-----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, Tb7jGPCyBEr1H0mTKr54Mw7UGuFF+GzLO8A6opVuxZK2M3w8JwlPA67TXk1QzhZC MUHLxghclqWAm2YC7sDPYw== 0000950117-96-000458.txt : 19960515 0000950117-96-000458.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950117-96-000458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DANSKIN INC CENTRAL INDEX KEY: 0000889299 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 621284179 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20382 FILM NUMBER: 96564014 BUSINESS ADDRESS: STREET 1: 111 W 40TH ST CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2127644630 MAIL ADDRESS: STREET 1: 111 W 40TH ST CITY: NEW YORK STATE: NY ZIP: 10018 10-Q 1 DANSKIN, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 1996 -------------- 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 0-20382 ------- Danskin, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 62-1284179 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 111 West 40th Street, New York, NY 10018 ------------------------------------------ (Address of principal executive offices) (212) 764-4630 ------------------------------ (Registrant's telephone number) 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), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the issuer's Common Stock, $.01 par value as of April 30, 1996, excluding 1,000 shares held by a subsidiary: 5,956,839. DANSKIN, INC. AND SUBSIDIARIES FORM 10-Q FOR THE FISCAL THREE MONTH PERIODS ENDED MARCH 30, 1996 INDEX
Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Condensed Balance Sheets (Unaudited) as of December 30, 1995 and March 30, 1996 3 Consolidated Condensed Statements of Operations (Unaudited) for the Fiscal Three Month Periods Ended March 25, 1995 and March 30, 1996 4 Consolidated Condensed Statements of Cash Flows (Unaudited) for the Fiscal Six Month Periods Ended March 25, 1995 and March 30, 1996. 5 Notes to Consolidated Condensed Financial Statements 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17
PART I - FINANCIAL INFORMATION Item 1. Financial Statements DANSKIN, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
December 30, 1995 March 30, 1996 (Unaudited) (Unaudited) ----------------- -------------- ASSETS Current assets: Cash and cash equivalents.................... $1,143,000 $1,496,000 Accounts receivable, less allowance for doubtful accounts of $1,631,000 at December 1995 and $1,697,000 at March 1996 14,631,000 18,312,000 Inventories.................................. 30,849,000 31,033,000 Prepaid expenses and other current assets.... 3,360,000 3,059,000 ----------------- -------------- Total current assets...................... 49,983,000 53,900,000 ----------------- -------------- Property, plant and equipment - net of accumulated depreciation and amortization of $5,849,000 at December 1995 and $6,365,000 at March 1996................................... 10,632,000 10,188,000 Deferred income tax benefits.................... 3,900,000 3,900,000 Other assets.................................... 3,227,000 3,185,000 ----------------- -------------- Total Assets................................... $67,742,000 $71,173,000 ================= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving loan payable....................... $4,101,000 $8,774,000 Current portion of long-term debt............ 334,000 334,000 Accounts payable............................. 9,361,000 9,814,000 Accrued expenses............................. 10,531,000 10,779,000 ----------------- -------------- Total current liabilities................. 24,327,000 29,701,000 ----------------- -------------- Subordinated convertible debentures............. 5,000,000 5,000,000 Long-term debt, net of current maturities....... 31,666,000 31,666,000 Accrued pension costs........................... 5,230,000 5,206,000 ----------------- -------------- 41,896,000 41,872,000 ----------------- -------------- Total Liabilities............................... 66,223,000 71,573,000 ----------------- -------------- Commitments and contingencies Stockholders' (deficiency) equity: Preferred Stock, $.01 par value, 10,000 shares authorized, 5,922,375 shares............... --- --- Common Stock, $.01 par value, 20,000,000 shares authorized, 5,922,375 shares issued at December 1995 and 5,957,273 shares issued at March 1996, less 1,000 shares held by subsidiary........................ 59,214 59,563 Additional paid-in capital................... 13,849,786 13,967,437 Warrants outstanding......................... 764,000 764,000 Accumulated deficit.......................... (11,154,000) (13,191,000) Minimum pension liability adjustment......... (2,000,000) (2,000,000) ----------------- -------------- Total Stockholders' (Deficiency) Equity.... 1,519,000 (400,000) ----------------- -------------- Total Liabilities and Stockholders' Equity...... $67,742,000 $71,173,000 ================= ===============
These statements should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. 3 Item 1. Financial Statements (continued) DANSKIN, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Fiscal Three Months Ended --------------------------------- March 25, 1995 March 30, 1996 (Unaudited) (Unaudited) -------------- -------------- Net revenues ............................... $ 32,151,000 $ 31,421,000 Cost of goods sold ......................... 21,937,000 21,032,000 -------------- -------------- Gross profit ............................ 10,214,000 10,389,000 Selling, general and administrative expenses 11,327,000 11,061,000 Non-recurring charges ...................... 2,498,000 0 Provision for doubtful accounts receivable.. 716,000 138,000 Interest expense ........................... 1,244,000 1,164,000 -------------- -------------- 15,785,000 12,363,000 -------------- -------------- Loss before income tax provision (benefit).. (5,571,000) (1,974,000) Provision (benefit) for income taxes ....... (199,000) 63,000 -------------- -------------- Net loss ................................... ($5,372,000) ($2,037,000) ============== ============= Primary loss per common share .............. ($0.91) ($0.34) ============== ============= Weighted average number of common share .... 5,919,000 5,933,000 ============== =============
These statements should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. 4 Item 1. Financial Statements (continued) DANSKIN, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Fiscal Three Months Ended ------------------------------------ March 25, 1995 March 30, 1996 (unaudited) (unaudited) --------------- -------------- Cash Flows From Operating Activities: Net loss .......................................................................... ($5,372,000) ($2,037,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization .................................................... 697,000 653,000 Write-off of certain trademarks and other long-term assets ....................... 1,243,000 -- Provision for doubtful accounts receivable ....................................... 716,000 138,000 Deferred income taxes ............................................................ (375,000) -- Changes in operating assets and liabilities: Increase in accounts receivable ............................................... (712,000) (3,819,000) (Increase) decrease in inventories ............................................. 1,625,000 (184,000) Decrease in prepaid expenses and other current assets ......................... 2,068,000 301,000 Increase (decrease) in accounts payable ........................................ (1,425,000) 453,000 Increase in accrued expenses ................................................... 1,307,000 349,000 Financing costs incurred ....................................................... (57,000) (119,000) ----------- ----------- Net cash from (used in) operating activities ................................. (285,000) (4,265,000) ----------- ----------- Cash Flows From Investing Activities: Capital expenditures ............................................................... (164,000) (72,000) Cash Flows From Financing Activities: Net receipts under revolving loan payable ......................................... 1,991,000 4,673,000 Payments of long-term debt ......................................................... (357,000) -- Net proceeds from sale of common stock to Savings Plan ............................. 24,000 40,000 Purchase and retirement of common stock ............................................ (19,000) (23,000) ----------- ----------- Net cash provided by (used in) financing activities .......................... 1,639,000 4,690,000 ----------- ----------- Net Increase in Cash and Cash Equivalents ........................................... 1,190,000 353,000 Cash and Cash Equivalents, Beginning of Period ....................................... 1,842,000 1,143,000 ----------- ----------- Cash and Cash Equivalents, End of Period ............................................. $ 3,032,000 $ 1,496,000 =========== =========== Supplemental Disclosures of Cash Flow Information: Interest paid ................................................................... $ 1,105,000 $ 1,015,000 =========== =========== Income taxes paid ............................................................... $ 36,082 $ 21,000 =========== =========== Income taxes received ........................................................... ($ 627,000) -- =========== ===========
The Company contributed 29,629 of its common shares to the Danskin, Inc. Savings Plan in March 1996. These statements should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. 5 Item 1. Financial Statements (continued) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements 1. In the opinion of the management of Danskin, Inc. and Subsidiaries (the "Company"), the accompanying Consolidated Condensed Financial Statements have been presented on a basis consistent with the Company's fiscal year financial statements and contain all adjustments (all of which were of a normal and recurring nature) necessary to present fairly the financial position of the Company as of March 30, 1996, as well as its results of operations and cash flows for the fiscal three months ended March 30, 1996 and March 25, 1995. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Operating results for interim periods may not be indicative of results for the full fiscal year. The Company designs, manufactures, distributes and markets several leading brands of women's activewear clothing, dance wear, tights and legwear. Danskin'r', Dance France'r' and Round-the-Clock'r' are the Company's principal proprietary brands. The Company also manufactures Givenchy'r', Anne Klein'r' and other licensed hosiery brands and exercise clothing pursuant to license agreements. In addition to its branded merchandise, the Company manufactures and markets private label merchandise, principally legwear, for many major retailers, including most full line department stores. The Company also currently operates 43 factory outlet and two full price retail stores in 19 states. 2. On June 22, 1995, the Company entered into an Amended and Restated Loan and Security Agreement with First Union National Bank of North Carolina ("First Union") (the "Loan and Security Agreement") which provided for restructured terms of its financing arrangements (the "Restructuring"). The Restructuring consisted of converting $8,000,000 of revolving credit balances into term obligations. Total term debt obligations aggregated $22,000,000 after the Restructuring, and remained at this level as of March 30, 1996. Scheduled quarterly payments commence in September 1996 ranging from $333,000 to $1,500,000 with a final maturity of March 2002. Revolving credit obligations were reduced by the proceeds of the new term debt, and the outstanding balance of a new revolving credit facility of $25,000,000 amounted to $18,774,000 as of March 30, 1996, with availability in excess of utilization of $6,123,000. The Company classified $10,000,000 of its revolving obligations as long term debt as of March 30, 1996. In addition to the scheduled quarterly principal payments of the term debt, the Loan and Security Agreement provides for a semi-annual mandatory retirement of term debt principal if cash flow, as defined, attains certain levels, payable when availability under the revolving credit exceeds $5,000,000. The Loan and Security Agreement was amended subsequent to June 22, 1995 to allow for the Company's change in fiscal year end, to permit the establishment of a Canadian subsidiary and related factoring arrangements for purposes of selling direct to customers in Canada, to restate certain financial covenants, to obtain approval for the issuance of a subordinated convertible debenture (Note 3) and to increase an annual capital expenditure limitation to $2,000,000. 6 Item 1. Financial Statements (continued) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements The Loan and Security Agreement established covenants requiring the Company to meet certain interest coverage and profitability levels, and it contains certain other restrictions, including limits on the Company's ability to incur debt, make capital expenditures, merge, pay dividends or repurchase its own stock. It also provides that the Company will be in default if any person, other than as defined, becomes the owner of or controls more than 20% of the Company's Common Stock. In addition, First Union may terminate the Loan and Security Agreement in the event the Company's current Chairman is discharged or forced to resign by the Board of Directors and not replaced by an individual who possesses the same level of experience and reputation in the apparel industry, unless such action is taken by the majority vote of a Board comprised of the current or continuing Directors. Substantially all the Company's assets continue to be collateralized under these debt facilities. In connection with the Restructuring, the Company issued warrants to First Union to purchase, at an exercise price per share equal to par value ($0.01), up to 10% of the Company's then outstanding Common Stock. The Warrants provide for a put option by First Union, exercisable after March 1998, at fair market value, as defined. The Company also has a call option providing for payment at fair market value. For so long as the Company is in compliance with the requirements of the Loan and Security Agreement, the Warrants provide no dilution protection for First Union for any new issuance of securities. In connection with the Restructuring, interest rates for all obligations under the Loan and Security Agreement were set at prime plus 1.5% (9.75% at March 30, 1996). On each annual adjustment date (as defined), the interest rate may be reduced based on certain ratios of interest coverage and debt to earnings before interest, taxes, depreciation and amortization levels. In July 1995, the Company purchased an interest rate cap from First Union with a notional amount of $20,000,000, which provides for a prime rate limit of 9.25% for the period through October 1998. 3. Subordinated Convertible Debenture The Company completed the sale of a subordinated convertible debenture to a bond fund on August 17, 1995. The debenture has an aggregate face value of $5,000,000, accrues interest at 8% and matures on September 1, 2002. The initial conversion price is $3.15, currently representing 1,587,300 shares. Such conversion price may be reset on August 17, 1997 under certain circumstances and will be adjusted in the event of dilution. The proceeds of this sale were used to reduce the Company's bank revolving credit obligations. The debenture contains customary covenants for this type of transaction. On October 26, 1995, a representative of the bond fund was elected as a Director of the Company, in accordance with the provisions of the debenture. 7 Item 1. Financial Statements (continued) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (continued) 4. Inventories are stated at the lower of cost or market on a first-in, first-out basis. Inventories consisted of the following:
December 30, March 30, 1995 1996 ----------- --------- (unaudited) (unaudited) Finished goods $18,792,000 $19,046,000 Work-in-process 6,431,000 6,308,000 Raw materials 4,461,000 4,540,000 Packaging materials 1,165,000 1,140,000 ----------- ----------- $30,849,000 $31,033,000 =========== ===========
5. In December 1992, several class actions (subsequently consolidated) were filed against the Company, certain of its officers and directors, the underwriters of its initial public offering and the Company's former parent, Esmark, Inc. ("Esmark"), in the U.S. District Court for the Southern District of New York, alleging that materially false and misleading statements were made in the prospectus for the Company's initial public offering and in subsequent public statements and a regulatory filing. These actions arose following the Company's reporting of a $1,000,000 pre-tax charge against income in fiscal 1993 related to production problems caused by an unauthorized change in product specifications by a yarn vendor. These securities class actions were settled by agreement among the plaintiffs, the defendants and the carrier of the Company's directors' and officers' liability insurance policy. The settlement was funded in its entirety by defendants unrelated to the Company and by the carrier of the Company's directors' and officers' liability insurance policy, and the Company also has recovered a portion of its costs of defending the action from the carrier. The final settlement documents have been signed by all parties and forwarded to the Court to obtain an interim order for the mailing of notice of the settlement terms to all class plaintiffs. In April 1996, the Court executed an "implementing order" which, among other things, (i) preliminarily approved the settlement, (ii) preliminarily certified the action as a class action, (iii) directed that notice of the proposed settlement be provided to the class, and (iv) set a date upon which to hold a fairness hearing. If confirmed by the Court, the result of the settlement agreement will be to release and discharge all the defendants from claims of the class plaintiffs arising from the purchase of the Company's securities during the class period and to mutually release the Company and the underwriters. 8 Item 1. Financial Statements (continued) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (continued) On August 19, 1994, a stockholder, who is also a plaintiff in the securities class action litigation described above, filed a derivative action in the Delaware Court of Chancery against Esmark and the directors of the Company, with the Company as nominal defendant, alleging that a certain amount of funds advanced by the Company to Esmark, and for which reserves charged to operations have been established by the Company, constituted a waste of corporate assets. This matter has been settled by agreement among the plaintiffs, the defendants and the carrier of the Company's directors' and officers' liability policy. If confirmed by the Court, this matter will be settled without contribution from the Company. The Company has terminated its prior Canadian license agreement of the Danskin'r' and Playskin'r' trademarks. It has awarded a new Playskin'r' license to another company, and has initiated direct sales of Danskin merchandise in Canada. The Company has received a letter from its former licensee threatening legal action to recover damages resulting from the "unethical manner" in which it conducted negotiations concerning the relationship. The Company has responded that it will commence litigation against the former licensee for fraud in the willful underreporting of royalties that were due under the agreement and has demanded compensatory damages. The Company believes that it has substantial defenses to any allegations that may be brought by the former licensee, and that any potential liability that might result will not have a material adverse effect. 6. The Company's income tax provision (benefit) rates differed from federal statutory rates due to the change in valuation allowance and the effect of state taxes for the three months ended March 1996 and 1995. The breakdown of income tax expense between current tax expense and deferred tax expense is not available for the three months ended March 1996 and 1995. No allocation between current and deferred income taxes was made during the three months ended March 1996 and 1995, as such amounts would not be considered material to the Company's consolidated financial position. The Company's deferred tax balance as of March 1996 and December 1995 was net of valuation allowances each amounting to approximately $6,000,000. Valuation allowances have been established since it is more likely than not that certain tax benefits will not be realized. The Company has been selected for audit by certain Federal and state tax authorities, the resolution of which cannot be determined at this time. Management believes that any possible ultimate liability from these audits will not materially affect the consolidated financial position or results of operations of the Company. 7. Related Party Activities Esmark, the former parent of the Company, acquired the Company from Beatrice Companies, Inc. in 1986 in a leveraged transaction. Prior to that time, the legwear and activewear operations had been separate divisions of Playtex International, Inc., itself an indirect subsidiary of Beatrice Companies, Inc.. In August 1992, the Company successfully completed the public offering of one half its shares of Common Stock (3,000,000 shares), leaving Esmark as the owner of the other 3,000,000 shares. Esmark subsequently exchanged 990,000 shares with Electra Investment Trust, PLC ("Electra") for Esmark common stock held by Electra, thus leaving it as the owner of 2,010,000 shares (the "Esmark Shares"). 9 Item 1. Financial Statements (continued) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (continued) Esmark is currently the registered owner of the Esmark Shares, or approximately 34% of the Company's outstanding shares, and it holds a proxy (the "Electra Proxy") with respect to the voting of the 990,000 shares, or approximately 17%, that are owned by Electra, subject to the terms of an agreement between the Company and the Chairman of the Board of Esmark. Esmark is the subject of an involuntary bankruptcy petition that was filed against it by three creditors and is pending in U.S. Bankruptcy Court for the Southern District of New York. Esmark has entered into a stipulation with SunAmerica Life Insurance Company ("SunAmerica"), pledgee of the Esmark Shares in connection with an Esmark defaulted loan, agreeing to relief from the automatic stay in bankruptcy on May 1, 1996 unless prior to that date a certain investment firm, Derby Partners ("Derby"), fulfills its contractual requirements for closing the purchase of such loan from SunAmerica for a price of $9,100,000 pursuant to an option granted to it by SunAmerica. Derby did not fulfill these requirements and on May 3, 1996 SunAmerica issued a Notice of Foreclosure Sale of the Esmark Shares to be held on June 7, 1996. Pending this date, these shares remain registered in the name of Esmark. The pledge by Esmark to SunAmerica was made in connection with a notes purchase agreement related to the acquisition of a certain windsurfing operation by a subsidiary of Esmark. The Company understands that shares in the operation owned by the Esmark subsidiary, which the Company has a subordinated option to purchase for a nominal value, were acquired by SunAmerica through a foreclosure sale in April, 1995, and were subsequently sold. Pursuant to an agreement entered into in September 1994 between the Company and Byron A. Hero, Jr., who was its Chairman and Chief Executive Officer until that time and was also the Chairman and controlling stockholder of Esmark, Mr. Hero resigned as Chief Executive Officer and agreed to the cessation of all business relationships between Esmark and the Company. The Company and Mr. Hero also agreed that for so long as he remains in control of Esmark, Esmark is to vote the Electra Proxy at any annual or special meeting, as to the election of directors, in proportion to the vote of all shares voted other than shares owned by Esmark, and as to any other matter, in accordance with the recommendation of the Company's independent directors. This agreement also provided that, subject to the exercise by the Board of Directors of its fiduciary duties, Mr. Hero would be nominated in 1995 for election as a Director for an additional three years. On June 26, 1995, the Board of Directors decided not to nominate Mr. Hero for reelection as a Director. As a result of the agreement between the Company and Mr. Hero, of the commencement of foreclosure action by SunAmerica, and of developments in the matter of the bankruptcy filing against Esmark, neither Esmark nor its officers may now be deemed to control the Company. To the knowledge of the Company, if neither Esmark nor its officers control the Company, no person may be deemed to have acquired control of the Company. The pending bankruptcy petition against Esmark may affect the rights of SunAmerica and Esmark to exercise any ownership powers, including voting rights of the Esmark Shares. The Esmark Shares are the subject of a Registration Rights Agreement dated July 2, 1992 between the Company and Esmark. The Company has acknowledged the status of Electra as a Holder under this agreement with respect to the shares of Common Stock that are owned by it. 10 Item 1. Financial Statements (continued) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (continued) Esmark was indebted to the Company in the amount of $6,099,000 as of March 30, 1996, excluding accrued interest subsequent to March 1995, which the Company has fully reserved and recorded non-recurring charges through March 1995, as a result of Esmark's financial condition. The Company no longer accrues interest on this indebtedness for financial statement purposes, effective for periods subsequent to March 1995. In September 1994, the Company obtained a judgment against Esmark, which remains unsatisfied. In addition, the Company holds a second priority pledge of the Esmark Shares. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Consolidated Condensed Financial Statements, related notes and other information included in this quarterly report on Form 10-Q (operating data for Danskin include operating data for the Company's retail and Dance France activities). Change in Year End As of December 1995, the Company changed its fiscal year end to the last Saturday in December from the last Saturday in March. Results of Operations Comparison of the First Three Months of Fiscal Year Ended December 1996 with the First Three Monthsof the Fiscal Year Ended December 1995 Net Revenues: Net revenues were $31.4 million for the fiscal three months ended March 1996, a decline of $0.7 million, or 2.2%, from the prior year fiscal three months ended March 1995. Volume for activewear and legwear contributed almost equally to the wholesale decline, totaling $1.3 million, and was partially offset by an increase in retail volume of $0.6 million. Activewear net revenues were $19.5 million for the fiscal three months ended March 1996, a decline of $0.1 million, or 0.5%, from $19.6 million in the prior fiscal three months ended March 1995. This slight decline was net of the $0.6 million increase in sales for the Company's 45 retail stores, which generated $4.3 million in net sales for the three months ended March 1996, including sales from seven additional stores in operation. Comparable retail store sales declined 8.9%, or $0.3 million, in the three months ended March 1996, primarily from poor traffic in cold weather locations and continued effects of new outlet store centers opening in close proximity to existing Danskin stores. The Company is addressing this trend by improving Retail Inventory Availability, opening stores in new centers and targeting certain stores to be closed. Activewear wholesale business continued to experience the effects of a competitive market during the fiscal three months ended March 1996. The Company continued its efforts towards offsetting activewear volume declines by addressing the activewear industry's trends of lifestyle casual wear during the fiscal three months ended March 1996. Legwear net revenues were $11.9 million for the fiscal the months ended March 1996, a decline of $0.6 million, or 4.8%, from $12.5 million in the fiscal three months ended March 1995. This decline was principally attributable to a continued weak hosiery market in the department store class of trade, primarily in branded business for legwear. The relaunch of Anne Klein'r' sheer hosiery and tights is scheduled for July 1996, and new marketing initiatives for Givenchy'r' and Round-the-Clock'r' are scheduled to be reflected in Fall shipments. Gross Profit: Gross profit increased by $0.2 million, or 2.0%, to $10.4 million in the fiscal three months ended March 1996 from $10.2 million in the prior period. Gross profit as a percentage of net revenues increased to 33.1% for the fiscal three months ended March 1996, from 31.8% in the fiscal three months ended March 1995. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) Gross profit for activewear was 37.4% and 37.8% in the three months ended March 1996 and 1995, respectively. This reduction was primarily attributable to sales of certain excess wholesale inventories at unfavorable prices, and planned retail store close-out sales instituted to reduce inventory and improve turns. Legwear gross profit increased to 26.1% in the three months ended March 1996 from 22.4% in the prior period. The improvement in gross profit was primarily attributable to private label price increases, and reductions in certain production costs. Selling, General and Administrative Expenses Selling, general and administrative expenses, which include retail store operating costs, decreased by $0.8 million to $11.2 million, or 35.7% of net revenues, in the three months ended March 1996, from $12.0 million, or 37.4% of net revenues, in the three months ended March 1995. Selling, general and administrative expenses, excluding retail store operating costs, decreased by $1.3 million to $8.4 million, or 30.9% of net revenues, in the three months ended March 1996, from $9.7 million, or 33.9% of net revenues, in the three months ended March 1995. The decrease in the 1996 period was principally a result of a reduction in the provision for doubtful accounts and lower compensation costs, partially offset by increased advertising costs. Operating Loss: As a result of the foregoing, loss from operations (i.e., loss before interest expense, non-recurring charges and income taxes) improved by $1.0 million to a loss of $0.8 million in the three months ended March 1996. The legwear business contributed most significantly to this improvement. Interest Expense: Interest expense decreased by $0.1 million to $1.2 million in the three months ended March 1996 from $1.3 million in the three months ended March 1995. This decrease was mostly attributable to lower average borrowing levels, as well as a result of the lower subordinated debenture rate. The Company's effective interest rate reflected these factors and was 10.5% and 10.7% in the three months ended March 1996 and 1995, respectively. In addition, amortization of financing costs included in interest expense amounted to $0.1 million for each of the three months ended March 1996 and 1995. Income Tax Provision (Benefit): The Company's income tax provision (benefit) rates differed from the Federal statutory rates due to the change in the deferred tax valuation allowance and the effect of state taxes, for the three months ended March 1996 and March 1995. The Company's deferred tax balance of $3.9 million as of March 1996 and March 1995 was net of a valuation allowance of approximately $6.0 million and $4.9 million, respectively. Net Loss: As a result of the foregoing, net loss was $2.0 million for the three months ended March 1996, an improvement of $3.4 million over a net loss in the three months ended March 1995 of $5.4 million, which included a $2.4 million non-recurring charge. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) Liquidity and Capital Resources The Company's primary liquidity and capital requirements relate to the funding of working capital needs, primarily inventory, accounts receivable, capital investments in operating facilities, machinery and equipment, and principal and interest payments on indebtedness. The Company's primary sources of liquidity are from bank financing, the subordinated convertible debenture, vendor credit terms and internally generated funds. Net cash flow used in operations increased by $4.0 million to $4.3 million for the three months ended March 1996, from a use of cash from operations of $0.3 million in the three months ended March 1995, principally attributable to increases in accounts receivable in excess of the prior period change. However, accounts receivable balances at March 30, 1996 were approximately $2.0 million lower than that of March 25, 1995. Cash decreased by $0.4 million for the three months ended March 1996 from the same period in 1995, after a $4.7 million increase in revolving loan borrowings. On June 22, 1995, the Company entered into an Amended and Restated Loan and Security Agreement with First Union National Bank of North Carolina ("First Union") (the "Loan and Security Agreement") which provided for restructured terms of its financing arrangements (the "Restructuring"). The Restructuring consisted of converting $8 million of revolving credit balances into term obligations. Total term debt obligations aggregated $22 million after the Restructuring, and remained at this level as of March 30, 1996. Scheduled quarterly payments commence in September 1996 ranging from $0.3 million to $1.5 million with a final maturity of March 2002. Revolving credit obligations were reduced by the proceeds of the new term debt, and the outstanding balance of a new revolving credit facility of $25.0 million amounted to $18.8 million as of March 30, 1996, with availability in excess of utilization of $6.1 million. The Company classified $10.0 million of its revolving obligations as long term debt as of March 30, 1996. In addition to the scheduled quarterly principal payments of the term debt, the Loan and Security Agreement provides for a semi-annual mandatory retirement of term debt principal if cash flow, as defined, attains certain levels, payable when availability under the revolving credit exceeds $5.0 million. The Loan and Security Agreement was amended subsequent to June 22, 1995 to allow for the Company's change in fiscal year end, to permit the establishment of a Canadian subsidiary and related factoring arrangements for purposes of selling direct to customers in Canada, to restate certain financial covenants, to obtain approval for the issuance of a subordinated convertible debenture (Note 3) and to increase an annual capital expenditure limitation to $2.0 million. The Loan and Security Agreement established covenants requiring the Company to meet certain interest coverage and profitability levels, and it contains certain other restrictions, including limits on the Company's ability to incur debt, make capital expenditures, merge, pay dividends or repurchase its own stock. It also provides that the Company will be in default if any person, other than as defined, becomes the owner of or controls more than 20% of the Company's Common Stock. In addition, First Union may terminate the Loan and Security Agreement in the event the Company's current Chairman is discharged or forced to resign by the Board of Directors and not replaced by an individual who possesses the same level of experience and reputation in the apparel industry, unless such action is taken by the majority vote of a Board comprised of the current or continuing Directors. Substantially all the Company's assets continue to be collateralized under these debt facilities. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) Liquidity and Capital Resources (continued) In connection with the Restructuring, the Company issued warrants to First Union to purchase, at an exercise price per share equal to par value ($0.01), up to 10% of the Company's then outstanding Common Stock. The Warrants provide for a put option by First Union, exercisable after March 1998, at fair market value, as defined. The Company also has a call option providing for payment at fair market value. For so long as the Company is in compliance with the requirements of the Loan and Security Agreement, the Warrants provide no dilution protection for First Union for any new issuance of securities. In connection with the Restructuring, interest rates for all obligations under the Loan and Security Agreement were set at prime plus 1.5% (9.75% at March 30, 1996). On each annual adjustment date (as defined), the interest rate may be reduced based on certain ratios of interest coverage and debt to earnings before interest, taxes, depreciation and amortization levels. In July 1995, the Company purchased an interest rate cap from First Union with a notional amount of $20.0 million, which provides for a prime rate limit of 9.25% for the period through October 1998. The Company completed the sale of a subordinated convertible debenture to a bond fund on August 17, 1995. The debenture has an aggregate face value of $5.0 million, accrues interest at 8% and matures on September 1, 2002. The initial conversion price is $3.15, currently representing 1,587,300 shares. Such conversion price may be reset on August 17, 1997 under certain circumstances and will be adjusted in the event of dilution. The proceeds of this sale were used to reduce the Company's bank revolving credit obligations. The debenture contains customary covenants for this type of transaction. On October 26, 1995, a representative of the bond fund was elected as a Director of the Company, in accordance with the provisions of the debenture. Strategic Outlook The Company's business strategy over the next two to three years will be to better capitalize on the high recognition of the Danskin'r' brand and to develop new channels for distribution. In this regard, the Company will, to the extent adequate cash flow from operations can be generated and financing can be obtained on appropriate terms, open additional full price Danskin'r' stores, expand activewear and other product lines, pursue growth in international sales and selectively license the Danskin'r' name for additional product categories. There can be no assurance that the Company will be able to generate adequate cash flow from operations and obtain financing on appropriate terms to implement this strategy or, if implemented, that this strategy will be successful. The Company expects that short-term capital funding requirements will continue to be provided principally by the Company's banking and vendor arrangements. The Company believes that it has adequate liquidity and that it has taken appropriate steps in an effort to address casual dress trends in the contracting sheer hosiery market, and increased retailer demands for responsiveness. The Company continues to evaluate proposals for capital infusion to satisfy long-term funding needs for growth, and to explore a range of financing alternatives in an effort to reduce its indebtedness, lower interest costs and expand its business. On April 9, 1996, the Company engaged the services of Dillon Read & Co. Inc. to assist in this process. 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings See Note 5 in the Notes to Consolidated Condensed Financial Statements in Part I - Financial Information of this Form 10-Q. Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits *10.6.2B Employment agreement, dated April 1, 1996, between the Registrant and Edwin W. Dean. *10.6.3D Amendment Three, dated April 4, 1996, to the amended Employment Agreement, dated August 1, 1994, between the Registrant and Mary Ann Domuracki. *10.6.4D Amendment Three, dated April 4, 1996, to the amended Employment Agreement, dated August 1, 1994, between the Registrant and Beverly Eichel. *10.6.9 Amendment, dated October 26, 1995, to the Employment Agreement, dated October 27, 1994, between the Registrant and Howard D. Cooley. 10.10.2B Renewal license agreement, dated January 26, 1996, between Anne Klein and Company and Pennaco Hosiery, a division of Danskin, Inc.
16 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. DANSKIN, INC. May 14, 1996 By: /s/Edwin W. Dean ----------------------- Edwin W. Dean Vice Chairman of the Board, General Counsel and Secretary May 14, 1996 By: /s/Beverly Eichel ------------------------ Beverly Eichel Executive Vice President and Chief Financial Officer (Principal Financial Officer) 17 STATEMENT OF DIFFERENCES The registered trademark symbol shall be expressed as 'r' The paragraph symbol shall be expressed as 'P' EX-10 2 EXHIBIT 10.6.2.B EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, dated as of the 1st day of April, 1996, between DANSKIN, INC., a Delaware corporation with offices at 111 West 40th Street, New York, NY 10018 (hereinafter called the "Employer") and EDWIN W. DEAN, who resides at 170 East 78th Street, New York, NY 10021 (hereinafter called the "Employee"). WITNESSETH: WHEREAS, the Employee has heretofore served as the Vice Chairman of the Board of Directors of the Employer, and as its General Counsel and Secretary, and the Employer desires to continue to employ him in such capacities. NOW, THEREFORE, in consideration of the premises, the covenants contained herein, and other good and valuable consideration, the Employer and Employee hereby agree as follows: ARTICLE I EMPLOYMENT OF THE EMPLOYEE 1.01 Employment and Terms. The Employer hereby employs the Employee and the Employee hereby accepts employment with the Employer upon the terms and conditions hereinafter set forth for a period commencing as of the 1st day of April, 1996, and continuing thereafter until terminated by the parties under the terms and conditions set forth in the Agreement. 1.02 Position. The Employee is employed to be and serve as Vice Chairman of the Board of Directors of the Employer and as its General Counsel and Secretary, reporting to the Chief Executive Officer and to the Chairman of the Board, and shall serve on the Employer's Board of Directors. ARTICLE II DUTIES OF THE EMPLOYEE 2.01 Primary Duty. The primary duty of the Employee shall be to manage the Employer's general legal affairs, including its contracts, litigation matters, and intellectual property, and to serve as the corporate Secretary. The Employee shall devote his best efforts and substantially all of his working time and attention to the affairs of the Employer. 2.02 Other Duties. In addition to the Employee's primary duties, he shall also perform such other work commensurate with his position that may from time to time be assigned to him by the Board of Directors or the Chief Executive Officer or the Chairman of the Board. ARTICLE III COMPENSATION 3.01 Annual Base Salary. As base compensation for services to be rendered by the Employee to the Employer, the Employee shall receive an annual base salary at the annual rate of $260,000 through June 30, 1996, and $150,000, thereafter, payable in accordance with the Employer's normal executive payroll practices. On January 2, 1997, and on each anniversary of that date during the term of this Agreement, the Employee's annual base salary shall be adjusted by the Chief Executive Officer and approved by the Compensation Committee of the Board of Directors (hereafter the "Compensation Committee"). The annual base salary established by the Chief Executive Officer and the Compensation Committee on any such anniversary date shall not be less than $150,000, and the amount in effect from time to time is hereafter referred to as the "Annual Base Salary". 1 3.02 Other Compensation and Benefits. (a) As further compensation for services rendered the Employee shall receive an annual bonus, the amount of which shall be established by the Chief Executive Officer and approved by the Compensation Committee by not later than the date of each annual meeting of the stockholders of the Employer. (b) During the term of this Agreement, and for such continuing period provided in Article 4.02, the Employee shall continue to be eligible to participate in all Danskin, Inc. benefit plans which are generally available to the employees of the Employer under the terms and conditions of those plans (which may be changed from time-to-time at the Employer's sole discretion). The Employee shall also be eligible for such additional benefits as may be established for the Employee from time-to-time by the Chief Executive Officer and approved by the Compensation Committee. The Employee shall, during the terms of the Agreement, continue to receive at least four weeks of paid vacation each calendar year and the holidays which are regularly granted salaried employees. (c) The Employee is authorized to incur reasonable business expenses for promoting the business of the Employer, including expenditures for entertainment, gifts and travel. Upon presentation of appropriate receipts or vouchers, the Employer will reimburse the Employee from time-to-time for all such reasonable business expenses. ARTICLE 4 TERMINATION 4.01 Termination of Employment. The parties intend that the Employee shall serve at the pleasure of the Board of Directors and that he shall be compensated appropriately for his services, as provided in this Agreement. The parties also recognize that it is in their mutual interest to provide the Employee with appropriate financial security in the event the Employer decides to terminate his employment for reasons other than "for cause", as that term is defined in this Agreement, or if he resigns his employment following a "change in control", as defined herein. 4.02 Compensation and Benefits upon Termination Not for Cause or Resignation Following a Change of Control. (a) In the event the Employee is terminated for any reason other than "for cause", or in the event the Employee resigns his employment following a "change in control", the Employee shall receive the following compensation and benefits: i) For the 24 month period commencing with the effective date of such termination or of such resignation, as the case may be, compensation at an annual rate equal to the Employee's Annual Base Salary in effect on such date, plus his annual bonus, if any, for the fiscal year prior to the year in which such termination or resignation occurs, payable in accordance with the Employer's normal executive payroll practices. ii) For the 24 month period commencing with the effective date of such termination or of such resignation, as the case may be, continuing coverage for the Employee and his family if such coverage is applicable, under all employee benefit plans and programs, including but not limited to health plans, life insurance coverage, disability insurance and retirement plans, (the Employee shall not be entitled to any benefits or payments under the Employer's severance pay plan) in which the Employee was participating on the effective date of such termination or resignation ( any changes in those plans adopted by the Employer following the effective date of such termination or resignation which are generally applicable to the Employer's salaried employees shall not be applicable to the Employee). In the event that the Employee's participation in any such plan is barred, the Employer shall arrange to provide the Employee with benefits substantially comparable to those provided under such plan. iii) Any granted, but unvested, stock options shall vest immediately. 2 iv) The Employee shall receive a pro rata share of any bonus payable under any bonus plan in effect during the fiscal year in which the such termination or resignation occurs. The bonus calculated under any such plan shall be multiplied by a fraction, the numerator of which is the number of days the Employee was employed by the employer during that fiscal year and the denominator of which is 365. The Employee shall not be entitled to any further bonus payments for fiscal years following the fiscal year in which such termination or resignation occurs. v) The Employer shall provide the Employee with outplacement services with the provider of his choice at a cost not to exceed 20% of his Annual Base Salary. (b) In the event the Employee is terminated without "cause" or resigns following a "change of control", he may, but shall have no obligation to, seek other suitable employment, consistent with his obligations under Article 6 (Non-Compete). After the first anniversary of the effective date of such termination or resignation, the Employer's obligation to pay the Employee's Annual Base Salary following such termination or resignation, shall be reduced by the amount of the compensation which is paid from such employment. Medical insurance benefits to which the Employee becomes entitled by virtue of such employment during the 24 month period shall be coordinated with the benefits that the Employer is required to provide under this Article, with the benefits provided by the new employer as the primary coverage and the benefits provided by the Employer pursuant to this Article, the secondary coverage. 4.03 Termination for Cause, Resignation Not Following A Change of Control, and Death of the Employee. (a) If during the term of this Agreement the Employee is terminated for "cause" as defined herein, if he resigns other than following a "change of control" as set forth in this Agreement, or if he dies, the Employer shall be relieved of any obligations to the Employee hereunder except for its obligation to provide any vested benefits under any employee benefit or retirement plan and to make payments earned by the Employee under Articles 3.01 and 3.02 but not paid by the Employer as of the effective date of such termination or resignation, or as of the date of the Employee's death. (b) As used herein, the term for "cause" shall mean: (1) conviction of a crime involving misappropriation of any funds or property of the Employer; (2) commission of fraud or embezzlement; or (3) any act of dishonesty relating to the Employee's employment resulting or intended to result in direct or indirect personal gain or enrichment at the expense of the Employer. (c) For purposes of this Agreement, a "resignation following a change of control" occurs when, within 12 months following a "change of control", the Employee determines in good faith that his business objectives and philosophy are incompatible with those of the Employer and such incompatibility is likely to interfere with the performance of the Employee's duties hereunde, and, within that 12 month period, the employee by written notice to the Employee resigns his employment with the Employer. (d) A "change of control" shall mean the occurrence of any of the following events: i) Three or more members of the Board of Directors are replaced by different Directors within any fiscal year; or ii) All or substantially all of the assets, outstanding voting securities or other capital interest of the Employer are sold or transferred to another corporation or entity, or the Employer is merged, consolidated or reorganized into or with another corporation or entity, with the result that, upon conclusion of any such transaction, less than a majority of the outstanding voting securities of the surviving or resulting corporation or entity are owned, directly or indirectly, by those persons who were the stockholders of the Employer immediately prior to the consummation of the transaction; or iii) There is a statement filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13 (d) (3) and section 14(d)(2) of the Exchange Act) has become the beneficial owner of securities representing 50% or more of the combined voting power of the then outstanding 3 voting securities of the Employer, or such statements would be required to be filed if or the Employer were subject to provisions of Section 13 (d) or Section 14(d); or iv) Disclosure is made by the Employer to the Securities and Exchange Commission pursuant to Item 1 of form 8-K under the Exchange Act, Item 6(e) of Schedule 14A under the Exchange Act, Item 403(c) of Regulations 5-K (or any successor schedule form or report or Item therein) or otherwise that a change in control of the Employer has or may have occurred, or will or may occur in the future, pursuant to any then-existing contract or transaction, or such disclosure would be required to be made by the Employer pursuant to such Items if the Employer were subject to such provisions. 4.04 Long Term Disability. Notwithstanding any provision in this Agreement to the contrary, in the event that during the term of this Agreement the Employee shall become disabled (ie: he cannot perform the essential functions or his job with or without reasonable accommodation) for a period of six consecutive months, either the Employer or the Employee shall have the option at any time after such six month period to terminate his employment under this Agreement, provided that at the time of notice of such termination the Employee continues to be disabled. In such event, the Employer shall pay to the Employee the compensation and benefits provided in Article 4.02, less the aggregate amount of all income disability benefits which he may receive by reason of: (1) any group insurance plan; (2) any applicable compulsory state disability law; (3) the Federal Social Security Act; (4) any applicable workers' compensation law or similar law; and (5) any plan to which the Employer has contributed, such as group accident or health policies. If requested by the Employer, the Employee shall have the basis for his incapacity certified to by a licensed physician. ARTICLE 5 NON-DISCLOSURE 5.01 Confidentiality. In consideration of the employment of the Employee by the Employer under this Agreement, the Employee agrees that, without prior written consent of the Employer, he will not at any time either during the term of his employment hereunder or for a period of two years following the date of termination of his employment hereunder, reveal any of the strategic plans, financial information or customer lists (present or prospective) of the Employer, or any parent, subsidiary or affiliate of the Employer, to any person, firm or corporation, except to the extent that such plans, information or lists are publicly available or that disclosure is compelled by process of law. ARTICLE 6 NON-COMPETE 6.01 Agreement Not to Compete. In consideration of the employment of the Employee by the Employer under this Agreement, the Employee agrees that without the prior written consent of the Employer, he will not at any time either (a) during the period of 12 months following the date of termination or resignation pursuant to Article 4.02 hereof, or (b) during the period of 24 months following the date of termination or resignation pursuant to Article 4.03, enter into the employ of, render services or advice to, or engage in or become proprietor, partner or five percent or greater stockholder of any business anywhere in the world which competes with the Employer in the activewear or hosiery business; provided in all events, that if under the circumstances existing at the time of the enforcement of any provision of this Article, the period, scope or area shall be held unreasonable, the parties agree that the maximum period, scope or area reasonable under the circumstances shall be substituted for the stated period, scope or area. The Employee agrees that the remedies for any breach of any provision of this Article would be inadequate and that the Employer shall be entitled to injunctive relief to enforce any of the provisions of this Article; provided, however, that nothing herein shall be construed as prohibiting the Employer from pursuing any other available remedy for any such breach or threatened breach, including the recovery of damages. ARTICLE 7 GENERAL PROVISIONS 4 7.01 Notices. Any notices to be given hereunder by either party to the other may be affected either by personal delivery in writing or by mail, registered or certified, postage pre-paid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing below, but each party may change its address by written notice in accordance with this Paragraph 7.01. Notices delivered personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of three (3) days after mailing. Notices shall be sent: To Employer: DANSKIN, Inc. 111 West 40th Street New York, NY 10018 Attn: Chief Executive Officer To Employee: Edwin W. Dean 170 East 78th Street New York, NY 10021 7.02 Inclusion of Entire Agreement Herein. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of the Employee by the Eemployer and contains all of the covenants and agreements between the parties with respect to such employment. 7.03 Law Governing Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to such State's conflict of laws principles. 7.04 Assignments. The rights and obligations of the Employer under this Agreement shall inure to the benefit of and shall be binding upon the successors of the Employer and shall be assigned by the Employer to any person or corporation which succeeds to all or substantially all of the assets of the Employer. In the event any corporation or person succeeds to all or substantially all of the assets of the Employer, whether by way of merger, consolidation, sale or otherwise, Employer shall assign this Agreement and delegate Employer's obligations hereunder to such corporation or person, who shall assume and timely and faithfully perform such obligations, and Employer shall remain fully liable for its obligations hereunder. In the event of any such assignment and delegation any and all references to the "Employer" shall be deemed to mean and include Danskin, Inc. and such successor corporation or person. 7.05 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original but which together shall constitute one and the same instrument. 7.06 Certain Tax Consequences. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Employer to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this section 7.07) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Employee of all taxes (including any interest and penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All determinations required to be made under this section 7.07, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Goldstein, Golub & Kessler, Inc. or such other certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Employer and to the Employee within fifteen business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall them be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Employer. Any 5 Gross-Up Payment, as determined pursuant to this Section 7.07, shall be paid by the Employer to the Employee within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Employer and the Employee. 7.07 Full Settlement. The Employer's, obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Employer may have against the Employee or others. The Employer agrees to pay, to the full extent permitted by law, as and when incurred, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Employer or others of the validity or enforceability of, or liability (other than tax liabilities) under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f) (2) of the Internal Revenue Code of 1986, as amended. ARTICLE 8 INDEMNIFICATION 8.01 Indemnification. (a) In the event the Employee is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that Employee is or was performing services under this Agreement, then the Employer shall indemnify Employee, to the maximum extent permissable under applicable law, against all expenses (including attorney's fees), judgments, fines and amounts paid in settlement, as actually and reasonably incurred by Employee in connection therewith. In the event that both Employee and the Employer are made a party to the same third-party action, complaint, suit or proceeding, the Employer agrees to engage competent legal representation, and Employee agrees to use the same represenation, provided that if counsel selected by the Employer shall have a conflict of interest that prevents such counsel from representing the Employee, Employee may engage separate counsel, and the Employer shall pay all attorney's fees of such separate counsel. Further, while Employee is expected at all time to use his best efforts to faithfully discharge his duties under this Agreement, Employee cannot be held liable to the Employer for errors or omissions made in good faith where Employee has not performed criminal and fraudulent acts which materially damage the business of the Employer. (b) The Employer further agrees to advance funds to Employee, prior to the final disposition of any claim, action, suit, proceeding or investigation for which Employee is entitled to indemnification hereunder, in payment or reimbursement of any and all expenses (including, without limitation, the fees and expenses of counsel) reasonably incurred by Employee in connection with any such claim, action, suit, proceeding or investigation upon receipt and approval by the Employer (which approval shall not be unreasonably witheld or delayed) of an itemized statement with respect to such expenses. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. DANSKIN, INC. By:__________________________ Howard D. Cooley Chairman of the Board __________________________ Mary Ann Domuracki Chief Executive Officer 6 __________________________ Edwin W. Dean 7 EX-10 3 EXHIBIT 10.6.3D AMENDMENT 3 TO EMPLOYMENT AGREEMENT THIS AMENDMENT dated as of April 4, 1996 to EMPLOYMENT AGREEMENT dated as of August 1, 1994 between DANSKIN, INC ("Employer") and MARY ANN DOMURACKI ("Employee)) (the "Employment Agreement): NOW, THEREFORE, in consideration of the premises of such Employment Agreement and the covenants contained therein, and other good and valuable consideration, the Employer and Employee hereby agree to amend the Employment Agreement in the following respects: Paragraph 1.02 of the Employment Agreement is hereby amended in its entirety so as to read as follows: "1.02 Position. The Employee is employed to be and serve as President and Chief Executive Officer reportin to the Chairman of the Board and shall serve on the Employer's Board of Directors. Paragraph 4.04(c) of the Employment Agreement is hereby amended in its entirety so as to read as follows: (c) For purposes of this Agreement, a "resignation following a change of control" occurs when, within twenty-four (24) months following a change of control as defined herein, the Employee determines in good faith that her business objectives and philosophy are incompatible with those of the Employer and such incompatibility is likely to interfere with the performance of the Employee's duties hereunder, and, within that twenty-four (24) month period, the Employee, by written notice to the Employer, resigns her employment with the Employer. IN WITNESS WHEREOF, the parties have executed this Amendment _____ as of the date first written above. For the Employer: DANSKIN, INC. By: __________________________________ Howard D. Cooley Chairman of the Board of Directors Attest: _______________________________ Lynn Golubchik Assistant Secretary For the Employee _______________________________ Mary Ann Domuracki EX-10 4 EXHIBIT 10.6.4D AMENDMENT 3 TO EMPLOYMENT AGREEMENT THIS AMENDMENT dated as of April 4, 1996 to EMPLOYMENT AGREEMENT dated as of August 1, 1994 between DANSKIN, INC ("Employer") and BEVERLY EICHEL ("Employee) (the "Employment Agreement): NOW, THEREFORE, in consideration of the premises of such Employment Agreement and the covenants contained therein, and other good and valuable consideration, the Employer and Employee hereby agree to amend the Employment Agreement in the following respects: Paragraph 1.02 of the Employment Agreement is hereby amended in its entirety so as to read as follows: "1.02 Position. The Employee is employed to be and serve as Executive Vice President and Chief Financial Officer reporting to the Chief Executive Officer. Paragraph 2.01 of the Employment Agreement is hereby amended as follows: Replace Vice President and Chief Financial Officer with Executive Vice President and Chief Financial Officer. Paragraph 4.04(c) of the Employment Agreement is hereby amended in its entirety so as to read as follows: (c) For purposes of this Agreement, a "resignation following a change of control" occurs when, within twenty-four (24) months following a change of control as defined herein, the Employee determines in good faith that her business objectives and philosophy are incompatible with those of the Employer and such incompatibility is likely to interfere with the performance of the Employee's duties hereunder, and, within that twenty-four (24) month period, the Employee, by written notice to the Employer, resigns her employment with the Employer. IN WITNESS WHEREOF, the parties have executed this Amendment _____ as of the date first written above. For the Employer: DANSKIN, INC. Attest: By: ________________________________ __________________________ Mary Ann Domuracki Lynn Golubchik Chief Executive Officer Assistant Secretary For the Employee _________________________________ Beverly Eichel EX-10 5 EXHIBIT 10.6.9 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT, dated as of October 26, 1995, to EMPLOYMENT AGREEMENT dated as of October 27, 1994 between DANSKIN, INC. ("Employer") and HOWARD D. COOLEY ("Employee") (the "Employment Agreement"): WITNESSETH: WHEREAS, on August 15, 1995 the Board of Directors of the Employer elected the Employee to the office of Chairman of the Board of the Employer and reelected him as Chief Executive Officer; and WHEREAS the Employee now desires to resign as Chief Executive Officer, effective as of April 1, 1996, and to remain as Chairman of the Board and Chief Policy Officer. NOW, THEREFORE, in consideration of the premises, the covenants contained herein, and other good and valuable consideration, the Employer and Employee hereby agree to amend the Employment Agreement in the following respects: 'P' 1.01 of the Employment Agreement is hereby amended in its entirety so as to read as follows: "1.02 Position. The Employee is employed to be and serve as Chairman of the Board of Directors and reporting to the Board of Directors. During the term of this Agreement, the Employer shall use it best efforts to help ensure that the Employee shall serve on the Employer's Board of Directors, if the Employee so wishes." 'P' 2.01 of the Employment Agreement is hereby amended in its entirety so as to read as follows: "2.01 Primary Duties. The primary duties of the Employee shall be to act as the Chief Policy Officer of the Corporation and, subject to the control of the Board of Directors, to have oversight responsibility and authority for the decisions and actions of the Chief Executive Officer and to have all powers and perform all duties incident to the office of Chairman of the Board." 'P' 3.01 of the Employment Agreement is hereby amended in its entirety so as to read as follows: "3.01 Base Compensation. Until March 31, 1996 the Employee shall receive a base salary at the annual rate of $450,000, payable in accordance with the Employer's normal executive payroll practices. Thereafter he shall receive a base salary at the annual rate of $50,000." 'P' 4.02 (a)(i) of the Employment Agreement is hereby amended in its entirety so as to read as follows: 4.02 (a)(i) immediately following such termination not "for cause" or resignation following a "change of control", compensation in the amount of $450,000, payable in a single lump sum. The final sentence of 'P' 4.04(a) of the Employment Agreement is hereby amended so as to read as follows: "4.04(a) . . . . . The Employee having resigned as Chief Executive Officer after January 1, 1995, he is entitled to be paid severance pay in the amount of $450,000, payable in accordance with the Employer's normal executive payroll practices, starting with the first regular bi-weekly corporate executive payroll after March 31, 1996. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. For the Employer: DANSKIN, INC. By:______________________ Mary Ann Domuracki President Attest: _________________ Edwin W. Dean Secretary For the Employee: ________________ Howard D. Cooley EX-10 6 EXHIBIT 10.10.2B January 29, 1996 Pennaco Hosiery, a Division of Danskin, Inc. 111 West 40th Street New York, New York 10018 Gentlemen: Reference is hereby made to that certain agreement, dated as of January 1, 1994, between you (referred to therein as "Licensee") and Anne Klein & Company ("Licensor") with respect to the trademarks ANNE KLEIN and any approved form of the LionHead Design (the "License Agreement"). Licensee has agreed in principle to a program to relaunch its ANNE KLEIN hosiery line and in consideration therefor Licensor has agreed to extend the term of the License Agreement. Accordingly, when signed below in the places provided, the following shall constitute the further agreement of the parties concerning the License Agreement. Any capitalized term used in this Agreement and not otherwise defined herein shall have the meaning given it in the License Agreement. 1. Referring to paragraph 1.02(a) of the License Agreement, the definition of the term "Articles" shall be expanded to include those hosiery-related products customarily sold in hosiery departments and referred to as "Banded Bodywear", specifically cut and sewn bodywear products to include ankle or other length pants, leotard or unitard or other cut and sewn bodywear/apparel typically sold in a brand or package. Except as Licensor may expressly agree, those Licensed Articles comprising the Banded Bodywear segment shall be limited to 6 to 8 styles of Articles, as approved by Licensor from time to time, which shall be of a quality level intended to be sold at retail prices comparable to the so-called "SUPPLEX"'r'portion of the product line offered by Licensor's Affiliate under the trademark A LINE ANNE KLEIN. 2. Notwithstanding any contrary provision of paragraph 2.01(a) of the License Agreement, Licensee shall hereafter market Licensed Articles as "ANNE KLEIN" and shall discontinue its use of the designation "ANNE KLEIN COLLECTIONS"; provided, however, that Licensee may continue to sell Licensed Articles in existing packaging until the planned new packaging is introduced. After the introduction of the planned new packaging, Licensee may sell off its remaining inventory of Licensed Articles in the existing packaging as Discontinued Goods for a period not to exceed six (6) months. Licensee shall consult with Licensor concerning the accounts to which such Discontinued Goods may be sold. Referring to paragraph 2.04 of the License Agreement, the name and trademark "CHRISTIAN DIOR" is deemed added to the list of lines of Articles which Licensee may manufacture and/or market. Further, Licensor confirms that the addition of "Banded Bodywear" in the definition of Articles is not intended and shall not be construed as a Page 1 prohibition against the manufacture or marketing of additional designer brand "Banded Bodywear" by Licensee. 4. Referring to paragraph 3.01 of the License Agreement, in consideration for execution by Licensee of the relaunch of Licensed Articles in 1996, Licensor hereby agrees to extend the Term until December 31, 1997. In addition, if Licensee's Net Sales through Normal Retail Channels in 1997 are not less than $3.85 million (the "Sales Achievement"), the Term shall be deemed automatically extended until December 31, 1998; provided, however that, if prior to October 1, 1997 there is a change in circumstances within Licensor (e.g., a change in designer or a sale of the company) which, viewed objectively, adversely affects Licensee's ability to reach the designated Sales Achievement, then the Sales Achievement needed to trigger the automatic extension of the Term shall be deemed reduced to $3 million. 5. Referring to paragraph 3.05 of the License Agreement and without limiting the generality thereof, Licensee has requested Licensor's approval in principle to certain Transfer Exceptions (as hereinafter defined) and Licensor hereby grants such approval subject to receipt of prior notice of each such transaction from Licensee. As used herein, "Transfer Exceptions" means (1) a further public offering of Danskin stock; and (2) the transfer of those Danskin shares presently held by Esmark, Inc. 6. Referring to paragraph 4.02(a) of the License Agreement, the parties agree that Licensor's participation in product development for Licensed Articles will parallel the key hosiery markets and will include, without limitation, color input, development of unique patterns for hosiery, preparation of designs for Licensed Articles to be included in the Banded Bodywear segment, development of patterns for socks, trouser socks and tights. Licensor and Licensee shall develop appropriate schedules to facilitate Licensor's participation as described in this paragraph and to enable Licensor to review all Licensed Articles periodically throughout the development process. 7. (a) Referring to paragraph 7.01(a) of the License Agreement and without otherwise modifying Licensee's advertising expenditure obligations set forth therein, Licensee acknowledges that in connection with the relaunch of the "sheer hosiery" category of Licensed Articles in 1996, Licensee shall pay to Licensor the sum of $300,000 for consumer advertising to be created in accordance with Licensor's direction and under its control and Licensor acknowledges that such expenditure shall satisfy Licensee's obligations pursuant to said paragraph 7.01(a)(ii) for 1996. (b) Notwithstanding the generality of the foregoing, the parties acknowledge that the purpose of said advertising is to support the sell-through of sheer hosiery. Licensee has forecast (wholesale) sales of sheer hosiery in 1996 ("1996 Sales") in an amount not less than $650,000. Based upon Licensee's prior experience, Licensee will have on-hand orders ("Orders") representing approximately 80% of 1996 Sales by May 1, 1996. Because advertising decisions must be made by May 1, 1996, the parties agree as follows: Page 2 (i) If Orders received by May 1 equal or exceed $520,000 (at Licensee's wholesale list price), Licensee shall pay to Licensor the $300,000 advertising commitment described above in full. (ii) If Orders received by May 1 exceed $240,000 but are less than $520,000 (at Licensee's wholesale list price), Licensee shall pay to Licensor the advertising commitment set forth in paragraph 7.01(a)(ii) of the License Agreement. (iii) If Orders received by May 1 are less than $240,000 (at Licensee's wholesale list price), Licensee shall pay to Licensor the advertising commitment set forth in paragraph 7.01(a)(ii) of the License Agreement, except that the commitment shall be for only one (1) page. (iv) In any event, Licensee hereby authorizes Licensor to commence production of the "creative" aspects of the anticipated advertising for which Licensee will pay Licensor up to $30,000. Any amount paid pursuant to this subparagraph (iv) shall be deducted from the amount of any other advertising monies payable under this Agreement. (v) With respect to any payments due under this paragraph 6, Licensor shall render invoices upon completion of production or commitment to placement of media (as applicable) and Licensee shall pay Licensor within thirty (30) days after receipt of Licensor's invoice. 8. Paragraph 8.04 of the License Agreement is hereby deleted in its entirety and replaced by the following: "8.04. Licensee has heretofore deposited with Licensor the amount of One hundred thousand dollars ($100,000) as security for sums payable to Licensor hereunder (the "Deposit") which Deposit has been maintained throughout the Term and on which Licensor has accrued and paid interest at a rate per annum (computed on the basis of a 360-day year) equivalent to the prime rate charged in New York, New York by Citibank, N.A. on the last business day of each calendar year. Commencing January 1, 1996 and continuing until said Deposit is exhausted, in lieu of Licensee's obligation to pay the Guaranteed Minimum Royalty, Licensor shall apply the Deposit in monthly installments in the amount otherwise payable by Licensee on account thereof. Licensor's obligation to accrue and pay interest shall be determined on the declining balance and said interest shall be applied against the Guaranteed Minimum Royalty upon exhaustion of the Deposit. However, if Licensee shall be in default of any of its financial obligations hereunder, without limitation of any other rights and remedies available to it, Licensor shall have the right to apply the balance of the Deposit to remedy the default and to demand payment from Licensee of an additional amount necessary to maintain the Deposit in the amount on deposit immediately prior to the default. Within ten (10) business days after the expiration or other termination of the Term, Licensor shall refund any remaining balance of the Deposit and any applicable accrued interest, less any portion thereof applied in accordance with the immediately-preceding sentence." 9. Referring to paragraph 10.02 of the License Agreement, Licensor has expressed its intention to periodically review Licensee's exploitation of its rights pursuant to the License Agreement and Licensee agrees to provide information reasonably requested by Licensor to facilitate said review. Accordingly, paragraph 10.02 of the License Agreement is hereby deemed deleted in its entirety and replaced by the following: Page 3 "10.02. During each Contract Year, Licensee shall provide Licensor with additional information concerning its business hereunder. Licensor intends that this information shall be the basis for its periodic business-review meetings with Licensee. (a) Together with the statements for the second and fourth Accounting Periods of each Contract Year during the Term, Licensee shall deliver to Licensor an Operating Report setting forth separately by product category the following: (i) the total amount expended by Licensee for the advertising and promotion of Licensed Articles during the then current Contract Year through the end of the most recently completed two (2) Accounting Periods indicating the amounts paid for cooperative advertisements separately from other advertising and promotion; and (ii) Net Sales by account, showing country of sale and sales in Normal Retail Channels versus Discontinued Goods. The Operating Report shall be in the form set forth in Schedule 10.02 attached hereto and made a part hereof, signed and certified as accurate by a duly authorized officer of Licensee. Upon Licensor's reasonable request, Licensee shall deliver to Licensor, together with the Operating Report, copies (such as tear sheets) of all advertisements relating to the Licensed Marks and Licensed Articles placed by Licensee or on its behalf during the Accounting Periods covered by the report. (b) Not later than October 15th of each Contract Year, Licensee shall furnish Licensor its sales projections by quarter for the Licensed Articles (by product category) for the next Contract Year. Not later than June 15th of each Contract Year, Licensee shall furnish Licensor with any revision of its sales projections, by quarter, for the current Contract Year. Sales projections shall be accompanied by supporting rationale. 10. Referring to Section 11 of the License Agreement, Licensor and Licensee, having contemplated the possible creation and/or use of one or more newly-created names to designate particular styles or attributes unique to Licensed Articles, or some of them (hereinafter referred to as "Created Marks"), agree that references in the License Agreement to Licensed Marks shall be deemed to include all or any Created Marks, except as expressly stated herein. (a) The decision to adopt a Created Mark and the form of each such Created Mark shall be determined by mutual agreement of Licensor and Licensee, but if the parties are unable to agree, Licensor's decision shall prevail. (b) For clarification: the parties expressly intend that paragraphs 11.01 and 11.02 of the License Agreement shall apply to Created Marks. That is, Licensor shall be the owner of all rights in the Created Marks and trademark registration, if any, shall be in Licensor's name. (c) Prior to adoption of a Created Mark which is a trademark previously registered to Licensee but not otherwise identified with a Licensee product which is not a Licensed Article, Licensor and Licensee shall enter into an appropriate agreement confirming that Licensor may continue to use and grant others (including a successor licensee) the right to use said proposed Created Mark as a trademark on (or designation for) Licensed Articles following the termination or other expiration of the Term. Such agreement shall contain such terms and conditions as are usual and customary in other similar agreements. Page 4 11. Referring to paragraph 16.01 of the License Agreement, notwithstanding the provisions of paragraph 16.01(b), Licensee acknowledges that the Sublicense was not entered into and the rights intended to be sublicensed are being exploited by Licensee. Therefore, the License Agreement is hereby amended to delete paragraph 16.01(b) in its entirety and to renumber paragraph 16.01(a) to delete "(a)". References throughout the License Agreement to the Sublicense or Sublicensed Articles are deemed deleted but the obligations imposed with respect to Sublicensed Articles shall apply to Licensed Articles. 12. Licensor and Licensee, having contemplated the applicability of so-called Alternative Distribution Channels (as hereinafter defined) for the sale of Licensed Articles, agree that Licensor's prior approval to use an Alternative Distribution Channel shall be obtained in each instance. Such approval shall include and be subject to such other terms and conditions, including with respect to the definition of Net Sales, the applicable royalty rate and advertising, as the parties shall mutually agree in the circumstances, provided that if they are unable to agree, then Licensor's decision shall prevail. As used here, "Alternative Distribution Channels" shall mean direct mail or television shopping networks or "on-line" or such other means of reaching the ultimate consumer (other than through traditional retail outlets) as may hereafter be devised. Except as expressly or by necessary implication modified hereby, the License Agreement is hereby ratified and confirmed. In the event of any conflict between any provision of the License Agreement and any provision hereof, this Agreement shall prevail. Kindly indicate your agreement to the foregoing by signing below in the place provided. Very truly yours, ANNE KLEIN & COMPANY By: ---------------------- ACCEPTED AND AGREED: PENNACO HOSIERY, A Division of Danskin, Inc. By: ----------------------- Page 5 -----END PRIVACY-ENHANCED MESSAGE-----