Biscayne Apparel: 10-Q 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 JUNE 30, 1997 --------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 1-9635 ------ BISCAYNE APPAREL, INC. (Exact name of registrant as specified in its charter) FLORIDA 65-0200397 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1373 BROAD STREET, CLIFTON, NEW JERSEY 07013 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) (201) 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 July 31, 1997, there were 10,766,777 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 June 30, 1997 and December 31, 1996.................... 2 Consolidated Statements of Operations Six Months Ended June 30, 1997 and 1996................ 3 Consolidated Statements of Cash Flows Six Months Ended June 30, 1997 and 1996................ 4 Notes to Consolidated Financial Statements............. 5 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 7 PART II. OTHER INFORMATION Item 1 - Legal Proceedings.............................. 11 Item 4 - Submission of Matters to Vote of Security Holders................................................. 11 Item 6 - Exhibits and Reports on Form 8-K............... 12 Signatures.............................................. 13 1 BISCAYNE APPAREL, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31, 1997 1996 -------- ------------ (Unaudited) Assets Current assets: Cash and cash equivalents $ 313 $ 327 Trade accounts receivable, less allowances of $1,575 in 1997 and $2,018 in 1996 11,630 14,374 Inventories 28,030 14,554 Federal income tax receivable 3,007 1,455 Prepaid expenses and other 2,156 2,261 -------- -------- Total current assets 45,136 32,971 Property, plant and equipment, less accumulated depreciation of $2,188 in 1997 and $1,912 in 1996 2,752 2,864 Other assets, net 440 275 -------- -------- $ 48,328 $ 36,110 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,666 $ 4,024 Accrued liabilities 4,136 6,184 Notes payable to banks 15,294 1,473 Current portion of long-term debt 2,000 1,750 -------- -------- Total current liabilities 30,096 13,431 Subordinated notes 6,444 6,444 Long-term debt 2,500 4,500 Other liabilities 401 557 Commitments and contingencies -- -- Stockholders' Equity: Common stock, $0.01 par value; 25,000,000 shares authorized; 10,766,499 issued and outstanding in 1997 and 10,741,748 in 1996 107 107 Additional paid-in capital 26,558 26,311 Unearned stock award (34) (68) Accumulated deficit (17,744) (15,172) -------- -------- Total stockholders' equity 8,887 11,178 -------- -------- $ 48,328 $ 36,110 ======== ======== See accompanying notes 2 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------- ------------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Net Sales $ 12,845 $ 12,893 $ 27,694 $ 29,129 Operating Costs and Expenses: Cost of Goods Sold 9,824 10,336 20,861 22,606 Selling, General and Administrative 4,791 4,924 9,738 10,642 Restructuring Charges -- 213 -- 302 ------------ ------------ ------------ ------------ Operating Loss (1,770) (2,580) (2,905) (4,421) Other Income and (Expenses): Interest and Other Expenses (707) (794) (1,262) (1,631) Interest and Other Income 8 12 21 163 Gain on Sale and Equity in Net Income of Investee -- -- -- 123 ------------ ------------ ------------ ------------ Loss Before Income Tax Benefit (2,469) (3,362) (4,146) (5,766) Income Tax Benefit (1,011) (1,181) (1,578) (2,172) ------------ ------------ ------------ ------------ Net Loss $ (1,458) $ (2,181) $ (2,568) $ (3,594) ============ ============ ============ ============ Net Loss per Common Share $ (0.14) $ (0.20) $ (0.24) $ (0.33) ============ ============ ============ ============ Shares Used in Computing Net Loss Per Common Share 10,762,895 10,741,521 10,753,037 10,741,521 ============ ============ ============ ============ See Accompanying Notes. 3 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) SIX MONTHS ENDED JUNE 30, ----------------------- 1997 1996 -------- -------- Operating Activities Net loss $ (2,568) $ (3,594) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: (Gain) loss on sale of assets 3 (11) Gain on sale of equity investee -- (123) Amortization of unearned stock award compensation 34 34 Amortization of warrant costs 104 -- Depreciation expense 288 279 Amortization expense 73 133 Provision for losses and sales allowances on receivables 1,312 1,937 (Increase) decrease in operating assets: Trade accounts receivable 1,432 6,215 Inventories (13,476) (5,314) Prepaid expenses and other 105 (352) Federal income tax receivable (1,552) (287) Other assets (116) 13 Increase (decrease) in operating liabilities: Accounts payable 4,642 3,744 Accrued liabilities (2,048) (1,339) Other liabilities (115) -- -------- -------- Net cash provided by (used in) operating activities (11,882) 1,335 Investing activities: Net sale of assets -- 11 Capital expenditures (179) (176) Proceeds on sale of equity investee -- 1,750 -------- -------- Net cash provided by (used in) investing activities (179) 1,585 Financing activities: Payments under notes payable to banks (9,258) (19,520) Borrowings under notes payable to banks 23,079 17,693 Principal payments under term loan (1,750) (1,250) Principal payments of long-term debt and capital leases (42) (41) Proceeds from exercise of employee stock options 18 -- -------- -------- Net cash (used in) provided by financing activities 12,047 (3,118) Net decrease in cash and cash equivalents (14) (198) Cash and cash equivalents at beginning of year 327 312 -------- -------- Cash and cash equivalents at end of period $ 313 $ 114 ======== ======== Supplemental disclosure information: Interest expense paid $ 1,142 $ 1,611 Income taxes paid $ -- $ 60 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") 1996 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"), which was acquired in November 1994, 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 during 1995. All material intercompany balances and transactions have been eliminated. Certain amounts included in prior period financial statements have been reclassified to conform with the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to sales allowances, inventory reserves, and recoverability of assets. Actual results could differ from those estimates. 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 and six month periods ended June 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 5 4. Effective for the year ending December 31, 1997 and thereafter, earnings per share will be computed in accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS No. 128"). Earlier adoption for interim periods during 1997 is prohibited. 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. The application of FAS. No. 128 would not result in a difference to earnings per share as currently computed under APB No. 15. 5. Inventories at June 30, 1997 and December 31, 1996 are comprised of the following: JUNE 30, 1997 DECEMBER 31, 1996 ------------- ----------------- Raw materials $ 7,336,000 $ 3,684,000 Work-in-process 4,608,000 785,000 Finished goods 16,086,000 10,085,000 ----------- ----------- $28,030,000 $14,554,000 =========== =========== 6. Included in accounts payable at June 30, 1997 and June 30, 1996 are the Company's obligations under outstanding letters of credit of $3,761,000 and $3,294,000 respectively. 7. On March 24, 1997 Biscayne amended its Loan Agreement 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% for approved collateral overadvances; require additional fees of $325,000; and waive violations of certain covenants during the 1996 period. 8. During 1996, the Company issued various warrants to its banks, Trivest, Inc., an affiliate of the Company, and certain officers of the Company. These warrants were valued at approximately $294,000 and have been reflected in the Company's financial statements. The amortization of these costs are included in current year selling, general and administrative expense and interest expense. 9. In June 1997, Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and No. 131 "Disclosures about Segments of an Enterprise and Related Information" were 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. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- QUARTER ENDED JUNE 30, 1997 VERSUS QUARTER ENDED JUNE 30, 1996: Net sales for the second quarter of 1997 were $12,845,000, which approximated the second quarter 1996 sales of $12,893,000. Increased sales at M&L and Mackintosh were offset by small decreases in the Andy Johns and Varon divisions. Second quarter sales typically approximate 10-15% of total year sales, due to the Company's seasonal business. Cost of goods sold, as a percentage of net sales was 76% versus 80% for the quarters ended June 30, 1997 and 1996, respectively. The decrease is attributable to Andy Johns and M&L realizing lower costs of production, offset by higher costs of production at Varon. Selling, general and administrative expenses ("S,G&A") as a percentage of net sales decreased to 37% in 1997 from 38% in 1996. This decrease is a result of management's continued efforts to reduce costs. Additionally, the Company incurred $213,000 of restructuring charges in the 1996 second quarter, with none in the comparable 1997 period. OTHER - ----- Interest and other expenses for the quarter ended June 30, 1997 decreased 11% to $707,000 from $794,000 for the comparable quarter of 1996. The decrease is primarily due to lower borrowings during 1997. Interest and other income declined slightly during the second quarter of 1997 by $4,000. SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED JUNE 30, 1996 - -------------------------------------------------------------------- Net sales for the six months ended June 30, 1997 decreased to $27,694,000 from $29,129,000 for 1996. This 5% decrease is mainly attributable to the Andy Johns and Varon divisions. Consolidated backlog at June 30, 1997 increased to $64,900,000 from $62,700,000 at June 30, 1996. The increase of 3.5% is largely due to increased sales backlog at M&L. Cost of goods sold as a percentage of net sales decreased to 75% for the first half of 1997, from 78% for the first half of 1996. This decline is a result of Andy Johns and M&L realizing lower production costs, offset by higher Varon production costs. 7 Selling, general and administrative expenses ("S,G&A") as a percentage of net sales decreased to 35% for the period ended June 30, 1997 versus 37% for the period ending June 30, 1996. Declines were realized in the Andy Johns and Varon divisions due to continued efforts by management to contain costs, offset by higher costs incurred at M&L to manage the increased sales backlog, which was necessitated for the higher anticipated sales in the second half of 1997. Additionally, the Company incurred $302,000 of restructuring charges in the first six months of 1996, with none in the comparable 1997 period. 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 would have 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 there may be significant changes in Varon's competitive environment related to such products. In the 1997 second quarter, the CPSC announced that the March 1998 implementation date for the above changes would be extended to June 1998. However, the specter of such implementation has caused delays in 1997 orders of, and/or reductions of orders for, some of Varon's cotton thermal and long underwear products. The impact on Varon's market position once implementation occurs 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 gain market share of newly-approved cotton sleepwear, due to its current expertise in manufacturing, if it can take away market share from heretofore non-cotton sleepwear product sales. These regulations could impact up to one-third of Varon's revenues. OshKosh B'Gosh, Inc. ("OshKosh") notified M&L during the second quarter of 1997 that it will not renew its outerwear license with M&L after May 31, 1998. As part of a strategy adopted over the last several years, OshKosh will sell its outerwear directly to retailers. For the six months ended June 30, 1997 and 1996, M&L's sales of OshKosh outerwear were $2,163,000 and $3,889,000, respectively. For the years ended December 31, 1996 and 1995, M&L's sales of OshKosh outerwear were $17,063,000 and $13,678,000, respectively. M&L's strategy is to ultimately replace and exceed the OshKosh brand sales of outerwear with several well-known brand name children's outerwear and activewear licenses. M&L recently announced the signing of a licensing agreement with the Starter Corporation to manufacture girls' activewear, swimwear, and outerwear in sized 4-6X and 7-16. Initial shipments of Starter girls' activewear and outerwear are targeted for delivery in Fall 1998. 8 Additionally, M&L announced the signing of a letter of intent with Healthtex, a division of VF Corporation, to manufacture a new collection of children's outerwear under the Healthtex brand name in sizes newborn through 16 for girls and newborn through 7X for boys. Initial shipments are targeted for delivery in Fall 1998. OTHER - ----- Interest and other expenses for the six months ended June 30, 1997 decreased to $1,262,000 versus $1,631,000 for the six months ended June 30, 1996. The decline is primarily due to decreased bank borrowings during 1997. Interest and other income decreased to $21,000 for the first half of 1997 from $163,000 for the first half of 1996, primarily due to one-time license revenues earned by M&L in the first quarter of 1996. On March 27, 1996, the Company sold its 20% interest in Hartwell Sports, Inc. for $1,750,000. Proceeds were used to reduce notes payable to banks. The sale resulted in a gain during 1996 of $123,000. INCOME TAXES - ------------ For the quarters and six months ended June 30, 1997 and 1996, the income tax benefit was greater than the benefit which would be derived upon application of the Federal statutory rate, primarily because of state income tax benefits. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash and cash equivalents were $313,000 and $327,000 at June 30, 1997 and December 31, 1996, respectively. At June 30, 1997, the Company's working capital was $15,040,000, representing a current ratio of 1.50 to 1.00. This compares to working capital of $19,540,000 and a current ratio of 2.45 to 1.00 at December 31, 1996. These changes are due to seasonal increases in current assets, particularly inventory, and increased bank debt offset by seasonal first half losses. As presented in the Consolidated Statements of Cash Flows for the six months ended June 30, 1997, the decrease of accounts receivable of $1,432,000, the increase in inventories of $13,476,000, accounts payable of $4,642,000 and the decrease in accrued liabilities of $2,048,000 are due to the seasonality of the Company's operations. On March 31, 1997 the Company repaid $1,750,000 of its long-term debt. Capital expenditures for the six months ended June 30, 1997 remained relatively constant at $179,000 versus $176,000 in 1996. 9 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. However, increases in wool, cotton and labor costs over the last several years have required the Company to increase offshore production. 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. Sales of women's and children's outerwear and long underwear 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 consumer reactions to weather patterns, which have had a material effect on the Company's sales and profitability in the past. 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. 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- The Company is, from time to time, involved in routine litigation. None such litigation in which the Company is presently involved is material to its financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS - ------- ------------------------------------------------- a) The Registrant held its Annual Meeting of Shareholders on June 4, 1997. b) Not required. c) The matters voted on at the Annual Meeting of Shareholders, and the tabulation of votes on such matters are as follows: 1. ELECTION OF DIRECTORS --------------------- BROKER NAME FOR WITHHELD NON-VOTES ---- --- -------- --------- Harold E. Berritt 8,024,217 446,120 -0- Phillip T. George, M.D 8,027,882 442,455 -0- Joseph B. Gildenhorn 8,027,856 442,481 -0- Kurt C. Gutfreund 8,027,882 442,455 -0- R. Stephen Lefler 8,027,875 442,462 -0- James J. Pinto 8,027,856 442,481 -0- Earl W. Powell 8,027,882 442,490 -0- Peter Vandenberg, Jr 8,027,882 442,455 -0- 2. ADOPTION OF THE COMPANY'S 1997 STOCK OPTION PLAN ------------------------------------------------ BROKER FOR AGAINST ABSTENTIONS NON-VOTES --- ------- ----------- --------- 5,340,073 594,407 32,892 2,502,965 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- a) Exhibits: 10 First Amendment to Second Amended and Restated Credit Agreement and Guaranty dated as of May 22, 1997 among the Registrant, Biscayne Apparel International, Inc., Mackintosh of New England Co., and M&L International, Inc. and The Chase Manhattan Bank (National Association) as Agent and Milberg Factors, Inc. as Servicing Agent. 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. 12 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: August 12, 1997 By: /s/ Earl W. Powell -------------------------- Earl W. Powell Chairman of the Board, President and Chief Executive Officer Date: August 12, 1997 By: /s/ Peter Vandenberg, Jr. -------------------------- Peter Vandenberg, Jr. Executive Vice President, Treasurer and Chief Financial Officer 13 EXHIBIT 10 EXECUTION COPY FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "First Amendment") dated as of May 22, 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, 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"). PRELIMINARY STATEMENT. 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 (the "Credit Agreement"). The terms defined in the Credit Agreement are used in this First Amendment as in the Credit Agreement unless otherwise defined in this First 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: (1) The definition of "Revolving Credit Loans Permitted Overadvance (During the Month)" is amended by adding the following at the end of such definition: "Notwithstanding the foregoing, the amount specified for each day during the month of May, 1997 other than the last day of such month is $5,500,000. Notwithstanding the foregoing, the amount specified for each day during the month of June, 1997 other than the last day of such month is $10,000,000." (2) The definition of "Revolving Credit Loans Permitted Overadvance (Month End)" is amended by adding the following at the end of such definition: "Notwithstanding the foregoing, the amount specified for the end of the month of May, 1997 is $5,500,000." SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS FIRST AMENDMENT. This First Amendment shall become effective on the date on which the Borrowers, the Lenders and the Agents shall each have executed and delivered this First Amendment. SECTION 3. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. Upon the effectiveness of Section 1 hereof, on and after the date hereof each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in the other Facility Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. Except as specifically amended above, the Credit Agreement and all other Facility Documents shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and effectiveness of this First Amendment shall not operate as a waiver of any right, power or remedy of any Lender or Agent under any of the Facility Documents, nor constitute a waiver of any provision of the Facility Documents. SECTION 4. COSTS AND EXPENSES. The Borrowers agree to pay the Agent, the Servicing Agent, and the Lenders on demand all costs, expenses and charges, in connection with the preparation, reproduction, execution, delivery, filing, recording and administration of this First Amendment and any other instruments and documents to be delivered hereunder, including, without limitation, the fees and out-of-pocket expenses of counsel for the Agent, the Servicing Agent, and each Lender with respect thereto and with respect to advising the Agent, the Servicing Agent, and each Lender as to its rights and responsibilities under such documents, and all costs and expenses, if any, in connection with the enforcement of any such documents. SECTION 5. GOVERNING LAW. This First Amendment shall be governed by and construed in accordance with the laws of the State of New York. 2 SECTION 6. HEADINGS. Section headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose. SECTION 7. COUNTERPARTS. This First 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 First Amendment by signing any such counterpart. [INTENTIONALLY LEFT BLANK.] 3 IN WITNESS WHEREOF, the parties hereto have caused this First 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: Executive Vice 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 THE CHASE MANHATTAN BANK, as Lender By -------------------------------- Name: Title: MILBERG FACTORS, INC., as Lender By -------------------------------- Name: Title: 4 BISCAYNE APPAREL, INC. By -------------------------------- Name: Peter Vandenberg Jr. Title: Executive Vice President BISCAYNE APPAREL INTERNATIONAL, INC. By -------------------------------- Name: Peter Vandenberg Jr. Title: President MACKINTOSH OF NEW ENGLAND CO. By -------------------------------- Name: Peter Vandenberg Jr. Title: President M & L INTERNATIONAL, INC. By -------------------------------- Name: Peter Vandenberg Jr. Title: Vice President THE CHASE MANHATTAN BANK, as Lender By /s/ -------------------------------- Name: Title: MILBERG FACTORS, INC., as Lender By -------------------------------- Name: Title: 5 BISCAYNE APPAREL, INC. By -------------------------------- Name: Peter Vandenberg Jr. Title: Executive Vice President BISCAYNE APPAREL INTERNATIONAL, INC. By -------------------------------- Name: Peter Vandenberg Jr. Title: President MACKINTOSH OF NEW ENGLAND CO. By -------------------------------- Name: Peter Vandenberg Jr. Title: President M & L INTERNATIONAL, INC. By -------------------------------- Name: Peter Vandenberg Jr. Title: Vice President THE CHASE MANHATTAN BANK, as Lender By -------------------------------- Name: Title: MILBERG FACTORS, INC., as Lender By /s/ David J. Milberg -------------------------------- Name: David J. Milberg Title: Vice President 6 CORESTATES BANK, N.A., as Lender By /s/ John A. Guntes -------------------------------- Name: John A. Guntes Title: Assistant Vice President BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) as Lender By -------------------------------- Name: Title: FLEET BANK, N.A., as Lender By -------------------------------- Name: Title: THE CHASE MANHATTAN BANK, as Agent By -------------------------------- Name: Title: MILBERG FACTORS, INC., as Servicing Agent By -------------------------------- Name: Title: 7 CORESTATES BANK, N.A., as Lender By -------------------------------- Name: Title: BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) as Lender By /s/ David F. Eusion -------------------------------- Name: David F. Eusion Title: Director FLEET BANK, N.A., as Lender By -------------------------------- Name: Title: THE CHASE MANHATTAN BANK, as Agent By -------------------------------- Name: Title: MILBERG FACTORS, INC., as Servicing Agent By -------------------------------- Name: Title: 8 CORESTATES BANK, N.A., as Lender By -------------------------------- Name: Title: BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) as Lender By -------------------------------- Name: David F. Eusion Title: Director FLEET BANK, N.A., as Lender By /s/ Anthony Santoro -------------------------------- Name: Anthony Santoro Title: Vice President THE CHASE MANHATTAN BANK, as Agent By -------------------------------- Name: Title: MILBERG FACTORS, INC., as Servicing Agent By -------------------------------- Name: Title: 9 CORESTATES BANK, N.A., as Lender By -------------------------------- Name: Title: BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) as Lender By -------------------------------- Name: Title: FLEET BANK, N.A., as Lender By -------------------------------- Name: Title: THE CHASE MANHATTAN BANK, as Agent By /s/ -------------------------------- Name: Title: MILBERG FACTORS, INC., as Servicing Agent By -------------------------------- Name: Title: 10 CORESTATES BANK, N.A., as Lender By -------------------------------- Name: Title: BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) as Lender By -------------------------------- Name: Title: FLEET BANK, N.A., as Lender By -------------------------------- Name: Title: THE CHASE MANHATTAN BANK, as Agent By /s/ -------------------------------- Name: Title: MILBERG FACTORS, INC., as Servicing Agent By /s/ David J. Milberg -------------------------------- Name: David J. Milberg Title: Vice President 11 EXHIBIT 11 BISCAYNE APPAREL, INC. COMPUTATION OF PER SHARE EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------- ------------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Net loss $ (1,458) $ (2,181) $ (2,568) $ (3,594) ============ ============ ============ ============ PRIMARY: Common and common equivalent shares: Weighted average common shares outstanding 10,762,895 10,741,521 10,753,037 10,741,521 Potential dilution upon exercise of stock options and warrants -- -- -- -- ------------ ------------ ------------ ------------ Shares used in computing net loss per common share 10,762,895 10,741,521 10,753,037 10,741,521 ============ ============ ============ ============ PER SHARE AMOUNTS: Net loss per share $ (0.14) $ (0.20) $ (0.24) $ (0.33) ============ ============ ============ ============ FULLY DILUTED: Common and common equivalent shares: Weighted average common shares outstanding 10,762,895 10,741,521 10,753,037 10,741,521 Potential dilution upon exercise of stock options and warrants -- -- -- -- ------------ ------------ ------------ ------------ Shares used in computing net loss per common share 10,762,895 10,741,521 10,753,037 10,741,521 ============ ============ ============ ============ PER SHARE AMOUNTS: Net loss per share $ (0.14) $ (0.20) $ (0.24) $ (0.33) ============ ============ ============ ============ End