-----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, IRWc1WHTZ/OaM4BmplNd2HaNL5AoIGWREB385BNrSJy18UIV6r48NPRftGaNMD37 gLh6/uJKwqI7HtUFvbM95w== /in/edgar/work/20000814/0001104659-00-000463/0001104659-00-000463.txt : 20000921 0001104659-00-000463.hdr.sgml : 20000921 ACCESSION NUMBER: 0001104659-00-000463 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNKENNY INC CENTRAL INDEX KEY: 0000029693 STANDARD INDUSTRIAL CLASSIFICATION: [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: 698301 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 0001.txt 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, 2000 ------------- 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) 790-3900 -------------- 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 3,617,417 ---------------------------- ------------------------------- (Class) (Outstanding at August 9, 2000) 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, 2000 (unaudited) and December 31, 1999 .......................................... I-1 Statements of operations for the three and six months ended June 30, 2000 and 1999 (unaudited) ......................... II-1 Statements of cash flows for the three and six months ended June 30, 2000 and 1999 (unaudited) ......................... III-1 Notes to Consolidated Financial Statements (unaudited) ..... IV-1-4 Management's Discussion and Analysis of Financial Condition and Results of Operations .................................. V-1-4 PART II - OTHER INFORMATION Legal Proceedings and Other Information .................... VI-1-2 Exhibits and Reports on Form 8-K ........................... VI-3 Signatures ................................................. VI-4 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, 2000, and the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2000 and 1999 and cash flows for the six-month periods ended June 30, 2000 and 1999. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Donnkenny, Inc. and subsidiaries as of December 31, 1999, 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 22, 2000 (March 31, 2000 as to note 13 and April 13, 2000 as to note 6), 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, 1999 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 9, 2000 DONNKENNY, INC AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share data)
June 30, December 31, 2000 1999 ----------------- ----------------- (Unaudited) CURRENT ASSETS Cash ...................................................... $ 45 $ 180 Accounts receivable - net of allowances of $413 and $382, respectively ............................... 21,871 30,022 Recoverable income taxes 189 304 Inventories ............................................... 21,864 29,323 Deferred tax assets ....................................... 2,178 2,865 Prepaid expenses and other current assets ................. 1,099 636 Assets held for sale ...................................... 358 456 ----------- ---------- Total current assets ...................................... 47,599 63,786 PROPERTY, PLANT AND EQUIPMENT, NET ............................. 5,518 5,981 OTHER ASSETS ................................................... 513 546 INTANGIBLE ASSETS .............................................. 30,829 31,524 ----------- ---------- TOTAL ......................................................... $ 84,459 $ 101,837 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt ...................... $ 1,175 $ 1,168 Accounts payable ....................................... 10,174 10,351 Accrued expenses and other current liabilities ......... 1,634 3,965 ----------- ---------- Total current liabilities ........................... 12,983 15,484 ----------- ---------- LONG-TERM DEBT ................................................ 32453 41,607 DEFERRED TAX LIABILITIES ...................................... 2,178 2,865 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock $.O1 par value; authorized 500 shares , issued none .................................... _ - Common stock, $.O1 par value. Authorized 10,000 shares, issued and outstanding 3,617 and 3,557 shares in 2000 and 1999, respectively 36 36 Additional paid-in capital ................................ 48,582 47,877 Issuable shares for litigation settlement ................. 1,875 1,875 Deficit (13,648) (7,907) ---------- ---------- Total Stockholders' Equity ................................. 36,845 41,881 ---------- ---------- TOTAL.......................................................... $ 84,459 $ 101,837 =========== ==========
See accompanying notes to consolidated financial statements I-1 DONNKENNY, INC AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except share and per share data) (Unaudited)
Three Months Ended Six Months Ended --------------------------------- -------------------------------- June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 --------------- --------------- --------------- --------------- NET SALES ......................................... $ 27,733 $ 34,708 $ 70,127 $ 85,759 COST OF SALES ..................................... 22,262 27,898 58,073 66,900 ---------- ---------- ----------- ---------- Gross profit .................................... 5,471 6,810 12,054 18,859 OPERATING EXPENSES: Selling, general and administrative expenses .... 6,224 7,667 14,395 16,940 Provision for settlement of litigation .......... - 6,394 - 6,394 Amortization of goodwill and other related acquisition costs .............................. 347 347 695 695 Restructuring charge ............................ - 500 - ---------- ---------- ----------- ---------- Operating loss ............................. (1,100) (7,598) (3,536) (5,170) INTEREST EXPENSE .................................. 1,081 1,298 2,122 2,098 ---------- ---------- ----------- ---------- Loss before income taxes ................... (2,181) (8,896) (5,658) (7,268) INCOME TAXES (BENEFIT) ............................ 58 (83) 83 17 ---------- ---------- ----------- ---------- NET LOSS ................................... $ (2,239) $ (8,813) $ (5,741) $ (7,285) ========== ========== =========== ========== Basic earnings (loss) per common share .......... $ (0.62) $ (2.48) $ (1.60) $ (2.05) ========== ========== =========== ========== Shares used in the calculation of basic (loss) per common share ............................. 3,616,098 3,550,475 3,586,758 3,546,450 ========== ========== =========== ========== Diluted earnings (loss) per common share $ (0.62) $ (2.48) $ (1.60) $ (2.05) ========== ========== =========== ========== Shares used in the calculation of diluted (loss) per common share ............................. 3,616,098 3,550,475 3,586,758 3,546,450 ========== ========== =========== ==========
See accompanying notes to consolidated financial statements II-1 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)
------------------------------- June 30, June 30, 2000 1999 ------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ..................................................... $ (5,741) $ (7,285) Adjustments to reconcile net cash provided by operating activities: Provision for shares issuable on settlement of litigation ... - 2,394 Depreciation and amortization of fixed assets ............... 399 405 Write down of fixed assets .................................. 200 - Net loss on disposal of fixed assets ........................ - 5 Amortization of intangibles and other assets ................ 695 695 Provision for losses on accounts receivable ................. 10 17 Changes in assets and liabilities: Decrease in accounts receivable ............................. 8,140 5,334 Decrease in recoverable income taxes ........................ 115 338 Decrease (increase) in inventories .......................... 7,459 (387) (Increase) decrease in prepaid expenses and other current assets ........................................ (459) 84 Decrease in other non-current assets ........................ 33 2,135 (Decrease) increase in accounts payable ..................... (177) 798 Decrease in accrued expenses and other current liabilities ................................... (1,626) (877) ---------- --------- Net cash provided by operating activities .............. 9,048 3,656 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets ............................... (218) (243) Proceeds from sale of fixed assets ..................... 181 1,320 ---------- --------- Net cash (used in) provided by investing activities ......... (37) 1,077 ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayment) of long-term debt ........... (582) 2,924 Net repayments under revolving credit line ............. (8,564) (7,803) ---------- --------- Net cash used in financing activities .................. (9,146) (4,879) ---------- --------- NET DECREASE IN CASH ........................................ (135) (146) CASH, AT BEGINNING OF PERIOD ................................ 180 503 ---------- --------- CASH, AT END OF PERIOD ...................................... $ 45 $ 357 ========= ======== SUPPLEMENTAL DISCLOSURES Income taxes paid ........................................... $ 23 $ 31 ========= ======== Interest paid ............................................... $ 1,953 $ 1,666 ========= ======== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES Issuance of common stock..................................... $ 705 $ 176 ======== ========
See accompanying notes to consolidated financial statements. III-1 DONNKENNY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 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, 1999. Balance sheet data as of December 31, 1999 have been derived from audited financial statements of the Company. NOTE 2 - INVENTORIES Inventories consist of the following:
June 30, December 31, 2000 1999 ---- ---- (In thousands) Raw materials ............................................ $ 1,477 $ 1,548 Work-in-process ......................................... 1,547 2,742 Finished goods ........................................... 18,840 25,033 -------- -------- $ 21,864 $ 29,323
NOTE 3 - DEBT On June 29, 1999, the Company and its operating subsidiaries signed a three year credit agreement (the "Credit Agreement") with CIT Group/Commercial Services. The Credit Agreement provides the Company with a $75 million facility comprised of a $72 million revolver with sublimits up to $52 million for direct borrowings, $35 million for letters of credit, certain overadvances and a $3 million term loan. Borrowings under the Credit Agreement originally bore interest at the prime rate plus one half percent. The Credit Agreement provides for advances of (i) up to 90% of eligible accounts receivable plus (ii) up to 60% of eligible inventory plus (iii) up to 60% of the undrawn amount of all outstanding letters of credit plus (iv) allowable overadvances. The term loan requires quarterly payments of $0.25 million plus all accrued and unpaid interest beginning September 30, 1999 through June 30, 2002. The Credit Agreement expires on June 30, 2002. IV-1 Collateral for the Credit Agreement 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 interest in the Company's operating subsidiaries. The Credit Agreement contains several financial and operational covenants, including limitations on additional indebtedness, liens, dividends, stock and capital expenditures. Subsequent to June 1999, the Company amended the Credit Agreement. On February 29, 2000, the Company entered into a Third Amendment and Waiver Agreement. The Third Amendment and Waiver waived any existing defaults as of December 31, 1999 and for the End of Month Period for January 2000 with respect to the Company's noncompliance with covenants related to Minimum Interest Coverage, EBITDA and Tangible Net Worth. Pursuant to this amendment, the interest rate on borrowings was increased to 1% above the prime rate effective February 29, 2000 and the Overadvance Amounts for 2000 were amended and restated. Certain covenants were also amended for the respective quarter ends in 2000. A fee of $75,000 was paid on February 29, 2000. On April 13, 2000, the Company entered into a Fourth Amendment and Waiver Agreement to support the Company's 2000 business plan for the remainder of the year. The Fourth Amendment and Waiver waived any existing defaults as of the End of Month Period for March 2000 with respect to the Company's noncompliance with covenants related to Minimum Interest Coverage, EBITDA and Tangible Net Worth. Pursuant to this amendment, the interest rate on borrowings was increased to 1.5% above the prime rate effective April 13, 2000 and the Overadvance Amounts for 2000 were amended. Certain covenants were also amended for the respective quarter ends in 2000. A fee of $75,000 was paid for the Fourth Amendment and Waiver. The Company also has a factoring agreement with CIT. The factoring agreement provides for a factoring commission equal to 0.45% of gross amount of sales, plus certain customary charges. As of June 30, 2000 and 1999, the borrowings under the Credit Agreement amounted to $31.5 million and $23.8 million with an interest rate of 11.0% and 8.25%, respectively. As of June 30, 2000, the term loan amounted to $2.0 million. Other debt consists of a secured term loan that was entered into on June 30, 1998 in the amount of $0.483 million. As of June 30, 2000 the principal balance of this loan amounted to $0.175 million. The interest rate is fixed at 8.75% and the loan requires monthly principal and interest payments of $0.015 million through June 2001. Software, machinery and equipment secure this obligation. NOTE 4 - REVERSE STOCK SPLIT On February 15, 2000, the Company's Board of Directors adopted a resolution to recommend to the Company's shareholders a one for four reverse stock split as part of an effort to maintain continued listing of the Company's common stock on the NASDAQ National Market. The reverse stock split recommendation was approved by the Company's shareholders at a special meeting held on April 18, 2000. The reverse split became effective on April 20, 2000. As a result of the split, each four shares of common stock applicable to shareholders on the effective date of the split were converted into one share of stock. One of the requirements for continued listing on the NASDAQ National Market is the maintenance of a bid price for the Company's shares of $1.00 or higher. During the last quarter of 1999, and during fiscal 2000, the Company's bid price had fallen below $1.00. IV-2 Prior to the split, the Company had 14,229,540 shares outstanding. As a result of the split, the Company had approximately 3,557,385 shares outstanding. Earnings (loss) per share and share amounts have been restated to reflect the reverse split for all periods presented. By letter dated May 8, 2000, NASDAQ notified the Company that although the Company had achieved compliance with the listing requirement of a closing bid price of at least $1.00, the Company's market capitalization had fallen below $5.0 million which was an additional requirement for listing on the NASDAQ National Market. Accordingly, while the Company maintained its listing with NASDAQ, the Company's securities were transferred from the NASDAQ National Market to the NASDAQ Smallcap Market effective with the open of business on May 11, 2000. By letter dated July 18, 2000, NASDAQ notified the company that the Company's stock had failed to maintain the $1.00 minimum bid price over the last 30 consecutive trading days. Accordingly, the Company has been given 90 days (until October 16, 2000) to regain compliance. If the Company cannot demonstrate compliance for a minimum of 10 consecutive days on or before the October 16th deadline, the Company's common stock will be delisted on October 18, 2000. NOTE 5 - RESTRUCTURING CHARGE On March 15, 2000 the Company announced that it will be closing all of its domestic manufacturing plants. These facilities are located in Floyd and Independence, Virginia. During the first quarter ended March 31, 2000, the Company recorded a restructuring charge of $0.5 million which included the following: (i) $0.2 million to write down property, plant and equipment; and (ii) $0.3 million related to the cost of providing severance payments to approximately 200 employees terminated as a result of the facility closures. As of June 30, 2000, the $0.3 million has been paid out to the employees. The plant closings were completed by the end of May 2000. The Company has put these facilities up for sale as of June 2000. NOTE 6 - COMMITMENTS AND CONTINGENCIES a. Commencing November 1996, nine class action complaints were filed against the company in the United States District Court for the Southern District of New York. Among other things, the complaints alleged violation of the federal securities law. By order dated August 11, 1998, the court certified the litigation as class action on behalf of all persons and entities who purchased publicly traded securities or sold put options of the Company between February 14, 1995 and November 1996. On October 7, 1999, the Company entered into a stipulation of settlement (the "Settlement") with the class action plaintiffs. In consideration for the discontinuance of the lawsuit with prejudice, the Company agreed to pay $10.0 million, of which $5.0 million is the Company's share and the balance is payable by the Company's insurers; issue 3 million shares of the Company's common stock (which when issued will be 750,000 shares as a result of the reverse split), and to pursue litigation against two of the Company's insurers to recover under its excess insurers' policies. A Settlement hearing was held by the District Court and an order approving the settlement was signed on July 12, 2000. In 1999, the Company recorded a charge of $5.9 million, which represented the cost of the Settlement. The Company had funded its required cash contribution to the settlement as of March 31, 2000; except for the cost of the litigation with two of the Company's insurers, which is not expected to be material. IV-3 b. On April 27, 1998, an action was commenced against the Company in the United States District Court for the Western District of Virginia by Wanda King, a former employee of the Company. In her complaint, the Plaintiff claimed that she was constructively discharged by reason of the fact that she resigned from her position rather than follow alleged improper and illegal instructions from her supervisors and superiors. The Company has denied the allegations contained in the complaint. On July 26, 1999, the District Court dismissed the complaint on the grounds that it failed to plead a legally recognizable case against the Company. On August 30, 1999 the Plaintiff filed an amended complaint alleging additional actions on the part of the Company and former employees and seeking damages against the Company in excess of $8.0 million. On February 1, 2000, the District Court ruled that the allegations in the amended Complaint, if true, state claims against the Company. The Company has interposed an answer to the Complaint denying the material allegations. c. The Company was a party to legal proceedings arising in the ordinary course of its business involving a claim by a former supplier of the Company. On July 1, 2000, a settlement of $220,000 was reached with the Plaintiff in that proceeding. The settlement requires two lump sum payments of $62,500 and $27,500 in July and August, respectively. Beginning September 1, 2000 the remaining balance will be paid in equal monthly installments until September 1, 2001. NOTE 7 - SUBSEQUENT EVENT On July 1, 2000 the Company acquired certain assets of Ann Travis Inc. ("Ann Travis") for $1.15 million. Assets acquired included certain merchandise inventory, the ANN TRAVIS and DECADE DESIGNS trademarks and the license rights for sales of womens' apparel under the DELTA BURKE trademark. Ann Travis designed, imported, and marketed women's sportswear. The purchase was funded by CIT under a new $1.3 million term loan which requires principal payment in equal installments over three years commencing January 1, 2001. The new loan bears interest at the prime rate plus one and one-half percent (11% at June 30, 2000). The acquisition will be accounted for as a purchase. IV-4 DONNKENNY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------- COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Net sales decreased by $15.7 million, or 18.3% from $85.8 million in the first half of 1999 to $70.1 million in the first half of 2000. The decline in the Company's net sales was essentially due to decreases in the Donnkenny Label of $7.6 million (primarily due to the planned exit of the coordinate business), the Victoria Jones label of $8.1 million, and the Casey & Max label of $0.8 million. The decreases were partially offset by increases in the Pierre Cardin label of $0.8 million. Gross profit for the first half of 2000 was $12.1 million, or 17.2% of net sales, compared to $18.9 million, or 22.0% of net sales, during the first half of 1999. The decrease in gross profit in dollars and as a percentage of net sales was essentially attributable to the Company's idle domestic plant capacity, which has now been shut down. Additionally, the decrease in gross profit came from reduced sales levels and sell off of non-current inventory. Selling, general and administrative expenses decreased from $16.9 million in the first half of 1999 to $14.4 million in the first half of 2000. The decrease in selling, general and administrative expenses was primarily due to reductions in headcount. These reductions were partially offset by start up costs of approximately $0.9 million for a new label. In the second quarter of 1999, the Company recorded a charge of $6.4 million to reflect the terms of a settlement for the Consolidated Class Action lawsuit that were agreed to in principle by the attorneys for the plaintiffs (see note 6 to the financial statements for further description). The terms of settlement involves a cash payment and the issuance of shares of the Company's common stock. On March 15, 2000, the Company announced that it will be closing all of its domestic manufacturing plants. These facilities are located in Floyd and Independence, Virginia. During the first quarter ended March 31, 2000, the Company recorded a restructuring charge of $0.5 million which included the following: (i) $0.3 million related to the cost of providing severance payments to approximately 200 employees terminated as a result of the facility closures. As of June 30, 2000, the $0.3 million has been paid out to the employees. (ii) $0.2 million to write down property, plant and equipment. The plant closings were completed by the end of May 2000. The Company has put these facilities up for sale as of June 2000. Net interest expense was $2.1 million during the first half of 1999 and 2000. V-1 COMPARISON OF QUARTERS ENDED JUNE 30, 2000 AND 1999 Net sales decreased by $7.0 million, or 20.2% from $34.7 million in the second quarter of 1999 to $27.7 million in the second quarter of 2000. The decline in the Company's net sales was primarily due to decreases in the Donnkenny Label of $3.9 million (primarily due to the planned exit of the coordinate business), the Victoria Jones label of $3.1 million, and the Pierre Cardin label of $0.9 million. The decreases were partially offset by increases in the Casey & Max label of $0.9 million. Gross profit for the second quarter of 2000 was $5.5 million, or 19.7% of net sales, compared to $6.8 million, or 19.6% of net sales, during the second quarter of 1999. The decrease in gross profit dollars was primarily attributable to the Company's idle domestic plant capacity, which has now been shut down. Additionally, the decrease in gross profit came from reduced sales levels, and sell off of non-current inventory. Selling, general and administrative expenses decreased from $7.7 million in the second quarter of 1999 to $6.2 million in the second quarter of 2000. The decrease in selling, general and administrative expenses was primarily due to reductions in headcount. These reductions were partially offset by start up costs of approximately $0.4 million for a new label. In the second quarter of 1999, the Company recorded a charge of $6.4 million to reflect the terms of a settlement for the Consolidated Class Action lawsuit that were agreed to in principle by the attorneys for the plaintiffs (see note 6 to the financial statements for further description). The terms of settlement involves a cash payment and the issuance of shares of the Company's common stock. Operating loss was $1.1 million for the second quarter of 2000 as compared to $7.6 million (inclusive of the $6.4 million reserve for the settlement of the consolidated Class Action) for the second quarter of 1999. Net interest expense decreased from $1.3 million during the second quarter of 1999 to $1.1 million during the second quarter of 2000. The decrease is primarily the result of $0.2 million of financing charges amortized in the second quarter of 1999 compared to $0.1 million in the second quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements arise from the funding of working capital needs, primarily accounts receivable and the interest and principal payments related to certain indebtedness. The Company's borrowing requirements for working capital fluctuate throughout the year. V-2 On June 29, 1999, the Company and its operating subsidiaries signed a three year credit agreement (the "Credit Agreement") with CIT Group/Commercial Services. THE CREDIT AGREEMENT PROVIDES the COMPANY with a $75 million facility comprised of a $72 million revolver with sublimits up to $52 million for direct borrowings, $35 million for letters of credit, certain overadvances and a $3 million term loan. Borrowings under the Credit Agreement originally bore interest at the prime rate plus one half percent. The Credit Agreement provides for advances of (i) up to 90% of eligible accounts receivable plus (ii) up to 60$ of eligible inventory plus (iii) up to 60% of the undrawn amount of all outstanding letters of credit plus (iv) allowable overadvances. The term loan requires quarterly payments of $0.25 million plus all accrued and unpaid interest beginning September 30, 1999 through June 30, 2002. The Credit Agreement expires on June 30, 2002. Collateral for the Credit Agreement 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 interest in the Company's operating subsidiaries, Donnkenny Apparel, Inc. and Beldoch Industries Corporation. The Credit Agreement contains numerous financial and operational covenants, including limitations on additional indebtedness, liens, dividends, stock repurchases and capital expenditures. Subsequent to June 1999, the Company amended the Credit Agreement. On February 29, 2000, the Company entered into a Third Amendment and Waiver Agreement. The Third Amendment and Waiver waived any existing defaults as of December 31, 1999 and for the End of Month Period for January 2000 with respect to the Company's noncompliance with covenants related to Minimum Interest Coverage, EBITDA and Tangible Net Worth. Pursuant to this amendment, the interest rate on borrowings was increased to 1% above the prime rate effective February 29, 2000 and the Overadvance Amounts for 2000 were amended and restated. Certain covenants were also amended for the respective quarter ends in 2000. A fee of $75,000 was paid on February 29, 2000. On April 13, 2000, the Company entered into a Fourth Amendment and Waiver Agreement to support the Company's 2000 business plan. The Fourth Amendment and Waiver waived any existing defaults as of the End of Month Period for March 2000 with respect to the Company's noncompliance with covenants related to Minimum Interest Coverage, EBITDA and Tangible Net Worth. Pursuant to this amendment, the interest rate on borrowings was increased to 1.5% above the prime rate effective April 13, 2000 and the Overadvance Amounts for 2000 were amended. Certain covenants were also amended for the respective quarter ends in 2000. A fee of $75,000 was paid for the Fourth Amendment and Waiver. The Company also has a factoring agreement with CIT. The factoring agreement provides for a factoring commission equal to 0.45 of gross amount of sales, plus certain customary charges. As of June 30, 2000 and 1999, borrowings under the Credit Agreement amounted to $31.5 million compared to $23.8 million with an interest rate of 11.0% and 8.25%, respectively. As of June 30, 2000, the term loan amounted to $2.0 million. V-3 During the first half of 2000, the Company's operating activities provided cash principally as a result of decreases in inventory and accounts receivable offset by decreases in accounts payable and accrued expenses. During the first half of 1999, the Company's operating activities provided cash principally as a result of decreases in accounts receivable and increases in accounts payable partially offset by increases in inventory and decreases in accrued expenses. Cash used in investing activities in the first half of 2000 amounted to $0.04 million primarily as the result of capital purchases relating to the upgrades of the company's computer systems ($0.22 million) partially offset by the sale of machinery from the closed Virginia manufacturing facilities ($0.18 million). Cash provided by investing activities in the first half of 1999 amounted to $1.1 million primarily as the result of the sale of a closed Virginia manufacturing facility ($1.1 million) and a manufacturing unit in New York ($0.2 million) partially offset by $0.2 million for capital purchases relating to the upgrades in the company's computer systems. The Company believes that cash flows from operations and amounts available under the credit agreement will be sufficient for its operating needs in the foreseeable future. SEASONALITY OF BUSINESS AND FASHION RISK The Company's principal products are organized into seasonal lines for resale at the retail level during the Spring, Summer, Transition, Fall and Holiday Seasons. Typically, the Company's products are designed as much as one year in advance and manufactured approximately one season in advance of the related retail selling season. Accordingly, the success of the Company's products is often dependent on the ability to successfully anticipate the needs of retail customers and the tastes of the ultimate consumer up to a year prior to the relevant selling season. REVERSE STOCK SPLIT On February 15, 2000, the Company's Board of Directors adopted a resolution to recommend to the Company's shareholders a one for four reverse stock split as part of an effort to maintain continued listing of the Company's common stock on the NASDAQ National Market. One of the requirements for continued listing on the NASDAQ National Market is the maintenance of a bid price for the Company's shares of $1.00 or higher. During the last quarter of 1999, and during fiscal 2000, the Company's bid price had fallen below $1.00. The reverse stock spilt recommendation was approved by the Company's shareholders at a special shareholders meeting held on April 18, 2000. The reverse spilt became effective on April 20, 2000. As a result of the reverse spilt, each four shares of common stock on April 20, 2000 was converted into one share of common stock. Prior to the split, the Company had 14,229,540 shares outstanding. As a result of the split, the Company had approximately 3,557,385 shares outstanding. Earnings (loss) per share and share amounts have been restated to reflect the reverse split for all periods presented. By letter dated May 8, 2000, NASDAQ notified the Company that although the Company had achieved compliance with the listing requirement of a closing bid price of at least $1.00, the Company's market capitalization had fallen below $5 million which was an additional requirement for listing on the National Market. Accordingly, while the Company maintained its listing with NASDAQ, the Company's securities were transferred from the NASDAQ National Market to the NASDAQ Smallcap Market effective with the open of business on May 11, 2000. V-4 By letter dated July 18, 2000, NASDAQ notified the company that the Company's stock had failed to maintain the $1.00 minimum bid price over the last 30 consecutive trading days. Accordingly, the Company has been given 90 days (until October 16, 2000) to regain compliance. If the Company cannot demonstrate compliance for a minimum of 10 consecutive days on or before the October 16th deadline, the Company's common stock will be delisted on October 18, 2000. ANN TRAVIS ACQUISITION On July 1, 2000 the Company acquired certain assets of Ann Travis Inc. ("Ann Travis") for $1.15 million. Assets acquired included certain merchandise inventory, the ANN TRAVIS and DECADE DESIGNS trademarks and the license rights for sales of womens' apparel under the DELTA BURKE trademark. Ann Travis designed, imported, and marketed women's sportswear. The purchase was funded by CIT under a new $1.3 million term loan which requires principal payment in equal installments over three years commencing January 1, 2001. The new term loan bears interest at the prime rate plus one and one-half percent (11% at June 30, 2000). The acquisition will be accounted for as a purchase. RECENT ACCOUNTING PRONOUNCEMENTS In June 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." This statement addresses a limited number of issues causing implementation difficulties for entities applying SPAS No. 133. SPAS No. 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specially designated as (i) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (ii) a hedge of the exposure to variable cash flows of a forecasted transaction, or (iii) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company has determined that this statement will not have a significant impact on its financial statements or disclosures, as it does not engage in derivative or hedging transactions. In December 1999, the securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". This bulletin summarizes certain of the SEC Staff's view in applying generally accepted accounting principals to revenue recognition in financial statements. This bulletin, through its subsequent revised releases SAB No. lOlA and No. lO1B, is effective for registrants no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company does not expect the implementation of this bulletin to have a significant impact on the results of operations or equity of the Company. V-5 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS a. Commencing November 1996, nine class action complaints were filed against the Company in the United States District Court for the Southern District of New York. Among other things, the complaints alleged violation of the federal securities law. By order dated August 11, 1998, the court certified the litigation as class action on behalf of all persons and entities who purchased publicly traded securities or sold put options of the Company between February 14, 1995 and November 1996. On October 7, 1999, the Company entered into a stipulation of settlement (the "Settlement") with the class action plaintiffs. In consideration for the discontinuance of the lawsuit with prejudice, the Company agreed to pay $10.0 million, of which $5.0 million is the Company's share and the balance is payable by the Company's insurers; issue 3 million shares of the Company's common stock (which when issued will be 750,000 shares as a result of the reverse split), and to pursue litigation against two of the Company's insurers to recover under its excess insurers' policies. A Settlement hearing was held by the District Court and an order approving the settlement was signed on July 12, 2000. In 1999, the Company recorded a charge of $5.9 million, which represented the cost of the Settlement. The Company had funded its required cash contribution to the settlement as of March 31, 2000; except for the cost of the litigation with two of the Company's insurers, which is not expected to be material. b. On April 27, 1998, an action was commenced against the Company in the United States District Court for the Western District of Virginia by Wanda King, a former employee of the Company. In her complaint, the Plaintiff claimed that she was constructively discharged by reason of the fact that she resigned from her position rather than follow alleged improper and illegal instructions from her supervisors and superiors. The Company has denied the allegations contained in the complaint. On July 26, 1999, the District Court dismissed the complaint on the grounds that it failed to plead a legally recognizable case against the Company. On August 30, 1999, the Plaintiff filed an amended complaint alleging additional actions on the part of the Company and former employees and seeking damages against the Company in excess of $8.0 million. On February 1, 2000, the District Court ruled that the allegations in the amended Complaint, if true, state claims against the Company. The Company has interposed an answer to the Complaint denying the material allegations. VI-1 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS See Item 4 below ITEM 3. NOT APPLICABLE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Special Meeting of Shareholders of the Company was held on April 18, 2000. The first item of business before the Meeting was a proposal to reverse split the outstanding shares of the Company's Common Stock on a one-for-four basis so that the 14,229,540 shares of the Company's Common Stock outstanding prior to the reverse split would become approximately 3,557,385 shares of the Company's Common Stock following the reverse split; all fractional shares being rounded up to the next nearest whole share. The vote on this proposal was as follows: FOR AGAINST ABSTAIN --- ------- ------ 10,930,944 549,542 20,040 The second item of business was to amend the Company's Certificate of Incorporation to: (i) reduce the number of authorized shares of the Company's Common Stock from 20,000,000 to 10,000,000 shares; and (ii) affect the reverse split of the outstanding shares of the Company's Common Stock outstanding prior to the reverse split to become approximately 3,557,385 shares of the Company's Common Stock following the reverse split; all fractional shares being rounded up to the nearest whole share. The vote on this proposal was as follows: FOR AGAINST ABSTAIN --- ------- ------- 10,956,864 515,147 28,515 ITEM 5. OTHER INFORMATION On March 28, 2000, Harry A. Katz was elected to the Board of Directors of the Company to fill a vacancy on the Board. VI-2 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 10.55 Asset Purchase Agreement - Ann Travis Inc. 10.56 5th Amendment to Credit Agreement 10.57 1st Amendment to Daniel H. Levy Employment Agreement 10.58 Beverly Eichel Employment Agreement 27 Financial Data Schedule (B) REPORTS ON FORM B-K The Company filed no reports on Form B-K during the quarter ended June 30, 2000. VI-3 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 /s/ Daniel H. Levy Date: August 14, 2000 ------------------------------ Daniel H. Levy Chairman of the Board, Chief Executive Officer Date: August 14, 2000 /s/ Beverly Eichel ------------------------------ Beverly Eichel Executive Vice President and Chief Financial Officer, (Principal Financial Officer) VI-4 EX-10.55 2 0002.txt SECURED PARTY BILL OF SALE Secured Party Bill of sale ------------------------- THE CIT GROUP/COMMERCIAL SERVICES, INC., having an office at 1211 Avenue of the Americas, New York, New York 10036, as a secured party in possession ("Secured Party"), as of this 30th day of June, 2000, hereby sells, transfers and conveys all of the rights, title and interest of Secured Party and of Ann Travis, Inc. ("Debtor") to DONNKENNY APPAREL, INC., having an office at 1411 Broadway, New York, New York 10018 ("Purchaser"), its successors and assigns, in and to certain property (collectively, the "Assets) described on Exhibit A, attached hereto and made a part hereof, for an aggregate purchase price of One Million One Hundred Forty Thousand Dollars ($1,140,000), the receipt and sufficiency of which is hereby acknowledged. Secured Party represents and warrants to Purchaser that (a) it holds a perfected first security interest in the Assets, (b) it has taken possession of the Assets, (c) the sale of the Assets is being made in a commercially reasonable manner pursuant to Section 9-504 of the New York Commercial Code, (d) the inventory portion of the Assets has a cost value of not less than One Million Dollars ($1,000,000), (e) upon consummation of such sale, the Assets are free and clear of any liens or security interests or adverse claim, (f) upon consummation of such sale, the Purchaser has the sole and exclusive right to possession of the Assets, and (g) upon consummation of such sale, Purchaser will have valid and marketable title to the Assets, but only to the same extent that Debtor had valid and marketable title to the Assets immediately prior to the Second Party's taking possession of the Assets. Notwithstanding anything herein or otherwise to the contrary, Secured Party hereby agrees that, in connection with the transactions contemplated hereby, Purchaser is not assuming any liability or obligation of the Debtor. Secured Party hereby agrees to indemnify and hold Purchaser harmless from and against any and all claims, actions, causes of action, losses, damages, liabilities and expenses (including reasonable attorneys' fees and expenses) arising out of (a) a breach of any representation or warranty made by Secured Party herein or (b) any claim of any third party (the "Claim") in any way relating to transactions occurring at, prior to or contemplated by the delivery of this Bill of Sale (the "Indemnity"). Purchaser shall promptly notify Secured Party in writing if a third party makes a Claim ("Notice of Claim"); provided that any such failure to so notify the Secured Party shall only relieve the Secured Party of its obligations hereunder to the extent that the Secured Party is materially and adversely prejudiced thereby. In any such event, Purchaser shall promptly deliver to Secured Party all relevant communications and documentation pertaining to such Claim. Upon receipt of a Notice of Claim, Secured Party shall promptly with counsel of its choice defend against the Claim to the extent covered by the Indemnity and identified in the Notice of Claim. If Secured Party shall fail to act promptly as aforesaid and shall further fail to so act promptly after written notice for Purchaser to Secured Party specifying Secured Party's failure to so act ("Default Notice"), Purchaser shall have the right to undertake the defense of such Claim itself, with counsel of its choice and shall be reimbursed by Secured Party for its reasonable attorneys' fees and expenses in connection therewith. Subject to the immediately preceding sentence, Secured Party shall have the exclusive right to defend and/or proceed with and prosecute all proceedings, negotiations, settlements and compromises involving Claims covered in whole or in part by the Indemnity with counsel of its choice, and in the case of settlements and compromises, on terms reasonably acceptable solely to Secured Party provided that to the extent Purchaser's access to possession, use and ability to dispose of the Assets are actually being interfered with Purchaser shall have the right, at the Secured Party's expense, to employ counsel of its own choice and in such event and to such extent, Secured Party's counsel and Purchaser's counsel shall cooperate with respect to the defense of any Claim covered in whole or in part by the Indemnity. Purchaser hereby agrees to reimburse Secured Party for any amounts paid to a third party by the Secured Party on behalf of Debtor prior to the closing of the purchase and sale transaction being effected hereby, provided that (i) such amounts relate directly to the cost of the inventory that is part of the Assets that are being purchased hereby and (ii) Secured Party provides satisfactory documentation to the Purchaser regarding the requirement described in clause (i) hereof. In addition, the Purchaser agrees to post letters of credit in favor of the Secured Party in an aggregate amount equal to $479,911 to serve as back-to-back letters of credit to the letters of credit listed on Exhibit E as to which the Debtor is the account party. -2- EXCEPT AS SPECIFICALLY PROVIDED ABOVE, THE SALE, TRANSFER AND CONVEYANCE OF ALL OF THE ASSETS BY SECURED PARTY TO PURCHASER AND PURCHASER'S PURCHASE OF THE ASSETS IS MADE "AS IS" AND "WHERE IS" AND WITHOUT ANY WARRANTIES BY, REPRESENTATIONS BY OR RECOURSE TO SECURED PARTY OF ANY KIND, NATURE OF DESCRIPTION WHATSOEVER, INCLUDING WITHOUT LIMITATION, ANY WARRANTIES AND/OR REPRESENTATIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, PHYSICAL CONDITION, QUANTITY OR VALUE. IN WITNESS WHEREOF, Secured Party has executed and delivered this Bill of Sale on the date first above written. THE CIT GROUP/COMMERCIAL SERVICES, INC. /s/ -------------------------- By: Title: READ AND AGREED: DONNKENNY APPAREL, INC. /s/Daniel H. Levy ------------------------ By: Daniel H. Levy Title:CHARIMAN OF THE BOARD CHIEF EXECUTIVE OFFICER -3- EXHIBIT A TO Bill of Sale between THE CIT GROUP/COMMERCIAL SERVICES, INC. and DONNKENNY APPAREL, INC. The Assets being sold hereunder consist of the following property presently owned by Ann Travis, Inc. (a) all inventory; (b) all general intangibles, including, but not limited to, all open purchase orders, all transferable license agreements (including , to the extent transferable, the license agreement with Delta Burke, but excluding the license agreement with Eileen West) and the tradenames "Decade Designs" and "A.Q. Collection"; and (c) the books and records relating to the foregoing. This sale excludes all other property whatsoever of whatsoever kind and nature owned by Ann Travis, Inc., including, but not limited to all accounts and the goods represented thereby including but not limited to all returns from customers of Ann Travis, Inc. EXHIBIT B To Bill of Sale between THE CIT GROUP/COMMERCIAL SERVICES, INC. and DONNKENNY APPAREL, INC.
Letter of Credit No. Amount Expiration Issuer Beneficiary ---------- ------ ---------- ------ ---------- A-202293 $453,047 8/2/00 Chase Cotton Land A-299835 $26,864 7/7/00 Chase Jiangsu Silk I/E Group Corp.
EX-10.56 3 0003.txt FIFTH AMENDMENT TO CREDIT AGREEMENT FIFTH AMENDMENT TO CREDIT AGREEMENT FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of July 6, 2000 (this "Amendment"), to the Credit Agreement dated as of June 29, 1999 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among DONNKENNY APPAREL, INC. a Delaware corporation ("DKA"), BELDOCH INDUSTRIES CORPORATION, a Delaware corporation ("BIC"; together with DKA, and severally, the "Borrowers"), the Guarantors party thereto, the Lenders party thereto and THE CIT GROUP/COMMERCIAL SERVICES, INC. as agent for the Lenders (in such capacity, the "Agent"). The Borrowers, the Guarantors, the Lenders and the Agent are parties to the Credit Agreement. The Borrowers have requested that the Lenders make additional term loans to Borrowers under the Credit Agreement in an aggregate amount of $1,300,000 and amend certain provisions of the Credit Agreement, and the Lenders are willing to make such additional term loans and make such amendments to the Credit Agreement upon the terms and subject to the conditions set forth in this Amendment. Accordingly, in consideration of the mutual agreements set forth herein, and for good and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. (a) Existing Definitions. Initially capitalized terms used and not -------------------- otherwise defined herein shall have their respective meanings as defined in the Credit Agreement. (b) Additional Definitions. As used herein, the following terms shall have the respective meanings given to them below and Section 1.01 of the Credit Agreement is hereby amended to include, in addition, and not in limitation, each of the following definitions: "Supplemental Term Loan" shall mean the Supplemental Term Loan made pursuant to Sections 2.01 and 2.02. "Supplemental Term Loan Closing Date" shall mean July , 2000. "Supplemental Term Loan Commitment" shall mean, with respect to any Lender, the Supplemental Term Loan Commitment of such Lender as set forth in Schedule 2.01(c). "Supplemental Term Notes" shall mean the Supplemental Term Notes of Borrowers, executed and delivered as provided in Section 2.04, in substantially the form of Exhibit A-1 hereto, as amended, modified or supplemented from time to time. "Total Supplemental Term Loan Commitment" shall mean the sum of the Lenders' Supplemental Term Loan Commitments, as the same may be reduced from time to time pursuant to Section 2.07. (c) Amendments to Existing Definitions. (i) Amendment of Definition of Commitment. The defined term "Commitment" set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: ""Commitment" shall mean, with respect to each Lender, the sum of the Term Loan Commitment of such Lender as set forth in Schedule 2.01 (a) and the Supplemental Term Loan Commitment of such Lender as set forth in Schedule 2.01(c), as each maybe adjusted from time to time pursuant to Section 2.07, and the Revolving Credit Commitment of such Lender as set forth in Schedule 2.01(12)." (ii) Amendment of Definition of Loan. The defined term "Loan" set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "'Loan" shall mean the Term Loan, the Supplemental Term Loan or any Revolving Credit Loan." (iii) Amendment of Definition of Notes. The defined term "Notes" set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "'Notes" shall mean, collectively, the Term Notes, the Supplemental Term Notes and the Revolving Credit Notes." (iv) Amendment of Definition of Obligations. All references in the Credit Agreement and in the other Loan Documents to the defined term "Obligations" are hereby amended in each instance to include in addition, and not in limitation, the Supplemental Term Loan. (v) Amendment of Definition of Total Commitment. The defined term "Total Commitment" set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "'Total Commitment" shall mean the sum of the Lenders' Total Term Loan Commitment plus Total Supplemental Term Loan 2 Commitment plus Total Revolving Credit Commitment, as the same may be reduced from time to time pursuant to Section 2.07 hereof." 2. Amendment of Section 2.01(a). Section 2.01(a) of the Credit Agreement is hereby amended by inserting the following new sentence at the end of such Section: "Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender, severally and not jointly, agrees to make the Supplemental Term Loan to the Borrowers on the Supplemental Term Loan Closing Date, in an aggregate principal amount not to exceed the amount of such Lender's Supplemental Term Loan Commitment set forth opposite its name in Schedule 2.01 (c) hereto." 3. Amendment of Section 2.01(b). Section 2.01(b) of the Credit Agreement is hereby amended as follows: (a) The third sentence of the first paragraph of Section 2.01 (b) is hereby amended by inserting therein, as new clause (ii) thereof, the phrase " plus (ii) the principal amount of the Supplemental Term Loam outstanding at any time" and by redesignating the currently existing clause (ii) thereof as clause (iii) thereof. (b) As a result of the amendments to Section 2.01(b) made by clause (a) immediately above, Section 2.01(b) is amended and restated in its entirety to read as follows: "(b) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender, severally and not jointly, agrees to make Revolving Credit Loans to, and through the Agent open Letters of Credit for the benefit of, the Borrowers, at any time and from time to time from the date hereof to the Revolving Credit Termination Date, in an aggregate principal amount at any time outstanding not to exceed the amount of such Lender's Revolving Credit Commitment set forth opposite its name in Schedule 2.01 (b) annexed hereto. Notwithstanding the foregoing, the aggregate principal amount of Revolving Credit Loans outstanding at any time to the Borrowers shall not exceed (1) the lesser of (A) the Total Revolving Credit Commitment and (B) an amount equal to the total of (i) up to ninety percent (90%) of the Net Amount of Eligible Receivables plus (ii) the sum of (I) up to sixty percent (60%) of the Net Amount of Eligible Inventory plus (II) up to sixty percent (60%) of the undrawn amount of all outstanding Letters of Credit for the importation of finished goods inventory consigned to the Agent as of the date of determination (not to exceed $37,000,000 at any time) minus (iii) any Availability Reserves (the amount determined pursuant to this clause (B) referred to herein as the "Borrowing Base"), minus (2) the Letter of Credit Usage at such 3 time (not to exceed $35,000,000 at any time). In no event, however, shall the sum of (i) the principal amount of the Term Loan outstanding at any time plus (ii) the principal amount of the Supplemental Term Loan outstanding at any time plus (iii) the aggregate principal amount of Revolving Credit Loans outstanding at any time exceed $75,000,000. In addition to and not in limitation of the foregoing limitations with respect to Revolving Credit Loans outstanding at any time to Borrowers, and notwithstanding anything to the contrary contained in this Section 2.01(b), the aggregate principal amount of Revolving Credit Loans outstanding at any time to Borrowers solely with respect to Eligible Receivables and Eligible Inventory shall not exceed an amount equal to the total amount of Revolving Credit Loans then available based upon the immediately preceding clauses (B)(i) and (B)(ii)(I). The Borrowing Base will be computed daily and a compliance certificate from a Responsible Officer of the Borrowers presenting its computation will be delivered to the Agent in accordance with Section 6.05 hereof. Subject to the foregoing and within the foregoing limits, the Borrowers may borrow, repay (or, subject to the provisions of Section 2.09 hereof, prepay) and reborrow Revolving Credit Loans, on and after the date hereof and prior to the Revolving Credit Termination Date, subject to the terms, provisions and limitations set forth herein, including without limitation, the requirement that, except as set forth in Section 2.01(c), no Revolving Credit Loan shall be made hereunder if the amount thereof exceeds the Availability outstanding at such time." 4. Addition of Schedule 2.01(c). The Credit Agreement is hereby amended by adding thereto a new Schedule 2.01(c) - Supplemental Term Loan Commitment in the form of Schedule 2.01 c attached hereto. 5. Amendment of Section 2.02(b). Section 2.02(b) of the Credit Agreement is hereby amended and restated in its entirety as follows: "(b) Loans shall be made ratably by the Lenders in accordance with their respective Term Loan Commitments, Supplemental Term Loan Commitments or Revolving Credit Commitments, as the case maybe, provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder." 6. Amendment of Section 2.02(d). Section 2.02(d) of the Credit Agreement is hereby amended by inserting ",its Supplemental Term Loan" in the first line thereof immediately after "Term Loan." 4 7. Addition of Sections 2.04(f) and 2.04(g). Section 2.04 of the Credit Agreement is hereby amended by adding thereto new Sections 2.04(f) and 3.04(g) as follows: "(f) The Supplemental Term Loan made by a Lender shall be evidenced by a single Supplemental Term Note, duly executed by the Borrowers, dated as of the Supplemental Term Loan Closing Date, in substantially the form of Exhibit A-1 annexed hereto, delivered and payable to such Lender in a principal amount equal to its Supplemental Term Loan Commitment on such date. (g) The entire aggregate principal amount of the Supplemental Term Loan (plus all accrued and unpaid interest thereon), as evidenced by the Supplemental Term Notes, shall be payable in thirty-six (36) consecutive monthly installments commencing on January 1, 2001 and continuing on the first day of each calendar month thereafter, of which the initial thirty-five (35) monthly installments shall each be in an amount equal to one-thirtyfifth (1/35th) of the original principal amount of the Supplemental Term Loan and the thirty-sixth (36th) and final installment shall be in the amount of the entire remaining balance of the Supplemental Term Loan together with all interest accrued thereon, provided that, the entire unpaid balance of the Supplemental Term Loan, together with all interest accrued thereon, shall be due and payable no later than the earlier to occur of the Revolving Credit Termination Date and the Final Maturity Date. All such payments shall be distributed ratably among the Lenders in accordance with their respective Supplemental Term Loan Commitments. Each Supplemental Term Note shall bear interest from its date on the outstanding principal balance thereof, as provided in Section 2.05. All principal payments in respect of the Supplemental Term Loan shall be accompanied by accrued interest on the principal amount being repaid to the date of payment. No scheduled payment of principal in respect of the Supplemental Term Loan shall be made to the extent that a lesser principal payment would result in the payment in full of the outstanding amount of the Supplemental Term Loan, and such lesser amount is paid." 8. Amendment of Section 2.06(a). (a) The first sentence of Section 2.06(a) of the Credit Agreement is hereby amended by inserting " plus the outstanding principal amount of such Lender's Supplemental Term Loan" immediately after "Lenders' Term Loan" and immediately prior to "during the quarter." (b) As a result of the amendments to Section 2.06(a) made by clause (a) immediately above, Section 2.06(a) is amended and restated in its entirety to read as follows: 5 "(a) The Borrowers shall pay each Lender, through the Agent, (i) on the first Business Day of each October, January, April and July, commencing October 1, 1999, and (ii) on the Revolving Credit Termination Date, in immediately available funds, a commitment fee (the "Revolving Credit Commitment Fee") of one-quarter of one percent (1 /4 of 1%) perannum on the amount by which the average daily unused amount of the Revolving Credit Commitment of such Lender exceeds the sum of the outstanding principal amount of such Lender's Term Loan plus the outstanding principal amount of such Lender's Supplemental Term Loan during the quarter (or shorter period commencing with the date hereof or ending with the Revolving Credit Termination Date) ending on such date." 9. Amendment of Section 2.07(b). Section 2.07(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(b) The Total Term Loan Commitment and the Total Supplemental Term Loan Commitment shall each be permanently reduced by the amount of any repayment or prepayment of the outstanding principal amount of the Term Loans or the Supplemental Term Loans (as the case may be) on the date of any such repayment or prepayment. In any event, all amounts due and owing under the Total Term Loan Commitment and under the Total Supplemental Term Loan Commitment shall be due and payable on the earlier to occur of the Revolving Credit Termination Date and the Final Maturity Date." 10. Amendment of Section 7.10. Section 7.10 of the Credit Agreement is amended in its entirety to read as follows: "Section 7.10 Minimum Interest Coverage Ratio. Permit the Interest Coverage Ratio of the Parent and its Subsidiaries on a Consolidated basis for each four consecutive fiscal quarter period ending on the last day of each of the fiscal quarters set forth below to be less than the ratio set forth below opposite such fiscal quarter: Quarterly Period Ending Minimum Interest Coverage Ratio ----------------------- ------------------------------- June 30, 2000 N/A September 30, 2000 N/A December 31, 2000 1.14 to 1.00" 11. Amendment of Section 7.11. Section 7.11 of the Credit Agreement is hereby amended in its entirety to read as follows: 6 "Section 7.11 EBITDA. Permit EBITDA of the Parent and its Subsidiaries (in each case computed and calculated in accordance with GAAP) on a Consolidated basis for each four consecutive fiscal quarter period ending on the last day of each of the fiscal quarters set forth below to be less than the amount set forth below opposite each such fiscal quarter: Quarterly Period Ending EBITDA ---------------- ------------- June 30, 2000 ($1,650,000) September 30, 2000 $395,000) December 31, 2000 $3,882,000 12. Amendment of Section 7.12A. Section 7.12A of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 7.12A Tanizible Net Worth. Permit the Tangible Net Worth of the Parent and its Subsidiaries (in each case computed and calculated in accordance with GAAP) on a Consolidated basis as of the end of each of the fiscal quarters set forth below to be less than the amount set forth below opposite each such fiscal quarter: Quarterly Period Ending Tangible Net Worth ----------------------- ------------------ June 30, 2000 $6,000,000 September 30, 2000 $7,400,000 December 31, 2000 $9,500,000 13 . Organization and Amendment Fee. In consideration of the making of the Supplemental Term Loan and the amendments to the Credit Agreement as set forth herein, Borrowers shall pay to Agent, for the benefit of Lenders, or Agent, at its option, may charge the account(s) of Borrowers maintained by Agent an origination and amendment fee in the amount of $100,000, which fee is fully earned and payable as of the date hereof and shall constitute part of the Obligations. 14. Representations and Warranties. Borrowers hereby represent and warrant to Lenders that the representations and warranties set forth in Article IV of the Credit Agreement are true on and as of the date hereof, as if made on and as of the date hereof, after giving effect to this Amendment, except to the extent that any such representation or warranty expressly relates to a prior date, and breach of any of the representations and warranties made in this paragraph 14 shall constitute and Event of Default under Article VIII(a) of the Credit Agreement. Borrowers further represent and warrant that, after giving effect to this Amendment, no Event of Default or event which, with the lapse of time or the giving of notice or both, would become an Event of Default has occurred and is continuing. 7 15. Effectiveness. This Amendment shall become effective on the date Agent shall have received counterparts of this Amendment duly executed and delivered by each of the parties hereto. 16. Continuing Effect of Credit Agreement. This Amendment shall not constitute a waiver or amendment of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as a consent to any further or future action on the part of either of the Borrowers that would require consent of Lenders. Except as expressly amended by this Amendment, the provisions of the Credit Agreement are and shall remain in full force and effect. 17. Applicable Law. This Amendment shall be construed in accordance with and governed by the laws of the State of New York (other than the conflicts of law principles thereof). 18. Counterparts; Facsimile Sign. This Amendment may be executed in counterparts, each of which shall constitute and original and all of which when taken together shall constitute but one contract. Delivery of an executed counterpart of the signature page of this Amendment by facsimile shall be effective as delivery of a manually executed signature page hereto. [Signature pages follow] 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective authorized officers as of the day and year first above written. DONNKENNY APPAREL, INC., as a Borrower and a Guarantor By: /s/ Beverly Eichel --------------------------- Name: Beverly Eichel Title: Executive Vice President, Chief Financial Officer BELDOCH INDUSTRIES CORPORATION, as a Borrower and a Guarantor By: /s/ Beverly Eichel --------------------------- Name: Beverly Eichel Title: Executive Vice President, Chief Financial Officer DONNKENNY, INC., as a Guarantor By: /s/ Beverly Eichel --------------------------- Name: Beverly Eichel Title: Executive Vice President, Chief Financial Officer CHRISTIANSBURG GARMENT COMPANY, INCORPORATED, as a Guarantor By: /s/ Beverly Eichel --------------------------- Name: Beverly Eichel Title: Executive Vice President, Chief Financial Officer H SQUARED DISPOSITIONS, INC., as a Guarantor By: /s/ Beverly Eichel --------------------------- Name: Beverly Eichel Title: Executive Vice President, Chief Financial Officer [SIGNATURES CONTINUE ON NEXT PAGE] 9 THE CIT GROUP/COMMERCIAL SERVICES, INC., as Agent By: /s/ Lisa Murakami --------------------------- Name: Lisa Murakami Title: Vice President THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender By: /s/ Lisa Murakami --------------------------- Name: Lisa Murakami Title: Vice President CENTURY BUSINESS CREDIT CORPORATION, as a Lender By: /s/ --------------------------- Name: Title: 10 SCHEDULE 2.01(c) Supplemental Term Loan Commitments
Supplemental Percentage of Total Term Loan Supplemental Term Lender Commitment1 Loan Commitment - ------ ---------- --------------- The CIT Group/Commercial Services, Inc. $953,290 73.33% 1211 Avenue of the Americas New York, New York 10036 Attn: Lisa Murakami Century Business Credit Corporation 119 West $346,710 26.66% 40th Street New York, New York 10018 Attn: Steven Stone
- -------- 1 Based on the original principal amount of the Supplemental Term Loan 11 EX-10.57 4 0004.txt FIRST AMENDMENT TO EMPLOYMENT AGREEMENT FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT is made as of the 17th day of May, 2000, by and among DANIEL H. LEVY (the "Executive"), DONNKENNY APPAREL, INC., a Delaware corporation (the "Company") and DONNKENNY, INC., a Delaware corporation which is the parent of the Company ("Donnkenny") W I T N E S S E T H: WHEREAS, Executive, the Company and Donnkenny entered into that certain Employment Agreement dated as of June 1, 2000, pursuant to which Executive was employed as Chairman of the Board and Chief Executive Officer of the Company and each of its subsidiaries as well as in the capacity of Chief Executive Officer of Donnkenny (the "Employment Agreement"); and WHEREAS, the parties to the Employment Agreement deem it to be in their mutual best interests to amend the Employment Agreement in certain respects in recognition of the desire of the parties to solidify their respective relationships on a long-term basis. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective immediately the Employment Agreement is hereby amended as follows: 1. Section 3 of the Employment Agreement is amended by adding the following new Section 3.j: j. MOVING EXPENSES. The Company shall, within thirty (30) days after request by the Executive, either directly pay or reimburse Executive for each of (i) brokerage commissions paid or payable by Executive in connection with relocating his current residence from Apartment 38H, 641 5th Avenue, New York, New York (the "Current Apartment") to another apartment residence in New York City selected by Executive (the "New Apartment"); provided, however, that in no event shall the Company's obligation respecting the payment of brokerage commissions exceed fifteen percent (15%) of annual rent for the New Apartment; and (ii) in the event that the rental term of the Current Apartment shall overlap the rental term of the New Apartment (the "Overlap Period"), the Company shall pay, during the overlap Period, the lesser of the rent for the Current Apartment and the rent for the New Apartment; and (iii) the federal, state and local income taxes for which Executive is liable on account of the payments referred to in Section 3j(i) and (ii) above, together with an amount sufficient to satisfy any additional federal, state or local income taxes for which Executive is liable on account of the amounts received pursuant to this Section 3.j (iii). Subsequent to the date Executive shall terminate occupancy of the Current Apartment during the current lease term therefor, Executive shall use his reasonable best efforts, subject to the terms of the lease for the Current Apartment, to make the Current Apartment available to the Company for use as a Company apartment. In the event the Company shall utilize the Current Apartment as a Company apartment during the current lease term, the Company shall indemnify, defend and hold Executive harmless from and against any and all losses, liabilities, costs, damages (including, without limitation, property damage, wrongful death or personal injury), penalties, fines, fees and expenses including, without limitation, reasonable legal fees and litigation expenses, suffered, sustained or incurred by Executive as a result of, in connection with or relating to, or alleged to result from, in connection with 2 or in relation to, any breach of lease or acts or omissions associated with the occupancy of the Current Apartment. 2. Section 4 of the Employment Agreement is amended by deleting the third sentence of such Section in its entirety and by substituting the following revised third sentence of such Section in its stead: In addition to and without limiting the generality of the foregoing, (i) the Company (x) may obtain and maintain a "key man" life insurance policy under which the Company is the named beneficiary in the amount of $2,500,000, and (y) shall promptly obtain and maintain a term life insurance policy in the amount of $2,500,000, which policy shall be owned by the Executive, in each case from a nationally-recognized insurance carrier reasonably acceptable to the Executive, and (ii) the Company shall provide, in addition to any such insurance regularly provided to the Company's executives and/or employees, long-term disability insurance which will pay at least sixty percent (60%) of Executive's Base Salary until the Executive reaches age 65. Section 4 of the Employment Agreement is further amended by deleting from the last sentence of such Section the words, "or on or after December 31, 2000." 3. Section Sb. of the Employment Agreement is amended by deleting from the second paragraph of such Section the phrase, "In the event Executive shall become disabled or shall die on or after December 31, 2000, then the", and by substituting the word, "The", in its stead. 4. Section Sc.l of the Employment Agreement is deleted in its entirety, and the following new Section Sc.l is substituted in its stead: 3 c. By the Company Without Cause. i. The Company may only terminate the employment of the Executive for Cause or upon the death or disability of the Executive. If the employment of the Executive shall be terminated without Cause and other than as a result of death or disability of the Executive then, within thirty (30) days after such termination, in addition to any amounts payable, or benefits provided for in Section 5c.ii. below, or as otherwise specifically provided for in this Employment Agreement, the Company shall pay to the Executive, by wire transfer of immediately available funds, an amount which is equal to the greater of (x) the aggregate Base Salary Executive would have been entitled to receive following such termination through the end of the term hereof (including any renewals or extensions) or (y) one year's annual Base Salary which is in effect on the date such employment terminates. The Executive shall have no obligation whatsoever to mitigate any damages, costs or expenses suffered or incurred by the Company or Donnkenny with respect to the severance obligations set forth in this Section 5c.1., and no such severance payment which is received or receivable by the Executive shall be subject to any reduction, offset, rebate or repayment as a result of any subsequent employment or other business activity by the Executive including, without limitation, self employment. 5. Section 5c.ii. of the Employment Agreement is amended by deleting the phrase, "on or after December 31, 2000" from the second line of such Section. 6. Section 5d.v. of the Employment Agreement is amended by deleting from the third sentence of such Section the phrase, "if such termination occurs on or after December 31, 2000,". 4 7. Section Se. of the Employment Agreement is amended by deleting from such Section the words, "as of the December Termination Date". 9. Except as is specifically provided for in this First Amendment to Employment Agreement, the Employment Agreement shall remain unamended and in full force and effect in accordance with its original terms; provided, however, that any prior ancillary letter agreements or other understandings entered into between Executive and the Company or Donnkenny with respect to the Employment Agreement or Executive's employment by the Company or Donnkenny including, without limitation, the letter from Executive to Donnkenny dated February 9, 2000 purporting to amend Section 5d.vi. of the Employment Agreement upon the occurrence of a certain Change of Control, shall be deemed immediately terminated, cancelled, superseded hereby and of no further force or effect. 5 IN WITNESS WHEREOF, the parties hereto have executed and delivered this First Amendment to Employment Agreement as of the day and year first above written. DONNKENNY, INC., a Delaware corporation By: /s/Lynn Siemers-Cross ------------------------------- Name:Lynn Siemers-Cross Title:PRESIDENT, CHIEF OPEERATING OFFICER DONNKENNY APPAREL, INC., a Delaware corporation By: /s/Lynn Siemers-Cross ------------------------------ Name:Lynn Siemers-Cross Title:PRESIDENT, CHIEF OPEERATING OFFICER EXECUTIVE /s/Daniel H. Levy ----------------------------------- DANIEL H. LEVY 6 EX-10.58 5 0005.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 6th day of June, 2000 by and between Donnkenny Apparel, Inc., a Delaware corporation (the "Company") and Beverly Eichel of 95 Fairway Drive, Commack, New York 11725 (the "Executive"). WITNESSETH THAT WHEREAS, the Executive is currently employed by the Company pursuant to a written employment agreement between the Executive and the Company dated as of the 28th day of September, 1998; and WHEREAS, the Company wishes to provide for the continued employment by the Company of the Executive, and the Executive wishes to continue to serve as an employee of the Company, in the capacities and on the terms and conditions set forth in this Agreement; NOW THEREFORE, it is hereby agreed as follows: 1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and the Executive shall serve as an employee of the Company, on the terms and conditions set forth in this Agreement. The term of this Agreement shall commence on the date hereof and, unless earlier terminated in accordance with Section 5 hereof, shall continue to December 31, 2002 (herein as the "Employment Period"): it being recognized that Executive has been continuously employed by the Company since November 2, 1998. 2. POSITION AND DUTIES. (a) During the Employment Period, the Executive shall continue to serve as Executive Vice President and Chief Financial Officer of the Company with such duties and responsibilities as are customarily assigned to such positions, and such other executive duties and responsibilities not inconsistent therewith as may from time to time be assigned to her by the Board of Directors of the Company (the "Board"). (b) During the Employment Period, the Executive shall report to the Chief Executive Officer. (c) During the Employment Period, the Executive shall devote her full business time and attention to the business and affairs of the Company and shall perform, faithfully and diligently her duties and responsibilities hereunder. 3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary of $325,000. The annual base salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time. (b) PERFORMANCE BONUS. During the Employment Period, the Executive shall be eligible to receive a discretionary annual bonus ("Performance Bonus") in an amount, if any, to be determined on an annual basis by the Board, taking into account the performance of Executive and the Company during the year in respect of which the Performance Bonus is payable. (c) REIMBURSEMENT OF EXPENSES AND ADMINISTRATIVE SUPPORT. The Company shall pay or reimburse the Executive, upon the presentation of appropriate documentation, for all reasonable travel (including automobile parking) and other expenses incurred by the Executive in performing her obligations under this Agreement. The Company further agrees to furnish the Executive with a car allowance of $650 per month plus reimbursement for reasonable insurance and maintenance costs. (d) VACATION. Executive shall be entitled to four (4) weeks paid vacation in each calendar year. (f) LIFE INSURANCE. During the Employment Period, the Company shall provide term life insurance, for the benefit of the Executive, in the face policy amount of One Million ($1,000,000) Dollars with the Employee designating the beneficiaries of such policy. During the Employment Period the Company shall pay the premiums for such life insurance policy. (g) DEDUCTIONS. All payments made under this Agreement shall be subject to such deductions as from time to time may be required to be made pursuant to any law, rule, regulation or order. (h) CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to have occurred upon any of the following events: (A) A person or entity or group of persons or entities, acting in concert, shall become the direct or indirect beneficial owner (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended), of securities of the Company or Donnkenny representing more than fifty percent (5O%) of the combined voting power of the issued and outstanding common stock of the Company or Donnkenny; (B) The majority of the Board, or of the board of directors of Donnkenny, is no longer comprised of the incumbent directors who constitute such board on the date of this Agreement and other individual (s) who became a director subsequent to the date of this Agreement whose initial election or nomination for election as a director, as the case may be, was approved by at least a majority of the directors who comprised the incumbent directors on such board as of the date of this Agreement; (C) The Board shall approve a sale of all or substantially all of the assets of the Company, or the board of directors of Donnkenny shall approve a sale of all or substantially all 2 of the assets of Donnkenny; or any merger, consolidation, or like business combination or reorganization of the Company, or of Donnkenny, the consummation of which would result in the occurrence of any event described in clause (A) or (B) above, and such transaction shall have been consummated. (D) Notwithstanding the foregoing provisions, a Change of Control shall not be deemed to have occurred if one or more of the events described in paragraphs A, B or C above is occasioned by a transaction involving a group including the current Chief Executive Officer of the Company. 4. PARTICIPATION IN BENEFIT PLANS. The Executive shall be entitled to participate, during the term of this Agreement, in the Company's benefit programs, including but not limited to qualified or non-qualified pension plans, supplemental pension plans, group hospitalization, health, dental care, death benefit, post-retirement welfare plans, or other present or future group employee benefit plans or programs of the Company for which key executives are or shall become eligible (collectively, the "Benefit Plans"), on the same terms as other key executives of the Company. 5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that the Executive has been unable, for a period of not less than (x) 120 consecutive business days, or (y) 180 days within any 12 month period, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. (b) BY THE COMPANY. The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. "Cause" means (x) the conviction of the Executive for the commission of (A) any felony, or (B) a misdemeanor involving moral turpitude, or (y) willful misconduct by the Executive that results in demonstrable and material damage to the business or reputation of the Company, or (z) commission of fraud or embezzlement or any act of dishonesty relating to Executive's employment resulting or intending to result in direct or indirect personal gain or enrichment to Executive at the expense of the Company. No act or failure to act on the part of the Executive shall be considered "willful unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to the Chief Executive Officer of the Company, a resolution duly adopted by the Board, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. 3 (c) BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate her employment during the Employment Period for Good Reason. "Good Reason" means (A) defacto or de jure material diminution of the Executive's title, or her position and responsibilities as Chief Financial Officer. Executive acknowledges that the Company's MIS and Human Resources departments may not report to the Company's Chief Financial Officer; (B) location or relocation of the main office of the company other than within a 50 mile radius of New York, New York; (C) location of the Executive other than at the Company's New York office or other location permitted by (B) above, and (d) breach by the Company of any of its material I obligations hereunder that is not cured within twenty (20) days after written notice thereof is given by the Executive to the Company. (d) DATE OF TERMINATION. "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or without Cause is effective, or the date on which the Executive gives the Company notice of a termination of employment for Good Reason or otherwise, as the case may be. 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, the Company shall continue to pay to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's estate or legal representative), the annual base salary provided for in Section 3(a) as in effect on the Date of Termination through the end of the month in which the Executive's death occurs plus prorated bonus, if any, due. (b) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, the Company shall li continue to pay to the Executive the annual base salary provided for in Section 3(a) until the earlier of: (x) the date on which the Executive begins receiving payments pursuant to any long-term disability insurance policy or (y) the Disability Effective Date plus prorated bonus, if any, due. (c) AFTER A CHANGE IN CONTROL. If, during the Employment Period and upon or after the occurrence of a Change in Control, the Executive's employment is terminated by the Company other than by the Company for Cause, death or Disability, the Company shall pay to the Executive a lump sum amount of two (2) times the Executive's base salary in effect on the Date of Termination. If, during the Employment Period and upon or after the occurrence of a Change in Control, the Executive's employment is terminated by Executive, provided a notice of termination is given by the Executive to the Company within ninety (90) days from the effective date of a Change in Control, the Company shall pay to the Executive a lump sum amount of one and one-half (1 1/2) times the Executive's base salary in effect on the Date of Termination. The 4 lump sum payment provided for in this subparagraph (c) shall be payable on the Date of Termination. (d) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE. If the Executive's employment is terminated by the Company for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period (other than for Good Reason), the Company shall pay to the Executive in a lump sum in cash within 30 days of the Date of Termination any portion of the Executive's annual base salary through the Date of Termination that has not yet been paid, and the Company shall have no further obligations under this Agreement. (e) BY THE EXECUTIVE FOR GOOD REASON. If the Executive's employment is terminated by the Executive for Good Reason, the Company shall continue to pay to the Executive the annual base salary provided for in Section 3 (a) through the Employment Period and any Performance Bonus due to Executive. (f) SURVIVAL. The Respective obligations of the Company and the Executive under Sections 7, 8, 9 and 10 shall survive any termination of Executive's employment; provided, however, that the Executive's obligations under Section 9 (Non-Solicitation) shall terminate and shall not survive in the event (i) the Executive's employment is terminated by the Company other than for Cause; (ii) the Executive's employment is terminated for any or no reason following a Change in Control or (iii) the Executive's employment is terminated by the Executive for Good Reason. 7. INVENTIONS. Any and all inventions, innovations or improvements ("inventions") made, developed or created by the Executive (whether at the request or suggestion of the Company (which, as used in this Section 7, shall be deemed to include the Company and each of its subsidiaries) or otherwise, whether alone or in conjunction with others, and whether during regular hours of work or otherwise) during the period of her employment with the Company which may be directly or indirectly useful in, or relate to, the business of the Company, shall be promptly and fully disclosed by the Executive to the Board and shall be the Company's exclusive property as against the Executive, and the Executive shall promptly deliver to an appropriate representative of the Company as designated by the Board all papers, drawings, models, data and other material relating to any inventions made, developed or created by her as aforesaid. The Executive shall, at the request of the Company and without any payment therefore, execute any documents necessary or advisable in the opinion of the Company's counsel to direct issuance of patents or copyrights to the Company with respect to such inventions as are to be the Company's exclusive property as against the Executive or to vest in the Company title to such inventions as against the Executive. The expense of securing any such patent or copyright shall be borne by the Company. B. CONFIDENTIAL INFORMATION. The Executive shall hold all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and 5 their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 8)("Confidential Information") in strict confidence. The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive's employment with the Company, except with the prior written consent of the Company or as otherwise required by law or regulation or by legal process. If the Executive is requested pursuant to, or required by, applicable law or regulation or by legal process to disclose any Confidential Information, the Executive will provide the Company, as promptly as the circumstances reasonably permit, with notice of such request or requirement and, unless a protective order or other appropriate relief is previously obtained, the Confidential Information, subject to such request, may be disclosed pursuant to and in accordance with the terms of such request or requirement, provided that the Executive shall use her best efforts to limit any such disclosure to the precise terms of such request or requirement. 9. NON-SOLICITATION. The Executive agrees that she will not, during the term of this Agreement and until the expiration of twelve (12) months from the date of termination other employment with the Company, solicit or entice to endeavor to solicit or entice away from the Company any person who was an officer or employee, either for her own account or for any individual, firm or corporation. 10. INDEMNIFICATION. (a) The Company shall indemnify the Executive to the fullest extent permitted by Delaware law in effect as of the date hereof against all costs, expenses, liabilities and losses (including, without limitation, attorneys' fees, judgments, fines, penalties, ERISA excise taxes, penalties and amounts paid in settlement) reasonably incurred by the Executive in connection with a Proceeding. For the purposes of this Section 10, a "Proceeding" shall mean any action, suit or proceeding, whether civil, criminal, administrative or investigative, in which the Executive is made, or is threatened to be made, a party to, or a witness in, such action, suit or proceeding by reason of the fact that she is or was an officer, director or employee of the Company or is or was serving as an officer, director, member, employee, trustee or agent of any other entity at the request of the Company, whether or not the basis of such Proceeding arises out of or in connection with the Executive's alleged action or omission in an official capacity. (b) The Company shall advance to the Executive all reasonable costs and expenses incurred by her in connection with a Proceeding within 20 days after receipt by the Company of a written request for such advance. Such request shall include an itemized list of the costs and expenses and an undertaking by the Executive to repay the amount of such advance if it shall ultimately be determined that she is not entitled to be indemnified against such costs and expenses as authorized by Delaware law. Upon a request under subsection (b), the Executive shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established by a court of competent jurisdiction. 6 (c) The Executive shall not be entitled to indemnification under this Section 10 unless she meets the standard of conduct specified in the Delaware General Corporation Law. Any indemnification under subsection (a) (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Executive is proper in the circumstances because she has met the applicable standard of conduct set forth in the Delaware Corporation Law. Such determination shall be made in accordance with Delaware law. 11. SUCCESSORS; BENEFICIARIES. (a) This Agreement is personal to the executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives . (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken plane. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. (d) The Executive shall be entitled, to the extent permitted under any applicable law, to select and change the beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death by giving the Company written notice thereof. In the event of the Executive's death or a judicial determination of her incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to her beneficiary, estate or other legal representative. 12. MISCELLANEOUS. (a) Except for the applicability of Delaware law provided for in paragraph 10 above, this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 7 If to the Executive: Beverly Eichel 95 Fairway View Drive Commack, New York 11725 If to the Company: Donnkenny Apparel, Inc. 1411 Broadway New York, New York 10018 Attention: President or such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 12. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert, any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. (g) The Executive and the Company acknowledge that this Agreement supersedes any other agreement between them concerning the subject matter hereof including the Employment Agreement between the parties dated as of the 28th day of September, 1998, and certain letter agreements dated November 30, 1999 and dated as of January 1, 2000. 8 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization of the Board, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. /s/Beverly Eichel ------------------------------------ Beverly Eichel Donnkenny Apparel, Inc. By: /s/Daniel H. Levy ----------------------------- Daniel H. Levy 9 EX-27 6 0006.txt FINANCIAL DATA SCHEDULE
5 0000029693 Donnkenny, Inc. 3-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 44,736 0 25,841,918 3,970,364 21,863,952 47,600,004 10,965,435 5,447,856 84,459,372 12,983,538 0 0 0 36,174 36,808,289 84,459,372 27,732,698 27,732,698 22,261,435 22,261,435 6,571,380 0 1,080,775 (2,180,891) 58,333 (2,239,224) 0 0 0 (2,239,224) (0.62) (0.62)
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