-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HAinPAy+S/U9KAupNz85sNhWX5b7Y/t6W8iqY5Ux7SqlKJBYu4bhy9E0DKxz8Zwj e4n354S4dPVQN8wp9YUjTA== 0000950136-98-001464.txt : 19980817 0000950136-98-001464.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950136-98-001464 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNKENNY INC CENTRAL INDEX KEY: 0000029693 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 510228891 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21940 FILM NUMBER: 98689074 BUSINESS ADDRESS: STREET 1: 1411 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2127307770 MAIL ADDRESS: STREET 1: 1411 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 10-Q 1 QUARTERLY REPORT 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 quarterly period 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 0-21940 Donnkenny, Inc. (Exact name of registrant as specified in its charter) Delaware 51-0228891 (State or jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1411 Broadway, New York, NY 10018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 730-7770 NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), Yes X No ___ and (2) has been the subject to such filing requirements for the past 90 days. Yes X No ___. Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock $0.01 par value 14,169,540 ---------------------------- ---------- (Class) (Outstanding at June 30, 1998) DONNKENNY, INC AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (FORM 10-Q)
PART I - FINANCIAL INFORMATION Page ---- Consolidated financial statements: Independent Accountants' Report Balance sheets as of June 30, 1998 and December 31, 1997......................I-1 Statements of operations for the three and six months ended June 30, 1998 and June 30, 1997...............................................II-1 Statements of cash flows for the six months ended June 30, 1998 and June 30, 1997...............................................III-1 Notes to Consolidated Financial Statements....................................IV-1-2 Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................................V-1-4 PART II - OTHER INFORMATION Legal Proceedings.............................................................VI-1 Exhibits and Reports on Form 8-K..............................................VI-1-2 Signatures....................................................................VI-3
INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholders of Donnkenny, Inc. We have reviewed the accompanying consolidated balance sheet of Donnkenny, Inc. and subsidiaries as of June 30, 1998, and the related consolidated statements of operations for three-month and six-month periods ended June 30,1998 and 1997 and the consolidated statements of cash flows for the six month periods ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Donnkenny, Inc. and subsidiaries as of December 31, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 20, 1998 (March 31,1998 as to note 8), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP New York, New York August 13, 1998 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except per share data)
June 30, December 31, 1998 1997 ------------- --------------- ASSETS (Unaudited) ------ CURRENT ASSETS: Cash $ 815 $ 257 Accounts receivable - net of allowances of $748 and $720 26,825 24,453 Recoverable income taxes 809 1,181 Inventories 30,090 27,248 Deferred tax assets 5,109 5,109 Prepaid expenses and other current assets 2,192 2,146 ------------ ---------- TOTAL CURRENT ASSETS 65,840 60,394 Property, plant and equipment, net 9,983 9,620 Other assets (note 3) 1,250 - Intangible assets 32,882 32,446 ------------ ---------- TOTAL ASSETS $ 109,955 $ 102,460 ============ ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt and capital lease $ 2,500 $ 5,000 Revolving Credit Facility 30,800 - Accounts payable 10,484 9,320 Accrued expenses and other current liabilities 7,201 7,720 ------------ ---------- TOTAL CURRENT LIABILITIES 50,985 22,040 Long-term portion of capital lease 335 -- Long-term debt, net of current portion -- 22,048 Deferred income tax liabilities 5,286 5,286 COMMITMENTS AND CONTINGENCIES (note 3) STOCKHOLDERS' EQUITY: Common stock, $.01 par value. Authorized 20,000 shares; issued and outstanding 14,170 and 14,075 shares 142 141 Additional paid-in capital 47,595 47,360 Retained earnings 5,612 5,585 ------------ ---------- Total Stockholders' Equity 53,349 53,086 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 109,955 $ 102,460 ============ ==========
See accompanying notes to consolidated financial statements. I - 1 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Statement of Operations (in thousands, except share and per share data) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ---------------------------- 1998 1997 1998 1997 ----------- ------------ ---------- ------------ Net sales $ 42,157 $ 52,041 $ 94,685 $ 114,326 Cost of sales 33,074 41,647 72,651 88,950 ---------- ----------- ---------- ----------- Gross profit 9,083 10,394 22,034 25,376 Selling, general and administrative expenses 9,821 12,328 19,803 24,038 Amortization of excess cost over fair value of net assets acquired and other related acquisition costs 326 338 647 702 ---------- ----------- ---------- ----------- Operating (loss) income (1,064) (2,272) 1,584 636 Interest expense (net of interest income of $110 during 1998) 847 1,375 1,533 2,600 ---------- ----------- ---------- ----------- (Loss) income before income taxes (1,911) (3,647) 51 (1,964) Income tax (benefit) provision (917) (1,425) 24 (753) ---------- ----------- ---------- ----------- Net (loss) income $ (994) $ (2,222) $ 27 $ (1,211) ========== =========== ========== =========== Basic and diluted net (loss) income per common share $ (0.07) $ (0.16) $ 0.00 $ (0.09) ========== =========== ========== =========== Weighted average number of common shares outstanding 14,169,540 14,069,940 14,130,100 14,066,901 =========== =========== ========== ===========
See accompanying notes to consolidated financial statements. II - 1 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) (Unaudited)
Six Months Ended ------------------------------- June 30, June 30, 1998 1997 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 27 $ (1,211) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization of fixed assets 846 892 Loss on disposal of fixed assets 51 - Amortization of intangibles and other assets 647 702 Provision for losses on accounts receivable 133 191 Gain on sale of equipment (6) - Changes in assets and liabilities, net of the effects of acquisitions and disposals: (Increase) decrease in accounts receivable (2,505) 1,560 Decrease (increase) in recoverable income taxes 372 (728) (Increase) in inventories (2,842) (612) (Increase) in prepaid expenses and other current assets (46) (248) (Increase) in other assets (1,250) - Increase (decrease) in accounts payable 1,164 (8,140) (Decrease) in accrued expenses and other current liabilities (283) (352) --------- ---------- Net cash (used in) operating activities (3,692) (7,946) --------- ---------- CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of fixed assets (778) (109) Proceeds from sale of fixed assets 6 - Increase in Intangibles (1,083) - --------- ---------- Net cash (used in) investing activities (1,855) (109) --------- ---------- CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Repayment of long-term debt (3,164) (2,500) Net borrowings under revolving credit facility 9,269 6,886 --------- ---------- Net cash provided by financing activities 6,105 4,386 --------- ---------- NET INCREASE (DECREASE) IN CASH 558 (3,669) CASH, AT BEGINNING OF PERIOD 257 3,998 --------- ---------- CASH, AT END OF PERIOD $ 815 $ 329 ========= ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income taxes paid $ 28 $ 33 ========= ========== Interest paid $ 1,672 $ 3,093 ========= ========== Capital lease obligations incurred $ 483 $ - ========= ==========
See accompanying notes to consolidated financial statements. III - 1 DONNKENNY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (in thousands, except per share data) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the Rules of the Securities and Exchange Commission ("SEC") and , in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules. The Company believes the disclosures made are adequate to make such financial statements not misleading. The results for the interim periods presented are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company's Report on Form 10-K for the year ended December 31, 1997. Balance sheet data as of December 31, 1997 have been derived from audited financial statements of the Company. NOTE 2 - INVENTORIES Inventories consist of the following: June 30, December 31, 1998 1997 ---- ---- Raw materials . . . . . . . . . . . $ 5,572 $ 4,209 Work-in-process . . . . . . . . . . . 3,592 5,584 Finished goods . . . . . . . . . . . 20,926 17,455 ---------- ---------- $ 30,090 $ 27,248 ========== ========== NOTE 3 - CONTINGENCIES In connection with contingent liabilities arising from the Company's alleged inaccuracies in the reporting of revenues and expenses for certain reporting periods, the Company has agreed to deposit $5,000 over a three year period to help defray claims, if any. At June 30, 1998, $1,250 has been deposited and has been included in other assets. NOTE 4 - SHAREHOLDERS RIGHTS PLAN On April 2, 1998, the Company's Board of Directors authorized a shareholder rights plan. Under the terms of the plan, shareholders of record at the close of business on April 13, 1998, received a dividend distribution of one preferred stock purchase right for each outstanding share of the Company's common stock held. The rights will become exercisable only in the event, with certain exceptions, an acquiring party accumulates 15 percent or more of the Company's voting stock, or if a party announces an offer to acquire 15 percent or more. The rights will expire on April 1, 2008. IV - 1 Each right will entitle shareholders to buy one one-hundredth of a share of a new series of preferred stock at an exercise price of $14.00. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either the company's stock or shares in an "acquiring entity" at half of market value. Further, at any time after a person or group acquires 15 percent or more (but less than 50 percent) of the Company's outstanding voting stock, the Board of Directors may, at its option, exchange part or all of the rights (other than rights held by the acquiring person or group, which will become void) for shares of the Company's common stock on a one-for-one basis. The Company will be entitled to redeem the rights at $0.01 per right at any time until the tenth day following the acquisition of a 15 percent position in its voting stock. NOTE 5 - STOCKHOLDERS EQUITY The Company issued 94,600 shares of common stock to certain key employees during the quarter ended June 30, 1998 in payment of 1997 bonuses, which were accrued and recorded as compensation expense of $236,000 in the fiscal year ended December 31, 1997. IV - 2 DONNKENNY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 Net sales decreased by $19.6 million, or 17.2%, from $114.3 million in the first half of fiscal 1997 to $94.7 million in the first half of fiscal 1998. The decrease in the Company's net sales was primarily due to an $18.5 million decrease in sales of License Character products as a result of the Company's exiting those businesses; a $6.3 million decrease in sales of the Victoria Jones Division due to softness in the sweater business, partially caused by unseasonably warm weather and reductions in sales to two of the division's largest customers; and a $1.8 million decrease of contract work and outlet sales. The decreases were partially offset by increases in the Casey & Max, Pierre Cardin and Donnkenny Apparel divisions of $3.0 million, $2.6 million and $1.4 million, respectively. Gross profit for the first half of fiscal 1998 was $22.0 million, or 23.3% of net sales, compared to $25.4 million, or 22.2% of net sales, during the first half of fiscal 1997. The increase in Gross Profit as a percentage of net sales was primarily attributable to the Company's reduced sales of License Character products, which were sold at lower gross margins. Selling, general and administrative expenses decreased from $24.0 million in the first half of fiscal 1997 to $19.8 million in the first half of fiscal 1998. As a percentage of net sales, these expenses were 21.0% in the first half of fiscal 1997 and 20.9% in the first half of fiscal 1998. The decrease in selling, general and administrative expenses in dollars was due primarily to lower sales and lower distribution expenses as a result of the reduction in sales volume as discussed above and synergies created in combining certain business functions; the reduction in professional fees in 1998 from the unusually high expenses that were incurred in 1997 as a result of legal fees associated with the previously reported class action lawsuits, as well as legal and accounting fees associated with the restatement of prior year quarterly and annual financial statements, and consulting services performed in connection with the Company's amended Credit Facility, as discussed below. These reductions were partially offset by higher Design & Sample expenses and costs applicable to the factoring agreement that became effective on April 28, 1997. Interest expense decreased from $2.6 million during the first half of fiscal 1997 to $1.5 million during the first half of fiscal 1998. The decrease was primarily the result of lower net average borrowings under the Company's Credit Facility. COMPARISON OF QUARTERS ENDED JUNE 30, 1998, AND JUNE 30, 1997 Net sales decreased by $9.8 million, or 19.0%, from $52.0 million in the second quarter of fiscal 1997 to $42.2 million in the second quarter of fiscal 1998. The decrease in the Company's net sales was primarily due to the $10.5 million decrease in sales of License Character products as a result of the Company's exiting those businesses; a $3.5 million decrease in the Victoria Jones Division due to softness in the sweater business, partially caused by unseasonably warm weather and reductions in sales to two of the division's largest customers; and a $1.2 million decrease in the contract work and outlet divisions. The decreases were partially offset by increases in the Donnkenny Apparel, Pierre Cardin and Casey & Max Divisions of $2.6 million, $1.5 million and $1.3 million, respectively. V - 1 Gross profit for the second quarter of fiscal 1998 was $9.1 million, or 21.5% of net sales compared to $10.4 million, or 20.0% of net sales during the second quarter of fiscal 1997. The increase in Gross Profit as a percentage of net sales was primarily attributable to the Company's reduced sales of License Character products, which were sold at lower gross margins. Selling, general and administrative expenses decreased from $12.3 million in the second quarter of fiscal 1997 to $9.8 million in the second quarter of fiscal 1998. As a percentage of net sales, these expenses decreased from 23.7% in the second quarter of fiscal 1997 to 23.3% in the second quarter of fiscal 1998. The decrease in selling, general and administrative expenses of $2.5 million was due primarily to the Company's exiting from the License Character business, which accounted for $1.5 million of the decrease; lower sales and distribution expenses as a result of the reduction in sales volume as discussed above and synergies created in combining certain business functions; the reduction in professional fees in 1998 from the unusually high expenses incurred in 1997 as a result of legal fees associated with the previously reported class action lawsuits, as well as legal and accounting fees associated with the restatement of prior year quarterly and annual financial statements. These reductions were partially offset by increased financing costs related to the Company's factoring agreement of $0.3 million, which were not incurred in the second quarter of fiscal 1997, and by increases in design and sample expense. Interest expense decreased from $1.4 million during the second quarter of fiscal 1997 to $0.8 million during the second quarter of fiscal 1998. The decrease was primarily the result of lower average borrowings under the Company's Credit Facility. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements arise from the funding of working capital needs, primarily accounts receivable, accrued expenses, and the interest and principal payments related to certain indebtedness. The Company's borrowing requirements for working capital fluctuate throughout the year. Capital expenditures were $0.8 million for upgrading computer systems during the first half of fiscal 1998 compared to $0.1 million in the first half of fiscal 1997. The Company may spend up to $3.5 million annually on capital expenditures in accordance with the Revolving Credit Agreement, as described below. The Company has committed to spend an additional $1.3 million in 1998 for upgrading computer systems to increase efficiencies and become Year 2000 compliant. On April 30, 1997, the Company entered into an amended Credit Facility (the "Credit Facility") to, among other things, include the Company's operating subsidiaries Donnkenny Apparel, Inc., Megaknits, Inc. and Beldoch Industries Corporation, as borrowers. The Credit Facility consists of a Term Loan, a Revolving Credit Agreement, and a Factoring Agreement. The purpose of the Credit Facility is to provide for the general working capital needs of the Company, including the issuance of letters of credit. The Credit Facility will expire on March 31, 1999. Under the Credit Facility, The Chase Manhattan Bank serves as agent, The CIT Group/Commercial Services Inc. ("CIT") serves as collateral agent, and each of Fleet Bank, N.A. and the Bank of New York is a co-lender. The Company believes that it will renew or negotiate a new credit facility over the next four to six months that will replace the current facility, which expires on March 31, 1999. V - 2 As of June 30, 1998, the balance of the Term Loan was $2.3 million. The interest rate is equal to the prime rate plus 1 1/2% per annum. The amortization schedule calls for quarterly payments of $1.3 million. The balloon payment, which is due on March 31, 1999 has been reduced from $7.5 million to zero primarily from the proceeds of tax refunds received by the Company. An excess cash flow recapture is payable annually within 15 days after receipt of the Company's audited fiscal year-end financial statements. In addition, any tax refunds received in Fiscal 1998 will be applied to reduce the term loan. The default interest rate, if applicable, would be equal to 2% above the otherwise applicable rate. The Term Loan does not carry any prepayment penalty. As of June 30, 1998, borrowings under the Revolving Credit Agreement amounted to $30.8 million. On March 31, 1998, in support of the Company's 1998 business plan, the Credit Facility was amended as follows: the total amount available under the Revolving Credit Agreement is $85 million subject to an asset based borrowing formula, with sublimits of $60 million for direct borrowings, $35 million for letters of credit and required seasonal overadvances. The interest rate is equal to the greater of 10% or the prime rate plus 1 1/2% per annum. Outstanding borrowings under the Revolving Credit Agreement in excess of an allowable overadvance will bear interest at the prime rate plus 3 1/2%. The Revolving Credit Agreement also requires the Company to pay certain letter of credit fees and unused commitment fees. Advances and letters of credit will be limited to (i) up to 85% of eligible accounts receivable plus (ii) up to 60% of eligible inventory, plus (iii) an allowable overadvance. Any tax refunds applicable to 1997 and prior years and proceeds from the sales of fixed assets are to be applied to reduce the balloon payment on the Term Loan. In April 1997, the Company also entered into a Factoring Agreement with CIT. The Factoring Agreement provides for a factoring commission equal to 0.45% of the gross amount of sales, plus certain customary surcharges. An additional fee of 0.20% was paid upon the conversion to a factored receivable agreement. Collateral for the Credit Facility includes a first priority lien on all accounts receivable, machinery, equipment, trademarks, intangibles and inventory, a first mortgage on all real property and a pledge of the Company's stock of its operating subsidiaries, Donnkenny Apparel, Inc., Beldoch Industries Corporation, and Megaknits, Inc. During the first half of fiscal 1998, the Company's operating activities used cash principally as a result of increases in accounts receivable and inventories offset by increases in accounts payable. During the first half of fiscal 1997, the Company's operating activities used cash principally as a result of increases in inventories and decreases in accounts payable and accrued expenses. Cash used in investing activities in the first half of fiscal 1998 amounted to $1.9 million, primarily relating to the upgrades in computer systems as discussed above and the contingent earnout payment of $1.1 million related to the acquisition of Beldoch. In the first half of fiscal 1997 cash used in investing activities amounted to $0.1 million for the purchase of fixed assets. Cash provided by financing activities in the first half of fiscal 1998 amounted to $6.1 million, which primarily consisted of repayments of $3.2 million on the Term Loan and net borrowings under the Revolving Credit Agreement of $9.3 million. Cash provided by financing activities in the first half of fiscal 1997 amounted to $4.4 million, which represented repayments of $2.5 million on the Term Loan and net borrowings under the Revolving Credit Agreement of $6.9 million. The Company believes that cash flows from operations and amounts available under the Revolving Credit Agreement will be sufficient for its needs in the foreseeable future. V - 3 YEAR 2000 ISSUE The Company recognizes the need for, and has begun implementation of, a comprehensive program intended to upgrade the operating systems, hardware and software, which should eliminate any issue involving Year 2000 compliance. The Company's current software systems, without modification, will be adversely affected by the inability of the systems to appropriately interpret date information after 1999. As part of the process of improving the Company's information systems to provide enhanced support to all operating areas, the Company will upgrade to new financial and operating systems. Such upgrade will provide for or eliminate any issues involving year 2000 compliance because all software implemented is designed to be year 2000 compliant. The Company anticipates that its cost for such upgrade will be approximately $2.1 million. The Company anticipates that it will complete its systems conversion in time to accommodate year 2000 issues. If the Company fails to complete such conversion in a timely manner, such failure will have a material adverse effect on the business, financial condition and results of operations of the Company. RECENT ACCOUNTING PRONOUNCEMENTS Segment Information - In June 1997, the FASB issued Statement No. 131, Disclosure about Segments of an Enterprise and Related Information, which requires that public companies report certain information about operating segments in their annual financial statements and in condensed financial statements of interim periods issued to shareholders. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. Management of the Company is currently reviewing the impact of these requirements on their current level of disclosure. V - 4 PART II. OTHER INFORMATION Item 1 - 3. Not Applicable. Item 4. Submission of matters to vote of security holders. The Company's annual meeting of stockholders was held on July 28, 1998. The following directors were elected: Name For Withholding Authority ------------------- ---------- --------------------- Harvey A. Appelle 11,010,093 65,735 James W. Crystal 11,005,993 69,835 Harvey Horowitz 11,003,293 72,535 Lynn Siemers-Cross 11,010,693 65,135 Herbert L. Ash 11,012,893 62,935 Sheridan C. Biggs 11,012,893 62,935 Robert H. Cohen 11,012,693 63,135 Daniel H. Levy 11,012,493 63,335 Robert H. Martinsen 11,012,893 62,935 The appointment of Deloitte & Touche LLP as independent auditors for the fiscal year ended December 31, 1998 was ratified, with 10,541,173 shares voting in favor, 504,305 against, and 30,350 shares abstaining. Item 5. Other Information In connection with contingent liabilities arising from the Company's alleged inaccuracies in reporting of revenues and expenses for certain reporting periods, the Company has agreed to deposit $5.0 million over a three year period to help defray claims, if any. VI - 1 Item 6. Exhibits and Reports on Form 8-K - ------ (a) Exhibits -------- The following documents are filed as part of this report: Exhibit No. Description of Exhibit ----------- ---------------------- 3.1 Certificate of Designations of Series A Junior Preferred Stock of Donnkenny, Inc. 10.1 Rights Agreement, dated as of April 2, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (incorporated by reference to the Company's Report on Form 8-K, as filed with the Commission on April 14, 1998). 27 Financial Date Schedule (b) Reports on Form 8-K ------------------- The Company filed, during the fiscal quarter ended June 30, 1998, the following report on Form 8-K: A report on Form 8-K on April 14, 1998, responding to Item 5 and stating that, on April 2, 1998, the Company declared a divided of one Preferred Stock Purchase Right for each outstanding share of its Common Stock, payable as of April 13, 1998, to stockholders of record on that date. VI-2 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. Donnkenny, Inc. Registrant Date: August 13, 1998 /s/ Harvey A. Appelle ---------------------------- Harvey Appelle Chairman of the Board, President and Chief Executive Officer Date August 13, 1998 /s/ Stuart S. Levy ---------------------------- Stuart S. Levy Vice President - Finance and Chief Financial Officer, (Principal Financial Officer) VI - 3 EX-3.1 2 CERTIFICATE OF DESIGNATIONS EXHIBIT 3.1 CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PREFERRED STOCK OF DONNKENNY, INC. Pursuant to Section 151 of the Delaware General Corporation Law I, Stuart S. Levy, Vice President-Finance and Assistant Secretary of Donnkenny, Inc., a corporation organized and existing under the Delaware General Corporation Law (the "Company"), in accordance with the provisions of Section 151 of such law, DO HEREBY CERTIFY that pursuant to the authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Company, the Board of Directors on April 2, 1998 adopted the following resolution which creates a series of 200,000 shares of Preferred Stock designated as Series A Junior Preferred Stock, as follows: RESOLVED, that pursuant to Section 151(g) of the Delaware General Corporation Law and the authority vested in the Board of Directors of the Company in accordance with the provisions of ARTICLE FOURTH of the Amended and Restated Certificate of Incorporation of the Company, a series of Preferred Stock of the Company be, and hereby is, created, and the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, be, and hereby are, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting such series shall be 200,000. Section 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) cash dividends in an amount per share (rounded to the nearest cent) equal to 100 times the aggregate per share amount of all cash dividends declared or paid on the Common Stock, $0.01 par value per share, of the Company (the "Common Stock") and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, in preference to the holders of Common Stock, on the first day of March, June, September and December of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, payable in an amount (except in the case of the first Quarterly Dividend Payment if the date of the first issuance of Series A Preferred Stock is a date other than a Quarterly Dividend Payment date, in which case such payment shall be a prorated amount of such amount) equal to $0.10 per share of 2 Series A Preferred Stock less the per share amount of all cash dividends declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Company shall, at any time after the issuance of any share or fraction of a share of Series A Preferred Stock, make any distribution on the shares of Common Stock of the Company, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence, a distribution of shares of Common Stock or other capital stock of the Company or a distribution of rights or warrants to acquire any such share, including any debt security convertible into or exchangeable for any such share, at a price less than the Fair Market Value (as hereinafter defined) of such share), then, and in each such event, the Company shall simultaneously pay on each then outstanding share of Series A Preferred Stock of the Company a distribution, in like kind, of 100 times such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series A Preferred Stock 3 to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Dividends" and the multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Dividends, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Company shall at any time after April 2, 1998 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare each Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is 4 required to be paid. No cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid shall be paid or set aside for payment on the Common Stock unless a Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Series A Preferred Stock. (C) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the holders of the Common Stock. The number of votes which a holder of Series A Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote 5 Multiple". In the event the Company shall at any time after April 2, 1998 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series A Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Amended and Restated Certificate of Incorporation or By-laws, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) In the event that the Preferential Dividends accrued on the Series A Preferred Stock for four or more quarterly dividend periods, whether consecutive or not, shall not have been declared and paid or irrevocably set aside for payment, the holders of record of Preferred Stock of the Company of all series (including the Series A Preferred Stock), other than any 6 series in respect of which such right is expressly withheld by the Amended and Restated Certificate of Incorporation or the authorizing resolutions included in any Certificate of Designations therefor, shall have the right, at the next meeting of stockholders called for the election of directors, to elect two members to the Board of Directors, which directors shall be in addition to the number required by the By-laws prior to such event, to serve until the next Annual Meeting and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or irrevocably set aside for payment) in full. The holders of shares of Series A Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such stockholders, and vacancies in such directorships may be filled only by such stockholders (or by the remaining director elected by such stockholders, if there be one) in the manner permitted by law; provided, however, that any such action by stockholders shall be taken at a meeting of stockholders and shall not be taken by written consent thereto. 7 (D) Except as otherwise required by the Certificate of Incorporation or By-laws or set forth herein, holders of Series A Preferred Stock shall have no other special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. Section 4. Certain Restrictions. (A) Whenever Preferential Dividends or Dividends are in arrears or the Company shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Dividends, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid or set irrevocably aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Company shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or 8 in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph 4(A), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any Subsidiary (as 9 hereinafter defined) of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Company shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors of such corporation or other entity or other persons performing similar functions are beneficially owned, directly or indirectly, by the Company or by any corporation or other entity that is otherwise controlled by the Company. (C) The Company shall not issue any shares of Series A Preferred Stock except upon exercise of Rights issued pursuant to that certain Rights Agreement dated as of April 2, 1998 between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, a copy of which is on file with the Secretary of the Company at its principal executive office and shall be made available to stockholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Company from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Series A Preferred Stock. 10 Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of shares of Series A Preferred Stock shall have received for each share of Series A Preferred Stock, subject to adjustment as hereinafter provided, (A) $1,400 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment or, (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, as the same may be adjusted as hereinafter provided and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred 11 Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to said clause to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple". In the event the Company shall at any time after April 2, 1998 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then, in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preferred Stock shall be entitled after such event shall 12 be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Certain Reclassifications and Other Events. (A) In the event that holders of shares of Common Stock of the Company receive after April 2, 1998 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then, and in each such event, the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such 13 capital stock, (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (B) In the event that holders of shares of Common Stock of the Company receive after April 2, 1998 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation 14 Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In the event that holders of shares of Common Stock of the Company receive after April 2, 1998 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Company of the 15 shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such 16 exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (D) For purposes of this Certificate of Designations, the "Fair Market Value" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market 17 Value shall be appropriately adjusted by the Board of Directors of the Company to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case, no such sale takes place on such day, the average of the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, 18 if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Company is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Company. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Company. Section 8. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged multiplied by the highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. 19 Section 9. Effective Time of Adjustments. (A) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (B) The Company shall give prompt written notice to each holder of a share of Series A Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Company of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. Section 10. No Redemption. The shares of Series A Preferred Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Company may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Amended and Restated Certificate of Incorporation of the Company. Section 11. Ranking. Unless otherwise provided in the Certificate of Incorporation of the Company or a Certificate of Designations relating to a subsequent series of preferred stock of the Company, the Series A Preferred Stock shall rank junior to all other series of the Company's preferred stock as to the payment of dividends and the distribution of assets on liquidation, 20 dissolution or winding up and senior to the Common Stock. Section 12. Amendment. The provisions hereof and the Certificate of Incorporation of the Company shall not be amended in any manner which would adversely affect the rights, privileges or powers of the Series A Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, I have executed and subscribed this Certificate of Designations and do affirm the foregoing as true under the penalties of perjury this 13th day of April, 1998. /s/ Stuart S. Levy ------------------------------ Name: Stuart S. Levy Title: Vice President-Finance and Assistant Secretary ATTEST: - -------------------------- 21 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JUN-30-1998 815 0 26,825 748 30,090 65,840 19,443 9,460 109,955 50,985 0 0 0 142 53,207 109,955 42,157 0 33,074 0 326 0 847 (1,911) 917 994 0 0 0 994 (0.07) (0.07)
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