Biscayne Apparel: 10-Q for Quarter to 6/30/98 ================================================================================ 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 JUNE 30, 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 June 30, 1998, there were 10,771,622 outstanding shares of the registrant's Common Stock, $0.01 par value. ================================================================================ BISCAYNE APPAREL, INC. INDEX PART I. FINANCIAL INFORMATION PAGE NO. Consolidated Balance Sheets June 30, 1998 and December 31, 1997.................... 2 Consolidated Statements of Operations Six Months Ended June 30, 1998 and 1997................ 3 Consolidated Statements of Cash Flows Six Months Ended June 30, 1998 and 1997................ 4 Notes to Consolidated Financial Statements............. 5-7 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 7-10 PART II. OTHER INFORMATION Item 1 - Legal Proceedings............................. 11 Item 6 - Exhibits and Reports on Form 8-K.............. 11 Signatures............................................. 13 1 BISCAYNE APPAREL, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) JUNE 30, DECEMBER 31, 1998 1997 ------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents ....................... $ 205 $ 268 Trade accounts receivable, less allowances of $1,476 in 1998 and $2,278 in 1997 ........... 12,756 13,509 Inventories ..................................... 26,670 17,258 Prepaid expenses and other ...................... 1,371 962 Federal income tax receivable ................... -- -- -------- ------- Total current assets ......................... 41,002 31,997 Property, plant and equipment, less accumulated depreciation of $2,846 in 1998 and $2,517 in 1997 .............................. 2,631 2,739 Other assets, net ................................. 210 81 -------- ------- $ 43,843 $34,817 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................ $ 8,216 $ 4,320 Accrued liabilities ............................. 3,228 4,878 Notes payable to banks .......................... 21,179 6,855 Current portion of long-term debt ............... 2,500 2,000 -------- ------- Total current liabilities .................... 35,123 18,053 Subordinated notes ................................ 6,444 6,444 Long-term debt .................................... 280 2,500 Other liabilities ................................. -- 162 Commitments and contingencies ..................... -- -- Stockholders, Equity: Preferred stock - par value $0.01; 5,000 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 June 30, 1998 and December 31, 1997, respectively.................. 108 108 Additional paid-in capital......................... 26,610 26,610 Accumulated deficit ............................... (24,722) (19,060) -------- ------- 1,996 7,658 -------- ------- Total stockholders' equity ................... $ 43,843 $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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net sales ........................................... $ 14,517 $ 12,845 $ 25,828 $ 27,694 Operating costs and expenses: Cost of goods sold ................................ 11,880 9,824 20,782 20,861 Selling, general and administrative ............... 4,623 4,791 9,182 9,738 ------------ ------------ ------------ ------------ Operating loss ...................................... (1,986) (1,770) (4,136) (2,905) Other income and (expenses): Interest and other expenses ........................ (870) (707) (1,530) (1,262) Interest and other income .......................... -- 8 4 21 ------------ ------------ ------------ ------------ Loss before income tax provision (benefit) .......... (2,856) (2,469) (5,662) (4,146) Income tax provision (benefit) ...................... 903 (1,011) -- (1,578) ------------ ------------ ------------ ------------ Net loss ............................................ $ (3,759) $ (1,458) $ (5,662) $ (2,568) ============ ============ ============ ============ Basic and diluted loss per common share ............. $ (0.35) $ (0.14) $ (0.53) $ (0.24) ============ ============ ============ ============ Shares used in computing basic and diluted loss per common share ................................... 10,771,662 10,762,895 10,771,622 10,753,037 ============ ============ ============ ============ See accompanying notes. 3 BISCAYNE APPAREL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 -------- -------- Operating activities: Net loss ...................................................... $ (5,662) $ (2,568) Adjustments to reconcile net loss to net cash used in operating activities: Loss on sale of assets ...................................... -- 3 Depreciation expense ........................................ 328 288 Amortization expense ........................................ (9) 73 Amortization of unearned stock award compensation ........... -- 34 Amortization of warrant costs ............................... 35 104 Provision for losses and sales allowances on receivables .... 1,274 1,312 (Increase) decrease in operating assets: Trade accounts receivable .................................... (521) 1,432 Inventories .................................................. (9,412) (13,476) Prepaid expenses and other ................................... (409) 105 Federal income tax receivable ................................ -- (1,552) Other assets ................................................. (155) (116) Increase (decrease) in operating liabilities: Accounts payable ............................................. 3,896 4,642 Accrued liabilities .......................................... (1,643) (2,048) Other liabilities ............................................ 153 (115) -------- -------- Net cash used in operating activities ...................... (12,125) (11,882) Investing activities: Capital expenditures .......................................... (220) (179) -------- -------- Net cash used in investing activities ....................... (220) (179) Financing activities: Payments under notes payable to banks ......................... (26,141) (9,258) Borrowings under notes payable to banks ....................... 40,465 23,079 Principal payments under term loan ............................ (2,000) (1,750) Principal payments of long-term debt and capital leases ....... (42) (42) Proceeds from exercise of employee stock options .............. -- 18 -------- -------- Net cash provided by financing activities ................... 12,282 12,047 Net decrease in cash and cash equivalents ...................... (63) (14) Cash and cash equivalents at beginning of year ................. 268 327 -------- -------- Cash and cash equivalents at end of period ..................... $ 205 $ 313 ======== ======== Interest expense paid ......................................... $ 1 ,464 $ 1,142 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 six month periods ended June 30, 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): QUARTER ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------------- ------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Numerator: Net Loss $ (3,759) $ (1,458) $ (5,662) $ (2,568) Denominator: Shares Outstanding 10,771,622 10,762,895 10,771,622 10,753,037 Basic and Dilutive Net Loss Per Share $ (0.35) $ (0.14) $ (0.53) $ (0.24) 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 982,903 shares of common stock at prices ranging from $0.75 to $2.44 per share were outstanding at June 30, 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 outstanding at June 30, 1998 expire from November 1998 to November 2007. 5. Inventories at June 30, 1998 and December 31, 1997 are comprised of the following: JUNE 30, 1998 DECEMBER 31, 1997 ------------- ----------------- Raw materials $ 6,423,000 $ 4,067,000 Work-in-process 4,315,000 1,944,000 Finished goods 15,932,000 11,247,000 ----------- ----------- $26,670,000 $17,258,000 =========== =========== 6. Included in accounts payable at June 30, 1998 and June 30, 1997 are the Company's obligations under outstanding letters of credit of $3,532,000 and $3,761,000, 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 JUNE 30, 1998 VERSUS QUARTER ENDED JUNE 30, 1997: Net sales for the second quarter of 1998 were $14,517,000, which exceeded the second quarter 1997 sales by 13%. The increase was the result of a sales increase at M&L offset by slight sales decreases at Mackintosh and Varon. 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 82% versus 76% for the quarter ended June 30, 1998 and 1997, respectively. The increase is primarily due to higher costs of production at Varon. Selling, general and administrative expenses ("S,G&A") as a percentage of net sales decreased to 32% in 1998 from 37% in 1997. This decrease is a result of management's continuous efforts to reduce costs. OTHER Interest and other expense for the quarter ended June 30, 1998 increased to $870,000 from $707,000 in the 1997 second quarter due to higher borrowings. 7 SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30, 1997: Net sales for the first six months of 1998 decreased to $25,828,000 from the first six months of 1997 sales of $27,694,000. The 7% decrease was due to soft spring sales at Mackintosh and Varon. First half sales are historically low, due to the Company's seasonal business. Consolidated sales backlog at July 17, 1998 was $45,585,000, compared to $62,294,000 at July 16, 1997. The decrease of 27% is largely due to decreased sales backlog in each of the Company's operating units. Cost of goods sold, as a percentage of net sales, was 80% versus 75% for the six months ended June 30, 1998 and 1997, respectively. The increase is mainly attributable to higher costs of production at Varon. S,G&A decreased to $9,182,000 for the six months ended June 30, 1998, compared to $9,738,000 in 1997. This 6% 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 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 six months ended June 30, 1998 and 1997, M&L's sales of OshKosh outerwear were $9,336,000 and $5,290,000 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. 8 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 six months ended June 30, 1998 increased to $1,530,000 from $1,262,000 for the comparable period of 1997. The increase is primarily due to higher borrowings. INCOME TAXES For the six months ended June 30, 1998, the Company recorded valuation allowances relating to deferred tax assets and Federal and state net operating loss carryforwards, due to the Company sustaining operating losses. Any future tax provisions would be offset against such valuation allowances and net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $205,000 and $268,000 at June 30, 1998 and December 31, 1997, respectively. At June 30, 1998, the Company's working capital was $5,879,000, representing a current ratio of 1.17 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 six months ended June 30, 1998, the increase in inventories of $9,412,000 and accounts payable of $3,896,000 and the decrease in accrued liabilities of $1,643,000 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 six months ended June 30, 1998 increased to $220,000 from $179,000 in 1997. The increase is mainly attributable to increased leasehold improvements at Mackintosh offset by decreased equipment expenditures at M&L. 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. 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. 10 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 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS a) The Registrant held its Annual Meeting of Shareholders on June 3, 1998. b) Not required. c) The matter voted on at the Annual Meeting of Shareholders, and the tabulation of votes on such matter is as follows: 1. ELECTION OF DIRECTORS BROKER NAME FOR WITHHELD NON-VOTES Harold E. Berritt 8,062,141 348,792 -0- Phillip T. George, M.D 8,073,138 337,795 -0- Joseph B. Gildenhorn 8,073,210 337,723 -0- Kurt C. Gutfreund 8,072,108 338,825 -0- R. Stephen Lefler 8,064,728 346,205 -0- James J. Pinto 8,064,800 346,133 -0- Earl Powell 8,073,066 337,867 -0- Peter Vandenberg, Jr 8,073,138 337,795 -0- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 10.1 Fifth Amendment and Waiver to Second Amended and Restated Credit Agreement and Guaranty dated as of June 8, 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. 10.2 Second Amendment to Stock Purchase Warrants certificate numbers W-1 through W-5 issued March 28, 1996 dated as of June 4, 1998 between the Registrant and The Chase Manhattan Bank, Corestates Bank, N.A., BankBoston, N.A., Fleet Bank, N.A. and Milberg Factors, Inc., respectively. 11 10.3 Security Agreement and Mortgage-Trademarks Agreement, dated as of March 25, 1998, between Mackintosh of New England Co. and The Chase Manhattan Bank. 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 filed a current report on Form 8-K, dated June 16, 1998. 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 13, 1998 By: /s/ Earl W. Powell -------------------------------------- Earl W. Powell Chairman of the Board and Chief Executive Officer Date: August 13, 1998 By: /s/ Peter Vandenberg, Jr. -------------------------------------- Peter Vandenberg, Jr. President, Chief Operating Officer, Treasurer and Chief Financial Officer 13 EXHIBIT 10.1 FIFTH AMENDMENT AND WAIVER TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY FIFTH AMENDMENT AND WAIVER TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY (the "FOURTH AMENDMENT") dated as of June 8, 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, a Third Amendment, dated as of March 6, 1998 and a Fourth Amendment, dated as of March 25, 1998 (as so amended, the "CREDIT AGREEMENT"); and WHEREAS, the terms defined in the Credit Agreement are used in this Fifth Amendment as in the Credit Agreement unless otherwise defined herein; 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. PERMANENT WAIVER. Each Lender and each Agent hereby waive (i) the non-compliance with the provisions contained in the definition of Revolving Credit Loans Permitted Overadvance (Month End) which requires that the aggregate outstanding amount of Revolving Credit Loans made to BAI as of May 31, 1998 which were used to finance Varon shall be less than the Eligible Accounts of Varon included in the computation of the Collateral Borrowing Base as set forth on the Reconciliation Report for the month ended May 31, 1998 in an amount equal to or greater than $3,000,000 and (ii) the Event of Default arising as a result of the failure by the Borrowers to make mandatary prepayments pursuant to Section 2.08(ii) of the Credit Agreement following the occurrence of the foregoing event. SECTION 2. LIMITED WAIVER. During the period June 1, 1998 through June 30, 1998 (the "WAIVER PERIOD"), each Lender and each Agent hereby waive compliance with: (i) the provisions contained in the definition of Revolving Credit Loans Permitted Overadvance (During the Month) which requires that the aggregate outstanding amount of Revolving Credit Loans made to BAI during the month of June 1998 which are used to finance Varon shall be less than the Eligible Accounts of Varon included in the computation of the Collateral Borrowing Base as set forth on the Reconciliation Report for the month of June 1998 in an amount equal to or greater than $3,750,000; PROVIDED, that the amount by which such Revolving Credit Loans shall be less than such Eligible Accounts shall not be equal to or greater than $4,500,000 during the Waiver Period; (ii) the provisions contained in the definition of Revolving Credit Loans Permitted Overadvance (During the Month) which requires that the aggregate outstanding amount of Revolving Credit Loans during the month of June 1998 shall be less than the Eligible Accounts included in the computation of the Collateral Borrowing Base as set forth on the Reconciliation Report during the month of June 1998 in an amount equal to or greater than $9,000,000; PROVIDED, that the amount by which the Revolving Credit Loans shall be less than such Eligible Accounts shall not be equal to or greater than $12,500,000; and (iii) the provisions contained in the definition of Revolving Credit Loan Maximum Outstanding for the period June 1, 1998 through June 30, 1998 which require that Revolving Loans should not exceed $18,250,000 during such period, PROVIDED, that Revolving Loans shall not exceed $25,000,000 during such period. SECTION 3. AMENDMENTS TO CREDIT AGREEMENT. Section 10.02 of the Credit Agreement is amended by (i) adding the words "and Apparel" after the phrase "guaranties by BAI" appearing in clause (b) of such section and (ii) adding the following proviso at the end of such section immediately before the period: ; PROVIDED, that any guaranty by Apparel shall be limited (i) in the case of guaranties provided to Fortsmann Co. and NationsBank, as factor for Warshaw Woolens, to $500,000 per entity in respect of all extensions of credit by such creditors and (ii) for all other entities to orders for the purchase of raw materials which are placed on or after June 8, 1998. SECTION 4. CONDITIONS OF EFFECTIVENESS TO THIS FIFTH AMENDMENT. This Fifth Amendment shall become effective on the date on which each of the following conditions have been satisfied or waived: (i) the Borrowers, the Lenders and the Agents shall each have executed and delivered this Fifth Amendment; (ii) payment by the Borrower of all costs and expenses of the Agents and the Lenders (including, without limitation, reasonable attorneys' fees and expenses) incurred in connection with this Fifth Amendment and the Credit Agreement; and 2 (iii) receipt of such other documents, opinions or agreements as either of the Agents or any of the Lenders may reasonably request. SECTION 5. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS. Upon the effectiveness of Section 4 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 Fifth 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. RESERVATION OF RIGHTS. Each of the Borrower agrees that notwithstanding any present decision of the Lenders and the Agents to waive certain Events of Default and to waive compliance with certain provisions of the Credit Agreement as provided in Sections 2 and 3 of this Fifth Amendment, such course of conduct by the Lenders and the Agents and the execution and delivery of this Fifth Amendment does not now, and will not in the future, constitute a waiver by any such party of its right to exercise any of its rights and remedies at any time now or in the future with respect to such Events of Default or any other Event of Default. Each of the Borrowers further agrees that, in the absence of an extension of the Waiver Period or other agreement waiving the provisions specified in Section 2 hereof (or upon the occurrence of an Event of Default), the Lenders and the Agents shall be entitled to exercise all rights and remedies set forth in the Facility Documents which arise upon the occurrence of an Event of Default relating to the provisions of the Credit Agreement which are being waived during the Waiver Period (or any other Event of Default). SECTION 7. 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). SECTION 8. 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 Fifth 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 9. GOVERNING LAW. This Fifth 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. 3 SECTION 10. HEADINGS. Section headings in this Fifth Amendment are included herein for convenience of reference only and shall not constitute a part of this Fifth Amendment for any other purpose. SECTION 11. COUNTERPARTS. This Fifth 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 Fifth 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 ------------------------------------- Name: Peter Vandenberg Title: President BISCAYNE APPAREL INTERNATIONAL, INC. By: /s/ Peter Vandenberg ------------------------------------- Name: Peter Vandenberg Title: President MACKINTOSH OF NEW ENGLAND CO. By: /s/ Peter Vandenberg ------------------------------------- Name: Peter Vandenberg Title: President M & L INTERNATIONAL, INC. By: /s/ Peter Vandenberg ------------------------------------- Name: Peter Vandenberg Title: President 4 THE CHASE MANHATTAN BANK, as Lender By: /s/ John Murphy ------------------------------------ Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Lender By: /s/ David J. Milberg ------------------------------------ Name: David J. Milberg Title: Vice President CORESTATES BANK, N.A., as Lender By: /s/ Don D. Mishlien ------------------------------------ Name: Don D. Mishlien Title: Vice President BANKBOSTON, N. A., as Lender By: /s/ Corrine M. Barrett ------------------------------------ Name: Corrine M. Barrett Title: Vice President FLEET BANK, N.A., as Lender By: /s/ Amy H. Witryil ------------------------------------ Name: Amy H. Witryil Title: Vice President THE CHASE MANHATTAN BANK, as Agent By: /s/ John Murphy ------------------------------------ Name: John Murphy Title: Vice President MILBERG FACTORS, INC., as Servicing Agent By: /s/ David J. Milberg ------------------------------------ Name: David J. Milberg Title: Vice President 5 EXHIBIT 10.2 SECOND AMENDMENT TO STOCK PURCHASE WARRANT SECOND AMENDMENT TO STOCK PURCHASE WARRANT certificate number W-___ issued March 28, 1996 (the "AMENDMENT") dated as of June 4, 1998 between BISCAYNE APPAREL, INC. (the "COMPANY"), and [BANK] (the "LENDER"). PRELIMINARY STATEMENTS: WHEREAS, the Company and the Lender are party to that certain Stock Purchase Warrant issued on March 28, 1996, certificate number W-_____ (as amended by that certain First Amendment to Stock Purchase Warrant dated March 25, 1998 and as may be further amended from time to time, the "STOCK PURCHASE WARRANT"); WHEREAS, the Company and the Lender are also party to that certain Second Amended and Restated Credit Agreement and Guaranty, dated as of March 24, 1997 among the Company, the financial institutions named therein, The Chase Manhattan Bank, as Agent and Milberg Factors, Inc., as Servicing Agent as amended by a First Amendment, dated as of May 22, 1997, a Second Amendment, dated as of February 18, 1998, a Third Amendment, dated as of March 6, 1998 and a Fourth Amendment, dated as of March 25, 1998 (as so amended and as may be further amended from time to time, the "CREDIT AGREEMENT"); WHEREAS, the terms defined in the Credit Agreement are used in this Amendment as in the Credit Agreement unless otherwise defined in this Amendment; WHEREAS, the Company and the Lender have agreed to amend certain provisions of the Stock Purchase Warrant but only upon the terms and conditions set forth herein; NOW, THEREFORE, the Company and the Lender hereby agree as follows:. SECTION 1. AMENDMENTS TO STOCK PURCHASE WARRANT. The Stock Purchase Warrant is, subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: The first paragraph of the Stock Purchase Warrant is hereby amended by deleting the amount "$1.00" that is set forth in the sixth line of such paragraph and inserting in lieu thereof the amount "$0.65". SECTION 2. CONDITIONS OF EFFECTIVENESS TO THIS AMENDMENT. This Amendment shall become effective on the date on which each of the following conditions have been satisfied: (i) the Company and the Lender shall each have executed and delivered this Amendment and (ii) receipt of such other documents, opinions or agreements as the Lender may reasonably reques. 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 Stock Purchase Warrant to "this Warrant", "hereunder", "hereof", "herein" or words of like import, and each reference in the other Facility Documents to the Stock Purchase Warrant, shall mean and be a reference to the Stock Purchase Warrant as amended hereby. Except as specifically amended above, the Stock Purchase Warrant 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 Amendment shall not operate as a waiver of any right, power or remedy of the Lender under any of the Facility Documents or the Stock Purchase Warrant, nor constitute a waiver of any provision of the Facility Documents or the Stock Purchase Warrant. SECTION 4. COSTS AND EXPENSES. The Company agrees to pay the Lender on demand all costs, expenses and charges, in connection with the preparation, reproduction, execution, delivery, filing, recording and administration of this 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 Lender with respect thereto and with respect to advising the 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 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 Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either party hereto may execute this Amendment by signing any such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written. BISCAYNE APPAREL, INC. By: ---------------------------------- Name: Title: [BANK] as Lender By: ---------------------------------- Name: Title: 2 EXHIBIT 10.3 SECURITY AGREEMENT AND MORTGAGE - TRADEMARKS AGREEMENT, dated as of March 25, 1998, between MACKINTOSH OF NEW ENGLAND, CO., a Delaware corporation (the "Grantor") having an office at 1373 Broad Street, 3rd Floor, Clifton, New Jersey 07013, and THE CHASE MANHATTAN BANK having an office at 111 W 40th Street, New York, N.Y. 10018 (the "Agent") as Agent for the Lenders signatory to the Credit Agreement as hereinafter defined. RECITALS A. The Grantor has acquired and is the owner of the terms and designs described in Schedule A annexed hereto and made a part hereof; B. As a post closing condition to the continued extension of credit to the Borrowers pursuant to the Fourth Amendment and Waiver to Second Amended and Restated Credit Agreement and Guaranty dated as of March 25, 1998 in respect of that certain Second Amended and Restated Credit Agreement and Guaranty dated as of March 24, 1997 (as amended, supplemented or restated from time to time, the "Credit Agreement") among BISCAYNE APPAREL, INC., BISCAYNE APPAREL INTERNATIONAL, INC., MACKINTOSH OF NEW ENGLAND CO., M & L INTERNATIONAL, INC. and the Agent and the Lenders signatory thereof, the execution and delivery hereof by the Grantor is required; NOW, THEREFORE IT IS AGREED that, for and in consideration of the loans and advances to be made under the Credit Agreement and other good and valuable consideration, the receipt of which is hereby acknowledged, and as collateral security for the full and prompt payment and performance of all Obligations (as hereinafter defined), the Grantor does hereby mortgage to and pledge with Agent, and grant to Agent for the ratable benefit of the Lenders, a security interest in, all of its right, title and interest in and to (i) each of the Trademarks (as hereinafter defined), and the goodwill of the business symbolized by each of the Trademarks, all customer lists and other records of the Grantor relating to the distribution of products bearing the Trademarks described in Schedule A; (ii) any claims by the Grantor against third parties for infringement of the Trademarks; and (iii) any and all proceeds of the foregoing, (collectively, the "Collateral"). 1. DEFINITIONS: Terms defined in the Credit Agreement and not otherwise defined herein, shall have the meaning set forth in the Credit Agreement. As used in this Agreement, unless the context otherwise requires: "OBLIGATIONS" shall mean all now existing and future obligations of Grantor to Agent and the Lenders of every kind and description, direct or indirect, absolute or contingent, whether arising under the Credit Agreement, this Agreement or any other Facility Document, as that term is defined in the Credit Agreement and all extensions, renewals, refundings, replacements and modifications of the foregoing. "TRADEMARKS" shall mean (i) all trademarks, trade names, trade styles, service marks, prints and labels on which said trademarks, trade names, trade styles and service marks have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all right, title and interest therein and thereto, and all registrations and recordings thereof, including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, or any other country or any political subdivision thereof, all whether now owned or hereafter acquired by the Grantor, including but not limited to, those described in Schedule A annexed hereto and made a part hereof, and (ii) all reissues, extensions or renewals thereof and all licenses thereof. 2. REPRESENTATIONS AND COVENANTS: The Grantor hereby represents, warrants, covenants and agrees as follows: (a) The Grantor has good and valid title free and clear of all liens to the Trademarks registered in the United States for the goods and services covered by the registrations thereof and such registrations are valid and subsisting and in full force and effect. (b) The Grantor will perform all acts and execute all documents, including, without limitation, assignments for security in form suitable for filing with the United States Patent and Trademark Office, substantially in the forms of Exhibit 1 hereof, requested by Agent at any time to evidence, perfect, maintain, record and enforce Agent's interest in the Collateral or otherwise in furtherance of the provisions of this Agreement, and the Grantor hereby authorizes Agent to execute and file one or more financing statements (and similar documents) or copies thereof or of this Agreement with respect to the Collateral signed only by Agent. (c) Except to the extent that Agent, upon prior written notice from the Grantor, shall consent (which consent shall not unreasonably be withheld), the Grantor (either itself or through licensees) will continue to use the Trademarks on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain the Trademarks in full force free from any claim of abandonment for nonuse and the Grantor will not (and will not permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated. (d) The Grantor will promptly pay Agent for any and all sums, costs, and expenses which Agent may pay or incur pursuant to the provisions of this Agreement or in enforcing the Obligations, the Collateral or the security interest granted hereunder, including, but not limited to, all filing or recording fees, court costs, collection charges, travel and reasonable attorneys' fees, all of which together with interest at the highest rate then payable on the Obligations shall be part of the Obligations and be payable on demand. (e) In no event shall the Grantor, either itself or through an agent, employee, licensee or designee, (i) file an application for the registration of any Trademark with the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, or (ii) file any assignment of any trademark, which the Grantor may acquire from a third party, with the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, unless the Grantor shall, on or prior to the date of such filing, notify Agent thereof, and, upon request of Agent, execute and deliver any and all assignments, 2 agreements, instruments, documents and papers as Agent may request to evidence Agent's interest in such trademark and the goodwill and general intangibles of the Grantor relating thereto or represented thereby, and the Grantor hereby constitutes Agent its attorney-in-fact to execute and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power being coupled with an interest is irrevocable until the Obligations are paid in full. Any Trademark acquired by Grantor whether or not the Grantor complies with clause (ii) hereof shall be included in the Collateral. (f) The Grantor has the right and power to make the assignment and to grant the security interest herein granted; and the Collateral is not now, and at all times hereafter will not be, subject to any liens, mortgages, assignments, security interests or encumbrances of any nature whatsoever, except in favor of Agent, and to the best knowledge of Grantor none of the Collateral is subject to any claim. (g) Except to the extent that Agent, upon prior written notice from the Grantor, shall consent (which consent shall not unreasonably be withheld), the Grantor will not assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a security interest in or lien upon, grant an exclusive or non-exclusive license, or otherwise dispose of any of the Collateral, and nothing in this Agreement shall be deemed a consent by Agent to any such action except as expressly permitted herein. (h) As of the date hereof neither the Grantor nor any affiliate or subsidiary of (collectively the "Affiliates") owns any Trademarks or has any Trademarks registered in or the subject of pending applications in, the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, other than those described in Schedule A hereto. (i) The Grantor will take all necessary steps in any proceeding before the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, to maintain each application and registration of the Trademarks including, without limitation, filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings (except to the extent that dedication, abandonment or invalidation is permitted under paragraph 2(c) hereof). (j) The Grantor assumes all responsibility and liability arising from the use of the Trademarks and the Grantor hereby indemnifies and holds Agent and the Lenders harmless from and against any claim, suit, loss, damage or expense (including reasonable attorneys' fees) arising out of any alleged defect in any product manufactured, promoted or sold by the Grantor or any Affiliate in connection with any Trademark or out of the manufacture, promotion, labeling, sale or advertisement of any such product by the Grantor or any Affiliate. The Grantor agrees that the Agent and the Lenders do not assume, and shall have no responsibility for, the payment of any sums due or to become due under any agreement or contract included in the Collateral or the performance of any obligations to be performed under or with respect to any such agreement or contract by the Grantor, and the Grantor hereby agrees to indemnify and hold Agent and the Lenders harmless with respect to any and all claims by any person relating thereto. The provisions of this subparagraph (j) shall survive the termination of this Agreement. 3 (k) Agent may, in its sole discretion, pay any amount or do any act required of the Grantor hereunder or requested by Agent to preserve, defend, maintain, record or enforce the Grantor's obligations contained herein, the Obligations, the Collateral, or the right, title and interest granted Agent herein, and which the Grantor fails to do or pay, and any such payment shall be deemed an advance by Agent to the Grantor and shall be payable on demand together with interest at the highest rate then payable on the Obligations and shall be added to the Obligations. (l) The Grantor agrees that if it, or any Affiliate, learns of any use by any person of any term or design likely to cause confusion with the Trademarks, it shall promptly notify Agent of such use and, if requested by Agent, shall join with Agent, at the Grantor's expense, in such action as Agent, in its reasonable discretion, may deem advisable for the protection of Agent's interest in and on the Trademarks. (m) All licenses of the Trademarks which the Grantor has granted to third parties are set forth in Schedule B hereto. 3. EVENTS OF DEFAULT AND REMEDIES: Upon the occurrence of an Event of Default (as defined in the Credit Agreement), in addition to all other rights and remedies of Agent, whether under law, the Credit Agreement or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively or concurrently, without (except as provided herein) notice to, or consent by, the Grantor, Agent shall have the following rights and remedies: (a) upon seven (7) days' prior notice from Agent, the Grantor shall not make any further use of the Trademarks or any mark similar thereto for any purpose; (b) Agent may, at any time and from time to time, upon seven (7) days' prior notice to the Grantor, license, whether general, special or otherwise, and whether on an exclusive or nonexclusive basis, any of the Trademarks, throughout the world for such term of terms, on such conditions, and in such manner, as Agent shall in its sole discretion determine; (c) Agent may (without assuming any obligations or liability thereunder), at any time, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of the Grantor in, to and under any one or more license agreements with respect to the Collateral, and take or refrain from taking any action under any thereof, and the Grantor hereby releases Agent from, and agrees to hold Agent free and harmless from and against any claims arising out of, any action taken or omitted to be taken with respect to any such license agreement; (d) Agent may, at any time and from time to time, upon seven (7) days' prior notice to the Grantor, assign, sell, or otherwise dispose of, the Collateral or any of it, either with or without special or other conditions or stipulations, with power to buy the Collateral or any part of it, and with power also to execute assurances, and do all other acts and things for completing the assignment, sale or dispos3.ab ition which Agent shall, in its sole discretion, deem appropriate or proper; and (e) in addition to the foregoing, in order to implement the assignment, sale or other disposal of any of the Collateral pursuant to subparagraph 3(d) hereof, Agent may, at any time, pursuant to the authority granted in the Powers of Attorney described in paragraph 4 hereof (such authority becoming effective on the occurrence or continuation as hereinabove provided of an Event of Default), execute and deliver on behalf of the Grantor, one or more instruments of assignment of the Trademarks (or any application or registration thereof), in form suitable for filing, recording or registration in any country. The Grantor agrees to pay when due all reasonable costs incurred in any such transfer of the Trademarks, including any taxes, fees and reasonable attorneys' fees, and all such costs shall be added to the Obligations. Agent 4 may apply the proceeds actually received from any such license, assignment, sale or other disposition to the reasonable costs and expenses thereof, including, without limitation, reasonable attorneys' fees and all legal, travel and other expenses which may be incurred by Agent, and then to the Obligations, in such order as provided in the Credit Agreement; and the Grantor shall remain liable and will pay Agent on demand any deficiency remaining, together with interest thereon at a rate equal to the highest rate then payable on the Obligations and the balance of any expenses unpaid. Nothing herein contained shall be construed as requiring Agent to take any such action at any time. In the event of any such license, assignment, sale or other disposition of the Collateral, or any of it, after the occurrence or continuation as hereinabove provided of an Event of Default, the Grantor shall supply its know-how and expertise relating to the manufacture and sale of the products bearing or in connection with the Trademarks are used, and its customer lists and other records relating to the Trademarks and to the distribution of said products, to Agent or its designee. 4. POWER OF ATTORNEY: Concurrently with the execution and delivery hereof, the Grantor is executing and delivering to Agent, in the form of Exhibit 2 hereto, five originals of a Power of Attorney for the implementation of the assignment, sale or other disposal of the Trademarks pursuant to paragraphs 3(d) and (e) hereof and the Grantor hereby releases Agent from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by Agent or its representatives under the powers of attorney granted herein, other than actions taken or omitted to be taken through the gross negligence or willful misconduct of Agent finally declared by a court of competent jurisdiction. 5. GOVERNING LAW: JURISDICTION, WAIVER OF JURY, ETC.: No provision hereof shall be modified, altered or limited except by a written instrument expressly referring to this Agreement and executed by the party to be charged. The execution and delivery of this Agreement has been authorized by the Board of Directors of the Grantor and by any necessary vote or consent of stockholders thereof. This Agreement shall be binding upon the successors, assigns or other legal representatives of the Grantor, and shall, together with the rights and remedies of Agent inure to the benefit of Agent and the Lenders, their successors, assigns or other legal representatives. This Agreement, the Obligations and the Collateral shall be governed in all respects by the internal laws of the United States and the internal laws of the State of New York. The Grantor hereby submits to the nonexclusive jurisdiction of the Supreme Court of the State of New York and the federal courts of the United States of America located in such State in any action or proceeding arising under this Agreement and each hereby waive trial by jury. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby. 6. MISCELLANEOUS: (a) Any failure or delay by Agent to require strict performance by Grantor of any of the provisions, warranties terms, and conditions contained herein or in any other agreement, document, or instrument, shall not affect Agent's right to demand strict compliance and performance therewith, and any waiver of any default shall not waive or affect any other default, whether prior or subsequent thereto, and whether of the same or of a different type. None of the warranties, conditions, provisions, and terms contained herein or in any other agreement, document or instrument shall be deemed to have been waived by any act or knowledge of Agent, its agents, officers, or employees, but only by an instrument in writing, signed by an officer of Agent and directed to Grantor, specifying such waiver. (b) All notices requests and demands to or upon the respective parties hereto shall be deemed to have been duly given or made: if by hand, immediately upon delivery; if by telecopier, immediately upon sending; if by any overnight delivery service, one day after dispatch; and if mailed by certified mail, return receipt requested, two (2) days after mailing. All notices, requests and demands are to be given or made to the respective parties at the following addresses (or to such other addresses as either party may designate by notice in accordance with the provisions of this paragraph): If to Grantor: Mackintosh of New England, Co. 1373 Broad Street, 3rd Floor Clifton, New Jersey 07013 Attention: Peter Vandenberg, Jr., President If to Agent: The Chase Manhattan Bank 111 W 40th Street - 10th Floor New York, New York 10018 Attention: Textile and Apparel (c) In the event any term or provision of this Agreement conflicts with any term or provision of the Credit Agreement, the term or provision of the Credit Agreement shall control. (d) In the event that any provision hereof shall be deemed to be invalid by any court, such invalidity shall not affect the remainder of this Agreement. C. IN WITNESS WHEREOF, the Grantor and Agent have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. MACKINTOSH OF NEW ENGLAND, CO. AS GRANTOR By: /s/ Peter Vandenberg, Jr. ------------------------------------- Title: President ---------------------------------- THE CHASE MANHATTAN BANK, AS AGENT By: ------------------------------------- Title: Vice President ---------------------------------- 6 SCHEDULE A TO SECURITY AGREEMENT MACKINTOSH OF NEW ENGLAND, CO. TRADEMARKS - ---------------------------------------------------------------------------------------------------------------- REGISTRATION NO./ TRADEMARK JURISDICTION FILED/REG. DATE APPLICATION NO. - --------- ------------ --------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS USPTO 10/24/89 1,562,284 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS USPTO 3/8/77 1,060,825 - ---------------------------------------------------------------------------------------------------------------- KAOS USPTO 6/15/82 1,197,990 - ---------------------------------------------------------------------------------------------------------------- KAOS USPTO 5/14/86 1,419,300 - ---------------------------------------------------------------------------------------------------------------- KAOTIC USPTO 1/13/98 2,128,671 - ---------------------------------------------------------------------------------------------------------------- THE KIDS ANDY JOHNS (STYLIZED) USPTO 3/11/97 2,045,161 - ---------------------------------------------------------------------------------------------------------------- ALL OUTDOORS USPTO 9/13/77 1,073,221 - ---------------------------------------------------------------------------------------------------------------- VESTCOAT & DESIGN USPTO 7/14/87 1,447,591 - ---------------------------------------------------------------------------------------------------------------- CHAS. MACKINTOSH & CO. LTD. & DESIGN USPTO 5/26/42 395,402 - ---------------------------------------------------------------------------------------------------------------- THE KIDS ANDY JOHNS (STYLIZED) USPTO 4/4/95 74/656,057 - ---------------------------------------------------------------------------------------------------------------- MACKINTOSH NEW ENGLAND USPTO 10/16/92 74/322,876 - ---------------------------------------------------------------------------------------------------------------- MACKINTOSH NEW ENGLAND USPTO 10/16/92 74/322,866 - ---------------------------------------------------------------------------------------------------------------- MACKINTOSHSPORT USPTO 1/29/97 75/232,744 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS BENELUX 6/27/91 503,769 - ---------------------------------------------------------------------------------------------------------------- KAOS BENELUX 6/27/91 503,770 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS CANADA 6/8/90 369,160 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS CHINA 8/7/96 861,735 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS FRANCE 6/14/91 1,671,502 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- KAOS FRANCE 6/14/91 1,671,501 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS HONG KONG 8/15/86 2,379 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS ITALY 6/21/91 609,961 - ---------------------------------------------------------------------------------------------------------------- KAOS ITALY 6/21/91 609,962 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS JAPAN 2/21/89 2,111,988 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS KOREA 12/1/87 147,892 - ---------------------------------------------------------------------------------------------------------------- KAOS SWEDEN 4/22/94 257,349 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS SWITZERLAND 6/19/91 392,406 - ---------------------------------------------------------------------------------------------------------------- KAOS SWITZERLAND 6/19/91 392,407 - ---------------------------------------------------------------------------------------------------------------- ANDY JOHNS UNITED KINGDOM 6/24/94 1,576,324 - ---------------------------------------------------------------------------------------------------------------- 8 SCHEDULE B TO SECURITY AGREEMENT MACKINTOSH OF NEW ENGLAND, CO. LICENSES NONE 9 EXHIBIT 1 TO SECURITY AGREEMENT ASSIGNMENT FOR SECURITY (TRADEMARKS) WHEREAS, MACKINTOSH OF NEW ENGLAND, CO., a Delaware corporation (herein referred to as "Assignor"), has adopted, used and is using the trademarks listed on the annexed Schedule A, which trademarks are registered in the United States Patent and Trademark Office (the "Trademarks"); WHEREAS, Assignor is obligated under the continued extension of credit to the Borrowers pursuant to the Second Amended and Restated Credit Agreement and Guaranty dated as of March 24, 1997 (as amended, supplemented or restated from time to time) among it and the Lenders signatory thereto and THE CHASE MANHATTAN BANK, as Agent for the Lenders signatory thereto (herein referred to as "Assignee"), and has entered into a Security Agreement and Mortgage-Trademarks (the "Agreement") in favor of Assignee; and WHEREAS, pursuant to the Agreement, Assignor has assigned to Assignee and granted to Assignee a security interest in, and mortgage on, all right, title and interest of Assignor in and to the Trademarks, together with the goodwill of the business symbolized by the Trademarks and the applications and registrations hereof, and all proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof (the "Collateral"), to secure the payment, performance and observance of the Obligations, as defined in the Agreement; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby further assign unto Assignee and grant to Assignee a security interest in, and mortgage on, the Collateral to secure the prompt payment, performance and observance of the Obligations. Assignor does hereby further acknowledge and affirm that the rights and remedies of Assignee with respect to the assignment of, security interest in and mortgage on the Collateral made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein. Assignee's address is 111 W 40th Street - 10th Floor, New York, NY 10018. IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed by its officer thereunto duly authorized as of the 25th day of March, 1998. MACKINTOSH OF NEW ENGLAND, CO. By: /s/ Peter Vandenberg ----------------------------------- Name: Peter Vandenberg --------------------------------- Title: President -------------------------------- 10 SCHEDULE A TO ASSIGNMENT FOR SECURITY TRADEMARKS MACKINTOSH OF NEW ENGLAND, CO. - ------------------------------------------------------------------------------------------------------------------ MARK REGISTRATION DATE REGISTRATION NO. - ---- ----------------- ---------------- - ------------------------------------------------------------------------------------------------------------------ Andy Johns 10/24/89 1,562,284 - ------------------------------------------------------------------------------------------------------------------ Andy Johns 3/8/77 1,060,825 - ------------------------------------------------------------------------------------------------------------------ Kaos 6/15/82 1,197,990 - ------------------------------------------------------------------------------------------------------------------ Kaos 5/14/86 1,419,300 - ------------------------------------------------------------------------------------------------------------------ Kaotic 1/13/98 2,128,671 - ------------------------------------------------------------------------------------------------------------------ The Kids Andy Johns (Stylized) 3/11/97 2,045,161 - ------------------------------------------------------------------------------------------------------------------ All Outdoors 9/13/77 1,073,221 - ------------------------------------------------------------------------------------------------------------------ Vestcoat & Design 7/14/87 1,447,591 - ------------------------------------------------------------------------------------------------------------------ Chas. Mackintosh & Co. Ltd. & Design 5/26/42 395,402 - ------------------------------------------------------------------------------------------------------------------ The Kids Andy Johns (Stylized) 4/4/95 74/656,057 - ------------------------------------------------------------------------------------------------------------------ AJ Sport 5/22/97 75/296,362 - ------------------------------------------------------------------------------------------------------------------ Judy Simon 12/18/97 75/408,011 - ------------------------------------------------------------------------------------------------------------------ Mackintosh New England 10/16/92 74/322,876 - ------------------------------------------------------------------------------------------------------------------ Mackintosh New England 10/16/92 74/322,866 - ------------------------------------------------------------------------------------------------------------------ Mackintoshsport 1/29/97 75/232,744 - ------------------------------------------------------------------------------------------------------------------ 11 STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) On this 28th day of May, 1998, before me personally came Peter Vandenberg, Jr., to me known, who stated that he is the President of MACKINTOSH OF NEW ENGLAND, CO., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. /s/ Judith Ann Maioran --------------------------------- Notary Public 12 Exhibit 2 to Security Agreement SPECIAL POWER OF ATTORNEY STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) KNOW ALL MEN BY THESE PRESENTS, THAT MACKINTOSH OF NEW ENGLAND, CO., a Delaware Corporation with its principal office at 1373 Broad Street, 3rd Floor, Clifton, New Jersey 07013 (hereinafter called "Assignor") hereby appoints and constitutes THE CHASE MANHATTAN BANK, (hereinafter called "Assignee"), its true and lawful attorney, with full power of substitution, and with full power and authority to perform the following acts on behalf of Assignor: 1. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title and interest of Assignor in and to any trademarks, trade names, trade styles and service marks, and all registrations, recordings, reissues, extensions and renewals thereof, and all pending applications therefor, and for the purpose of the recording, registering and filing of, or accomplishing any other formality with respect to, the foregoing, to execute and deliver any and all agreements, documents, instruments of assignment or other papers necessary or advisable to effect such purpose; and 2. To execute any and all documents, statements, certificates or other papers necessary or advisable in order to obtain the purposes described above as Assignee may in its sole discretion determine. This power of attorney is made pursuant to a Security Agreement and Mortgage-Trademarks, dated the date hereof, between Assignor and Assignee and takes effect solely for the purposes of paragraphs 3(d) and (e) thereof and is subject to the conditions thereof and may not be revoked until the payment in full of all "Obligations" as defined in such Security Agreement and Mortgage-Trademarks. Dated: May 28, 1998 ------------ [Corporate Seal] MACKINTOSH OF NEW ENGLAND, CO. By: /s/ Peter Vandenberg ----------------------------------- Name: Peter Vandenberg --------------------------------- Title: President -------------------------------- 13 STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) On this 28th day of May 1998 before me personally appeared Peter Vandenberg, to me known who being by me duly sworn, did depose and say that he resides at __________ and that he is President of MACKINTOSH OF NEW ENGLAND, CO., the Delaware corporation described in and which executed the foregoing instrument; and that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that is was affixed to said instrument is such corporate seal; that it was affixed pursuant to authority of the Board of Directors of said corporation, and that he signed his name thereto pursuant to such authority. /s/ Judith Ann Maioran --------------------------------- Notary Public Judith Ann Maioran Notary Public of New Jersey My Commission Expires Oct. 11, 2001 14 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, --------------------------- --------------------------- 1998 1997 1998 1997 ----------- ------------ ----------- ----------- Net loss ........................................ $ (3,759) $ (1,458) $ (5,662) $ (2,568) =========== ============ =========== =========== BASIC: - ------ Weighted average common shares outstanding ...... 10,771,662 10,762,895 10,771,662 10,753,037 =========== ============ =========== =========== Basic net loss per share ........................ $ (0.35) $ (0.14) $ (0.53) $ (0.24) =========== ============ =========== =========== DILUTED: - -------- Weighted average common shares outstanding....... 10,771,662 10,762,895 10,771,662 10,753,037 Potential dilution upon exercise of stock options and warrants ........................... -- -- -- -- ----------- ------------ ----------- ----------- Shares used in computing net loss per common share .............................. 10,771,662 10,762,895 10,771,662 10,753,037 =========== ============ =========== =========== Diluted net loss per share ...................... $ (0.35) $ (0.14) $ (0.53) $ (0.24) =========== ============ =========== =========== End