&L International, Inc. ("M&L") and its wholly-owned subsidiaries, Unidex Garments (Philippines), Inc., Watersports Garment Manufacturing, Inc., Teri Outerwear Manufacturing, Inc., GES Sportswear Manufacturing Corp. and M&L International (H.K.) Limited. As of March 1, 1996, Unidex, Watersports, Teri, and GES ceased operations due to operating losses caused by labor increases and production inefficiencies. Through December 31, 1997, BAII operated through two divisions, Andy Johns Fashions International ("Andy Johns") and Varon, and its wholly-owned subsidiaries, Mackintosh of New England Co., ("Mackintosh") Mackintosh (U.K.) Limited, and Amy Industries De Honduras, S.A. de C.V. As of January 1, 1998, the assets, liabilities and operations of Andy Johns were contributed by BAII into Mackintosh. All material intercompany balances and transactions have been eliminated. Certain amounts included in prior period financial statements have been reclassified to conform with the 1998 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. 2. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the financial statements. 3. The results of operations for the three month periods ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. 5 4. Effective for the year ending December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS No. 128") which requires the presentation of basic earnings per share ("Basic EPS"), and diluted earnings per share ("Diluted EPS"). Basic EPS excludes dilution and is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilutive effect if securities or other contracts to issue common stock were exercised or converted. FAS No. 128 requires the restatement of all prior period earnings per share data presented including interim periods. The numerator and denominator of the basic and dilutive per share computations are as follows (in thousands, except per share amounts): For the Three Months Ended March 31, ------------------------------- 1998 1997 ------------ ------------ Numerator: Net Loss $ (1,903) $ (1,110) Denominator: Shares Outstanding 10,771,622 10,741,819 Basic and Dilutive Net Loss Per Share $ (0.18) $ (0.10) The Company has not included potential common shares in the Diluted EPS computation as the result is antidilutive. Options and warrants to purchase 1,311,838 and 1,344,568 shares of common stock at prices ranging from $0.75 to $2.44 per share were outstanding at March 31, 1998 and 1997, respectively. These shares were not included in the computation of Diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which expire from June 1997 to November 2007, were still outstanding at the end of each respective period. 5. Inventories at March 31, 1998 and December 31, 1997 are comprised of the following: March 31, 1998 December 31, 1997 -------------- ----------------- Raw materials $ 5,513,000 $ 4,067,000 Work-in-process 5,053,000 1,944,000 Finished goods 10,966,000 11,247,000 ----------- ----------- $21,532,000 $17,258,000 =========== =========== 6. Included in accounts payable at March 31, 1998 and March 31, 1997 are the Company's obligations under outstanding letters of credit of $1,722,000 and $1,474,000, respectively. 6 7. On March 25, 1998 Biscayne amended its Loan Agreement to reduce the Revolver Agreement to $39,000,000; adjust the interest rate for the Revolver Agreement borrowings to prime plus 1.5%, require fees of $350,000 for the period March 1998 to March 1999 and waive violations of certain covenants during the 1997 period. Additionally, if certain Revolver borrowing levels are exceeded beginning in the 1998 fourth quarter, the interest rates for the Revolver are increased to prime plus 3% and the interest rate for the Term Loan is increased to prime plus 3% or LIBOR plus 5.5%. 8. In June 1997, Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" was issued, effective for the fiscal year ending December 31, 1998. Earlier adoption for interim periods is not required, and the Company is currently evaluating the financial statement impact. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 1998 VERSUS QUARTER ENDED MARCH 31, 1997: Net sales for the first quarter of 1998 decreased to $11,311,000 from the first quarter 1997 sales of $14,849,000. The 24% decrease was due to soft spring sales at all of the Company's subsidiaries, most notably Mackintosh. First quarter sales are historically low, due to the Company's seasonal business. Consolidated sales backlog at March 31, 1998 was $52,461,000, compared to $65,420,000 at March 31, 1997. The decrease of 20% is largely due to decreased sales backlog from M&L and Mackintosh. Cost of goods sold, as a percentage of net sales, was 79% versus 74% for the quarters ended March 31, 1998 and 1997, respectively. The increase is mainly attributable to higher costs of production at Varon. Selling, general and administrative expenses ("S,G&A") decreased to $4,559,000 for the three months ended March 31, 1998, compared to $4,947,000 in the 1997 first quarter. This 8% decrease results from further cost reductions, particularly in Mackintosh, and lower sales volume. During the fourth quarter of 1996, the Consumer Product Safety Commission ("CPSC") issued 1998 rules for the manufacturing of all cotton thermal and long underwear products. These rules have had two effects: i) sleepwear manufacturers are now able to produce their products in cotton, and ii) such cotton sleepwear products now have to be "tight fitting". As a result of these regulations, the Company expects significant changes in Varon's competitive 7 environment related to such products. The impact on Varon's market position is unknown. Varon could face the following: i) a decrease in market share due to increased competition from sleepwear manufacturers, and ii) a potential market shift, from customers who previously purchased sleepwear when it was not required to be "tight fitting", now purchasing other products. Alternatively, Varon may be able to increase its market share of newly-approved cotton sleepwear, due to its current expertise in manufacturing, if it can take away market share from heretofore non-cotton sleepwear product sales. These regulations could impact up to one-third of Varon's revenues. OshKosh B'Gosh, Inc. ("OshKosh") notified M&L during the second quarter of 1997 that it will not renew its outerwear license with M&L after May 31, 1998. As part of a strategy adopted over the last several years, OshKosh will sell directly to retailers. For the three months ended March 31, 1998 and 1997, M&L's sales of OshKosh outerwear were $3,203,000 and $2,066,000, respectively, and for the year ended December 31, 1997 M&L's sales of OshKosh outerwear were $19,888,000. M&L's strategy is to replace the OshKosh brand sales of outerwear with several well-known brand name children's outerwear and activewear licenses. It is unknown whether M&L's strategy will be successful in replacing such levels of OshKosh sales and related margins in the future. 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. Certain information included herein contains forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Those risks include, but are not limited to, product acceptance and availability, changes in the level of consumer demand and/or spending, fashion trends, weather patterns, further governmental regulations, etc. All forward-looking statements should be considered in light of these risks and uncertainties. OTHER Interest and other expenses for the quarter ended March 31, 1998 increased to $660,000 from $555,000 for the comparable quarter of 1997. The increase is primarily due to higher borrowings incurred during 1998, due to higher inventory levels. Interest and other income decreased to $4,000 during the first quarter of 1998, compared to $13,000 in 1997. The decline is primarily due to the final payment in 1997 of a small note receivable and its related interest income. 8 INCOME TAXES The Company's effective tax rate for the quarter ended March 31, 1998 was affected by valuation allowances related to deferred tax debits and Federal and state operating loss carryforwards recorded at December 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $356,000 and $268,000 at March 31, 1998 and December 31, 1997, respectively. At March 31, 1998, the Company's working capital was $9,487,000, representing a current ratio of 1.43 to 1. This compares to working capital of $13,944,000 and a current ratio of 1.77 to 1 at December 31, 1997. These changes are due to seasonal reductions of accounts receivable, increased inventories, increased bank debt and operating losses sustained. As presented in the Consolidated Statements of Cash Flows for the three months ended March 31, 1998, the decrease of accounts receivable of $5,490,000, the increase in inventories of $4,274,000 and accounts payable of $1,443,000 and the decrease in accrued liabilities of $1,798,000 are due to the seasonality of the Company's operations. On March 31, 1998 the Company repaid $2,000,000 of its long-term debt. Capital expenditures for the three months ended March 31, 1998 increased to $154,000 from $124,000 in 1997. The increase is mainly attributable to increased leasehold improvements at Mackintosh offset by decreased equipment expenditures at M&L. The Company expects that cash on hand, cash from operations, and borrowings under its revolving credit agreement will be sufficient to fund current operations and to enable the Company to meet its obligations as they become due. EFFECT OF INFLATION AND SEASONALITY The Company believes that inflation will not significantly effect 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 increases in wool and cotton costs over the last several years, the Company has increased offshore production. Sales of women's and children's outerwear are seasonal. Historically, Mackintosh, M&L, and Varon have significantly higher revenues in the third and fourth quarters than in the first and second quarters. Therefore, the results of any interim period are not necessarily indicative of the results which might be expected during a full year. Additionally, there is a risk inherently related to the outerwear industry, resulting from consumer reactions to weather patterns, which have had a material effect on the Company's sales and profitability in the past. 9 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is, from time to time, involved in routine litigation. None of such litigation in which the Company is presently involved is material to its financial position or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 10 Fourth Amendment and Waiver to Second Amended and Restated Credit Agreement and Guaranty dated as of March 25, 1998 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co., and M&L International, Inc. and The Chase Manhattan Bank (National Association) as Agent and Milberg Factors, Inc. as Servicing Agent. 11 Computation of Per Share Earnings 27 Financial Data Schedule b) Reports on Form 8-K: During the quarter for which this Quarterly Report on Form 10-Q is filed, the Registrant did not file any Current Reports on Form 8-K. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: BISCAYNE APPAREL, INC. Date: May 15, 1998 By: /s/ Earl W. Powell ---------------------------------------- Earl W. Powell Chairman of the Board and Chief Executive Officer Date: May 15, 1998 By: /s/ Peter Vandenberg, Jr. ---------------------------------------- Peter Vandenberg, Jr. President, Chief Operating Officer, Treasurer and Chief Financial Officer 11 FOURTH AMENDMENT AND WAIVER TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY FOURTH AMENDMENT AND WAIVER TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "FOURTH AMENDMENT") dated as of March 25, 1998 among BISCAYNE APPAREL, INC., BISCAYNE APPAREL INTERNATIONAL, INC. MACKINTOSH OF NEW ENGLAND CO. AND M & L INTERNATIONAL, INC. (individually, each a "BORROWER" and collectively, the "BORROWERS" and individually, each a "GUARANTOR" and collectively, the "GUARANTORS"), THE CHASE MANHATTAN BANK, CORESTATES BANK, N.A., BANKBOSTON, N.A. (formerly known as The First National Bank of Boston), FLEET BANK N.A. and MILBERG FACTORS, INC. (individually, each a "LENDER" and collectively, the "LENDERS"), THE CHASE MANHATTAN BANK, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT") and MILBERG FACTORS, INC., as servicing agent for the Lenders (in such capacity, together with its successors in such capacity, the "SERVICING AGENT" and together with the Agent, the "AGENTS"). PRELIMINARY STATEMENTS: WHEREAS, the Borrowers, the Guarantors, the Lenders and the Agents have entered into a Second Amended and Restated Credit Agreement and Guaranty dated as of March 24, 1997, as amended by a First Amendment, dated as of May 22, 1997, a Second Amendment, dated as of February 18, 1998 and a Third Amendment, dated as of March 6, 1998 (as so amended, the "CREDIT AGREEMENT"); and WHEREAS, the terms defined in the Credit Agreement are used in this Fourth Amendment as in the Credit Agreement unless otherwise defined in this Fourth Amendment; WHEREAS, the Borrowers and the Guarantors have requested that certain provisions of the Credit Agreement be amended and certain Defaults and Events of Default be waived as hereinafter set forth; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. WAIVER. Upon the execution of this Fourth Amendment and satisfaction of all the conditions precedent set forth in Section 3 hereof, each Lender and each Agent waive the Borrower's failure to comply with each of the provisions listed on Schedule I attached hereto. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (a) Section 1.01 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order: "Commitment Fee" has the meaning specified in Section 2.15. "Fourth Closing Date" means March 25, 1998. "Overadvance Default" has the meaning specified in Section 12.01. "Subsequent Fee" has the meaning specified in Section 2.15. "Total Commitment" means, at any time, the sum of the Revolving Credit Commitments at such time. "Unused Total Commitment" means, at any time, (i) the Total Commitment LESS (ii) the sum of (x) the aggregate outstanding principal amount of all Revolving Credit Loans, (y) the Outstanding Letter of Credit Obligations and (z) the face amount of all Letters of Indemnity then outstanding. (b) Section 1.01 of the Credit Agreement is hereby further amended by amending and restating the following definitions in their entirety as follows: "Margin" means, (1) with respect to the Revolving Credit Loans, 1.5% (one hundred fifty basis points), and (2) with respect to the Term Loans (a) which are Prime Rate Loans, 2% (two hundred basis points), and (b) which are Eurodollar Loans, 4.5% (four hundred fifty basis points) PROVIDED that, if the amount of Revolving Credit Loans outstanding exceeds the amounts specified below at any time during the periods specified below, the applicable Margin from and after such event until the amount of all outstanding Revolving Credit Loans has been reduced to zero for a period of ten consecutive Banking Days shall be (1) with respect to the Revolving Credit Loans, 3% (three hundred basis points) and (2) with respect to the Term Loans (a) which are Prime Rate Loans, 3% (three hundred basis points), and (b) which are Eurodollar Loans, 5.5% (five hundred fifty basis points): PERIOD AMOUNT ------ ------ September 30, 1998 to and including October 30, 1998 $19,000,000 October 31, 1998 to and including November 29, 1998 $12,000,000 November 30, 1998 to and including December 30, 1998 $ 4,000,000 December 31, 1998 to and including January 7, 1999 $ 2,000,000 2 "Revolving Credit Commitment" means, with respect to each Lender, the obligation of such Lender to make its Revolving Credit Loans under this Agreement in the amounts set forth below for the periods set forth below, as such amounts may be reduced or otherwise modified from time to time: (1) During the period from and including the Fourth Closing Date through October 30, 1998: The Chase Manhattan Bank $ 7,800,000 The First National Bank of Boston $ 7,800,000 CoreStates Bank, N.A. $ 7,800,000 Fleet Bank, N.A. $ 7,800,000 Milberg Factors, Inc. $ 7,800,000 ----------- Total: $39,000,000 (2) During the period from and including October 31, 1998 through November 14, 1998: The Chase Manhattan Bank $ 6,000,000 The First National Bank of Boston $ 6,000,000 CoreStates Bank, N.A. $ 6,000,000 Fleet Bank, N.A. $ 6,000,000 Milberg Factors, Inc. $ 6,000,000 ----------- Total: $30,000,000 (3) During the period from and including November 15, 1998 through January 30, 1999: The Chase Manhattan Bank $ 4,000,000 The First National Bank of Boston $ 4,000,000 CoreStates Bank, N.A. $ 4,000,000 Fleet Bank, N.A. $ 4,000,000 Milberg Factors, Inc. $ 4,000,000 ----------- Total: $20,000,000 (4) During the period from and including January 31, 1999 through February 28, 1999: The Chase Manhattan Bank $ 5,000,000 The First National Bank of Boston $ 5,000,000 CoreStates Bank, N.A. $ 5,000,000 Fleet Bank, N.A. $ 5,000,000 Milberg Factors, Inc. $ 5,000,000 ------------ Total: $25,000,000 3 and (5) During the period from and including March 1,1999 through the Revolving Credit Termination Date: The Chase Manhattan Bank $ 6,000,000 The First National Bank of Boston $ 6,000,000 CoreStates Bank, N.A. $ 6,000,000 Fleet Bank, N.A. $ 6,000,000 Milberg Factors, Inc. $ 6,000,000 ----------- Total: $30,000,000 "Revolving Credit Loans Maximum Outstanding" means during the period specified below the amounts specified below for such period: PERIOD AMOUNT ------ ------ Fourth Closing Date to and including April 30, 1998 $13,750,000 May 1, 1998 to and including May 31, 1998 $16,750,000 June 1, 1998 to and including June 30, 1998 $18,250,000 July 1, 1998 to and including July 31, 1998 $22,250,000 August 1, 1998 to and including August 31, 1998 $27,250,000 September 1, 1998 to and including October 20, 1998 $28,750,000 October 21, 1998 to and including October 30, 1998 $23,000,000 October 31, 1998 to and including November 19, 1998 $20,500,000 November 20, 1998 to and including November 30, 1998 $10,750,000 December 1, 1998 to and including December 20, 1998 $ 8,000,000 December 21, 1998 to and including December 31, 1998 $ 5,000,000 January 1, 1999 to and including February 28, 1999 $ 7,000,000 March 1, 1999 to and including March 31, 1999 $ 9,000,000 4 "Revolving Credit Loans Permitted Overadvance (During the Month)" means the amount specified below for each day during the month specified below other than the last day of the applicable month: MONTH AMOUNT ----- ------ March, 1998 $ 5,000,000 April, 1998 $ 9,500,000 May, 1998 $11,500,000 June, 1998 $ 9,000,000 July, 1998 $10,250,000 August, 1998 $10,250,000 September, 1998 $ 7,750,000 October, 1998 $ 500,000 November, 1998 $(4,000,000) December, 1998 $(8,000,000) January, 1999 $(4,000,000) February, 1999 $(2,500,000) March, 1999 $(1,000,000) 5 In addition, the proceeds of Revolving Credit Loans made to BAI which are used to finance Varon shall for each day during the period specified below other than the last day of the applicable month be equal to or less than the sum of (1) the Eligible Accounts of Varon relied on in computing the Collateral Borrowing Base as set forth on the Reconciliation Report and (2) the amounts specified below for each day during the period specified below other than the last day of the applicable month: PERIOD AMOUNT ------ ------ March 1, 1998 to and including August 30, 1998 $ 3,750,000 September 1, 1998 to and including September 29, 1998 $ 750,000 October 1, 1998 to and including October 30, 1998 $ (750,000) November 1, 1998 to and including November 29, 1998 $(1,750,000) December 1, 1998 to and including December 30, 1998 $(2,250,000) January 1, 1999 to and including January 30, 1999 $(2,000,000) February 1, 1999 to and including February 27, 1999 $ (750,000) March 1, 1999 to and including March 30, 1999 $ 0 For purposes of this definition, the numbers set forth in parenthesis are negative numbers. "Revolving Credit Loans Permitted Overadvance (Month End)" means the amounts specified below for the last day of each month specified below: MONTH AMOUNT ----- ------- March, 1998 $ 4,000,000 April, 1998 $ 9,500,000 May, 1998 $ 7,500,000 June, 1998 $ 6,500,000 July, 1998 $ 6,250,000 August, 1998 $ 3,500,000 September, 1998 $ (750,000) October, 1998 $ (8,000,000) November, 1998 $ (9,500,000) December, 1998 $(10,500,000) January, 1999 $ (6,000,000) February, 1999 $ (4,000,000) March, 1999 $ (1,500,000) 6 Notwithstanding the foregoing, the proceeds of the Revolving Credit Loans made to Mackintosh shall as of the last day of each month specified below be equal to or less than the sum of (1) the Eligible Accounts of Mackintosh relied on in computing the Collateral Borrowing Base as set forth on the Reconciliation Report and (2) the amounts specified below for each month specified below: MONTH AMOUNT ----- ------ March, 1998 $ 3,250,000 April, 1998 $ 4,000,000 May, 1998 $ 4,750,000 June, 1998 $ 6,000,000 July, 1998 $ 6,250,000 August, 1998 $ 6,250,000 September, 1998 $ 5,250,000 October, 1998 $ 1,500,000 November, 1998 $ (750,000) December, 1998 $ (1,800,000) January, 1999 $ 0 February, 1999 $ 0 March, 1999 $ 0 In addition, the proceeds of Revolving Credit Loans made to BAI which are used to finance Varon shall as of the last day of each month specified below be equal to or less than the sum of (1) the Eligible Accounts of Varon relied on in computing the Collateral Borrowing Base as set forth on the Reconciliation Report and (2) the amounts specified below for each month specified below: MONTH AMOUNT ----- ------ March, 1998 $ 3,000,000 April, 1998 $ 3,000,000 May, 1998 $ 3,000,000 June, 1998 $ 3,000,000 July, 1998 $ 3,000,000 August, 1998 $ 0 September, 1998 $ (1,500,000) October, 1998 $ (2,500,000) November, 1998 $ (3,000,000) December, 1998 $ (2,750,000) January, 1999 $ (1,500,000) February, 1999 $ (750,000) March, 1999 $ 0 7 In addition, each of the Borrowers agree that no further intercompany loans or advances shall be made by any Borrower or Subsidiary from and after the Fourth Closing Date and that intercompany loans and advances by and among the Borrowers outstanding as of the Fourth Closing Date shall not be repaid or reduced by any amounts, other than reductions or repayments arising from non-cash offsets of federal income tax provisions and allocations of Apparel's corporate overhead and management fee expenses among Apparel, BAI, Mackintosh and M&L conducted in the ordinary course of business in accordance with GAAP. For purposes of this definition, the numbers set forth in parenthesis are negative numbers. "Revolving Credit Termination Date" means, March 31, 1999; provided, that if such date is not a Banking Day, such date shall be the next preceding Banking Day. "Term Loan" means, as of the Fourth Closing Date, with respect to each Lender, the amount specified below for such Lender: The Chase Manhattan Bank $ 900,000 The First National Bank of Boston $ 900,000 CoreStates Bank, N.A. $ 900,000 Fleet Bank, N.A. $ 900,000 Milberg Factors, Inc. $ 900,000 ----------- Total: $ 4,500,000 (c) Section 2.02 of the Credit Agreement is hereby amended by deleting the phrase "Third Closing Date" contained in the first paragraph thereof and inserting in lieu thereof the phrase "Fourth Closing Date" (d) Section 2.02 of the Credit Agreement is hereby further amended by deleting the second paragraph thereof in its entirety and inserting in lieu thereof the following: "The Term Loan shall be due and payable in two installments, on each of the Amortization Dates as follows: DATE AMOUNT ------ -------- March 31, 1998 $2,000,000 March 31, 1999 $2,500,000" 8 (e) Section 2.15 of the Credit Agreement is hereby amended and restated in its entirety as follows: "Section 2.15 FEES. (a) The Borrowers shall pay on the Fourth Closing Date to the Agent for the account of the Lenders a non-refundable fee equal to Two Hundred Fifty Thousand Dollars ($250,000) in consideration of, among other things, the development and negotiation of the modification of this Agreement and the transactions contemplated herein. Each such Lender shall be entitled to twenty percent (20%) of such fee. (b) The Borrowers shall pay to the Agent as compensation for its services hereunder as Agent a non-refundable agency fee in the amount of One Hundred Thousand Dollars ($100,000). This agency fee shall be due and payable on the Fourth Closing Date. (c) The Borrowers shall pay to the Servicing Agent as compensation for its services hereunder as Servicing Agent, unless and until the Servicing Agent has resigned or been removed in accordance with Section 13.10, a fee in the amount of two-tenths of one percent (.20%) of the gross sales less discounts of all of the Borrowers, due and payable as such sales are made. The minimum aggregate fee payable under this paragraph for each year of this Agreement shall be One Hundred Seventy-Five Thousand Dollars ($175,000), which, to the extent of any deficiency based on gross sales less discounts (calculated on a cumulative basis, assuming a minimum rate of Fourteen Thousand Five Hundred Eighty-Three Dollars ($14,583) per month) shall be due and payable on the last day of each month. (d) The Borrower shall pay to the Lenders a commitment fee (the "COMMITMENT FEE") for the period commencing on the Fourth Closing Date until the Revolving Credit Termination Date or such earlier date of the termination in full of the Total Commitment, computed (on the basis of the actual number of days elapsed over a year of 360 days) at the rate of one-quarter of one percent (1/4%) per annum on the average daily Unused Total Commitment. Such Commitment Fee, to the extent then accrued, shall be payable (x) monthly, in arrears, on the last calendar day of each month, (y) on the Revolving Credit Termination Date and (z) upon any reduction or termination in whole or in part of the Total Commitment." (e) Without prejudice to any other rights of the Lenders, upon the occurrence of an Overadvance Default, the Borrower shall immediately pay to the Agent for the account of the Lenders a non-refundable fee equal to Two Hundred Fifty Thousand Dollars 9 ($250,000) (the "Subsequent Fee"). Each Lender shall be entitled to twenty percent (20%) of the Subsequent Fee. (f) Section 2.17 of the Credit Agreement is hereby amended by deleting the word "BAI" contained in the second line of sub-section (h) of such Section and inserting in lieu thereof the word "Mackintosh". (g) Section 3.01 of the Credit Agreement is hereby amended (i) by adding the following proviso after the semicolon following the first proviso contained in clause (b) of the first paragraph of such Section: provided further, that upon the occurrence of an Overadvance Default (and notwithstanding (x) the payment of the Subsequent Fee or (y) any other provision to the contrary), Chase shall not issue any Letters of Credit under this Agreement without the prior written consent of the Required Lenders. (ii) by amending and restating the chart contained in the second paragraph of such Section in its entirety as follows: PERIOD AMOUNT ------ ------ January 1, 1998 to and including March 31, 1998 $13,000,000 January 1, 1998 to and including June 30, 1998 $23,000,000 January 1, 1998 to and including September 30, 1998 $28,000,000 January 1, 1998 to and including December 31, 1998 $33,000,000 January 1, 1999 to and including March 31, 1999 $13,000,000 10 (iii) by amending and restating the chart contained in the third paragraph of such Section in its entirety as follows: PERIOD AMOUNT ------ ------ January 1, 1998 to and including March 31, 1998 $1,750,000 January 1, 1998 to and including June 30, 1998 $5,700,000 January 1, 1998 to and including September 30, 1998 $6,000,000 January 1, 1998 to and including December 31, 1998 $6,200,000 January 1, 1999 to and including March 31, 1999 $ 500,000 (iv) by adding the following proviso at the end of the third paragraph of such Section: ; provided further, that the maximum amount of all Letters of Credit issued for the account of Mackintosh (1) during the period from and including January 1, 1998 through December 31, 1998 which are not issued against an order shall not exceed $750,000 in the aggregate and (2) during the period from and including August 31, 1998 through the Revolving Credit Termination Date shall not exceed $500,000 in the aggregate; (v) by deleting the date "March 31, 1998" contained in the fourth paragraph of such Section each time the same appears therein and inserting in lieu thereof in each instance the defined term "Revolving Credit Termination Date" and (vi) by deleting the date "November 30, 1998" contained in the first sentence of the fourth paragraph of such Section and inserting in lieu thereof the date "November 30, 1999". (h) Section 3.03 of the Credit Agreement is hereby amended by deleting the amount "five-sixteenths of one percent (5/16%)" contained in the second paragraph of such Section and inserting in lieu thereof the amount "three- eighths of one percent (3/8%)". (i) Section 5.02 of the Credit Agreement is hereby amended by deleting the phrase "five-sixteenths of one percent (5/16%)" contained in the first paragraph of such Section and inserting in lieu thereof the phrase "three-eighths of one percent (3/8%)". (j) Section 8.05 of the Credit Agreement is hereby amended by deleting the period at the end of such Section and inserting in lieu thereof the phrase "and, the press release dated March 6, 1998 and Form 10-Q's distributed to the Lenders during 1997." (k) Section 9.09 of the Credit Agreement is hereby amended by (i) deleting the word "and" contained at the end of sub-section (t) of such 11 Section, (ii) relettering sub-section "(u)" of such Section as a new sub-section "(v)" and (iii) inserting the following new sub-section "(u)" immediately following sub-section (t): (u) all material information furnished to the Borrowers by the investment advisor retained by the Borrowers pursuant to Section 9.10 of this Agreement promptly upon receipt thereof and within five business days following the end of each month, provide a written report of the progress and activity of such investment advisor during each preceding month. (l) Article 9 of the Credit Agreement is hereby amended by adding the following new Section at the end thereof: Section 9.10. INVESTMENT ADVISOR. Retain an investment advisor reasonably satisfactory to the Agents for purposes of strategic planning. (m) Section 10.02 of the Credit Agreement is hereby amended by amending and restating clause (b) of such Section as follows: (b) guaranties by BAI of domestic suppliers of the Borrowers, not exceeding Two Million Three Hundred Thousand Dollars ($2,300,000) in the aggregate, given in connection with the purchase of raw materials. (n) Section 11.02 of the Credit Agreement is hereby amended and restated in its entirety as follows: "Section 11.02. MINIMUM TANGIBLE NET WORTH. Consolidated Tangible Net Worth shall not be less than the amounts specified below for the dates specified below: DATE AMOUNT ------ -------- March 31, 1998 $5,250,000 June 30, 1998 $4,750,000 September 30, 1998 $7,750,000 December 31, 1998 $9,000,000 March 31, 1999 $7,750,000 In addition, Consolidated Tangible Net Worth shall not be less than $7,750,000 for the period from October 1, 1998 through and including 12 December 30, 1998 and at no time may Consolidated Tangible Net Worth be less than $4,750,000." (o) Section 11.03 of the Credit Agreement is hereby amended by deleting the phrase ".80 to 1.00 at December 31, 1997" and inserting in lieu thereof the phrase ".90 to 1.00 at December 31, 1998". (p) Section 11.04 of the Credit Agreement is hereby amended by deleting the date "December 31, 1997" and inserting in lieu thereof the date "December 31, 1998". (q) Section 11.05 of the Credit Agreement is hereby amended by deleting the phrase "January 1, 1997 to December 31, 1997 to exceed $750,000" and inserting in lieu thereof the phrase "January 1, 1998 to December 31, 1998 to exceed $850,000". (r) Section 12.01 of the Credit Agreement is hereby amended by (i) deleting the word "or" contained at the end of sub-section (n) of such section, (ii) deleting the period contained at the end of sub-section (o) of such section and inserting in lieu thereof a semicolon and the word "or" and (iii) adding the following new sub-section "(p)" at the end of such Section: (p) the Borrowers shall have failed to comply with the provisions of the definition of Revolving Credit Loans Permitted Overadvance (Month End) for the month of October 1998 (an "Overadvance Default"). SECTION 3. CONDITIONS OF EFFECTIVENESS TO THIS FOURTH AMENDMENT. This Fourth Amendment shall become effective on the date on which each of the following conditions have been satisfied or waived which date shall not be later than March 31, 1998: (i) the Borrowers, the Lenders and the Agents shall each have executed and delivered this Fourth Amendment; (ii) payment by the Borrower of the fees specified in Section 2.15 of the Credit Agreement as amended by this Fourth Amendment; (iii) execution and delivery by the Borrowers of an amendment to the Warrant Agreement substantially in the form of Exhibit A hereto; (iv) execution and delivery by the Borrowers of UCC-1 financing statements covering imported inventory and appropriate amendments to the Security Agreements as may be required by the Agents; (v) receipt by the Agents of a satisfactory collateral field exam; 13 (vi) the Borrowers shall have retained an investment banking firm reasonably satisfactory to the Agents for purposes of strategic planning and the Agents shall have received a copy of the executed retention agreement for such investment banking firm; (vii) receipt by the Agents of projections in form and substance satisfactory to the Agents; (viii) good standing certificates for each Borrower, dated reasonably near the Fourth Closing Date, from the Secretary of State (or other appropriate official) of the jurisdiction of incorporation of each Borrower certifying as to due incorporation and good standing of such Borrower and certificates dated reasonably near the Fourth Closing Date, from the Secretary of State (or other appropriate official) of each other jurisdiction where such Borrower is required to be qualified to conduct business, certifying that such Borrower is qualified to do business in such jurisdiction; (ix) a certificate of the Secretary or Assistant Secretary of each Borrower, dated the Fourth Closing Date, attesting to all corporate action taken by each Borrower including resolutions of its Board of Directors authorizing the execution, delivery and performance of this Fourth Amendment and each other document to be delivered pursuant to this Fourth Amendment; (x) a certificate of the Secretary or Assistant Secretary of each Borrower, dated the Fourth Closing Date, certifying the names and true signatures of the officers of such Borrower authorized to sign this Fourth Amendment and the other documents to be delivered by such Borrower under this Fourth Amendment; (xi) a certificate of a duly authorized officer of each Borrower, dated the Fourth Closing Date, stating that the representations and warranties in Article 8 of the Credit Agreement are true and correct on such date as though made on and as of such date and that no event has occurred and is continuing which constitutes a Default or Event of Default; (xii) a schedule specifying the locations of all of the Borrowers' inventory, work-in-process and equipment, the chief place of business for each Borrower and the location(s) where the Borrowers' business records are located, which schedule shall be confirmed by a responsible office; (xiii) a favorable opinion of counsel for the Borrowers, dated the Fourth Closing Date, in substantially the form of Exhibit B hereto and as to such other matters as the Agent, the Servicing Agent or any Lender may reasonably request; (xiv) a borrowing base certificate (calculated as of the Fourth Closing Date) in form and substance satisfactory to the Agents which certificate shall include specific information as to the Eligible Accounts of Mackintosh and Varon; 14 (xv) evidence that (1) all insurance required to be maintained under the Facility Documents is in full force and effect, and (2) to the extent required under the Facility Documents, the Agent has been designated a loss payee and additional insured; (xvi) payment by the Borrower of all costs and expenses of the Agents and the Lenders (including, without limitation, reasonable attorneys' fees and expenses) incurred in connection with this Fourth Amendment and the Credit Agreement; and (xvii) receipt of such other documents, opinions or agreements as either of the Agents or any of the Lenders may reasonably request. SECTION 4. POST CLOSING CONDITIONS. Within 90 days of the effectiveness of this Fourth Amendment, the Borrowers shall execute and deliver (i) a pledge agreement in form and substance satisfactory to the Agent pursuant to which 65% of the issued and outstanding stock of M&L International (H.K.) Limited shall be pledged to the Agent for the benefit of the Lenders and which pledge shall be subject to no other liens and (ii) a trademark security agreement pursuant to which Mackintosh shall grant a security interest in its trademark known as "Chas. Macintosh". Failure to satisfy either of the foregoing post-closing conditions shall constitute an immediate Event of Default. SECTION 5. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. Upon the effectiveness of Section 2 hereof, on and after the date hereof each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the other Facility Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. Except as specifically amended above, the Credit Agreement and all other Facility Documents shall remain in full force and effect and are hereby ratified and confirmed. Except as specifically waived herein, the execution, delivery and effectiveness of this Fourth Amendment shall not operate as a waiver of any right, power or remedy of any Lender or Agent under any of the Facility Documents, nor constitute a waiver of any provision of the Facility Documents. SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrowers hereby represent and warrant that each of the representations and warranties contained in Article 8 of the Credit Agreement and in each of the other Facility Documents is true and correct as of the date hereof (provided that any representations and warranties which speak to a specific date shall remain true and correct as of such date). The Borrowers hereby further represent and warrant that the stockholders' equity of Mackintosh U.K. Limited as of December 31, 1997 is $2,189.00 and that the value of the assets thereof do not exceed $168,000.00. SECTION 7. 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 Fourth Amendment and any other instruments and documents to be delivered hereunder, including, without limitation, the fees and out-of-pocket expenses of counsel for the Agent, the Servicing Agent, and each Lender with respect thereto and with respect to advising the Agent, the Servicing Agent, and 15 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 8. GOVERNING LAW. This Fourth Amendment shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly within such State. SECTION 9. HEADINGS. Section headings in this Fourth Amendment are included herein for convenience of reference only and shall not constitute a part of this Fourth Amendment for any other purpose. SECTION 10. COUNTERPARTS. This Fourth 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 Fourth Amendment by signing any such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Fourth 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: President BISCAYNE APPAREL INTERNATIONAL, INC. By: /s/ Peter Vandenberg, Jr. ------------------------------------- Name: Peter Vandenberg, Jr. Title: President MACKINTOSH OF NEW ENGLAND CO. By: /s/ Peter Vandenberg, Jr. ------------------------------------- Name: Peter Vandenberg, Jr. Title: President M & L INTERNATIONAL, INC. By: /s/ Peter Vandenberg, Jr. ------------------------------------- Name: Peter Vandenberg, Jr. Title: Vice President 16 THE CHASE MANHATTAN BANK, as Lender By: /s/ John Murphy ------------------------------------- Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Lender By: /s/ Harold H. Oertell ------------------------------------- Name: Harold H. Oertell Title: Treasurer CORESTATES BANK, N.A., as Lender By: /s/ C.B. Cook ------------------------------------- Name: C.B. Cook Title: Vice President BANKBOSTON, N. A., as Lender By: /s/ David F. Eusden ------------------------------------- Name: David F. Eusden Title: Director FLEET BANK, N.A., as Lender By: /s/ Edward J. Wol ------------------------------------- Name: Edward J. Wol Title: Senior Vice President THE CHASE MANHATTAN BANK, as Agent By: /s/ John Murphy ------------------------------------- Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Servicing Agent By: /s/ Harold H. Oertell ------------------------------------- Name: Harold H. Oertell Title: 17 EXHIBIT 11 Biscayne Apparel, Inc. Computation of Per Share Earnings (Dollars in Thousands, Except Per Share Amounts) (Unaudited) THREE MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 ---------- ------------ Net loss ...................................... $ (1,903) $ (1,110) ========== ============ BASIC: Weighted average common shares outstanding .... 10,771,622 10,741,819 ========== ============ Basic net loss per share ...................... $ (0.18) $ (0.10) ========== ============ DILUTED: Weighted average common shares outstanding .... 10,771,622 10,741,819 Potential dilution upon exercise of stock options and warrants ........................ -- -- ---------- ------------ Shares used in computing diluted net loss per common share ............................ 10,771,622 10,741,819 ========== ============ Diluted net loss per share .................... $ (0.18) $ (0.10) ========== ============ End.