-----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, VmIJhTWV6FAlpJDyY1ge4/oaBK2lQmxQ4sdXypi6Qh0riUriHfVUyNJTORoqpPrq +rAXxyYJ7xpDvltALvEEhw== 0000950117-96-001391.txt : 19961113 0000950117-96-001391.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950117-96-001391 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 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: 96660064 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 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 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 October 31, 1996, excluding 1,000 shares held by a subsidiary: 6,042,174. DANSKIN, INC. AND SUBSIDIARIES FORM 10-Q FOR THE FISCAL THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 23, 1995 AND SEPTEMBER 28, 1996 INDEX
Page No. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Condensed Balance Sheets (Unaudited) as of December 30, 1995 and September 28, 1996 3 Consolidated Condensed Statements of Operations (Unaudited) for the Fiscal Three and Nine Month Periods Ended September 23, 1995 and September 28, 1996 4 Consolidated Condensed Statements of Cash Flows (Unaudited) for the Fiscal Nine Month Periods Ended September 23, 1995 and September 28, 1996 5 Notes to Consolidated Condensed Financial Statements 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DANSKIN, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
December 30, 1995 September 28, 1996 (Unaudited) (Unaudited) ----------------- ------------------ ASSETS Current assets: Cash and cash equivalents ...................................................... $ 1,143,000 $ 1,764,000 Accounts receivable, less allowance for doubtful accounts of $1,631,000 at December 1995 and $1,258,000 at September 1996 .............................. 14,631,000 19,484,000 Inventories .................................................................... 30,849,000 32,158,000 Prepaid expenses and other current assets ...................................... 3,360,000 2,869,000 ------------ ------------ Total current assets ............................................... 49,983,000 56,275,000 ------------ ------------ Property, plant and equipment - net of accumulated depreciation and amortization of $5,849,000 at December 1995 and $7,226,000 at September 1996 ................... 10,632,000 9,537,000 Deferred income tax benefits ...................................................... 3,900,000 3,900,000 Other assets ...................................................................... 3,227,000 2,987,000 ------------ ------------ Total Assets ...................................................................... $ 67,742,000 $ 72,699,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving loan payable ......................................................... $ 4,101,000 $ 11,324,000 Current portion of long-term debt .............................................. 334,000 1,752,000 Accounts payable ............................................................... 9,361,000 10,054,000 Accrued expenses ............................................................... 10,531,000 9,593,000 ------------ ------------ Total current liabilities .......................................... 24,327,000 32,723,000 ------------ ------------ Subordinated convertible debentures ............................................... 5,000,000 -- Long-term debt, net of current maturities ......................................... 31,666,000 30,171,000 Accrued retirement costs .......................................................... 5,230,000 5,159,000 ------------ ------------ 41,896,000 35,330,000 ------------ ------------ Total Liabilities ................................................................. 66,223,000 68,053,000 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred Stock, $.01 par value, 10,000 shares authorized; 1,000 shares issued.. -- 5,000,000 Common Stock, $.01 par value, 20,000,000 shares authorized, 5,922,375 shares issued at December 1995 and 6,047,494 shares issued at September 1996, less 1,000 shares held by subsidiary ............................................. 59,214 60,465 Additional paid-in capital ..................................................... 13,849,786 13,950,535 Warrants outstanding ........................................................... 764,000 764,000 Translation adjustment ......................................................... -- (14,000) Accumulated deficit ............................................................ (11,154,000) (13,115,000) Minimum pension liability adjustment ........................................... (2,000,000) (2,000,000) ------------ ------------ Total Stockholders' Equity ............................ 1,519,000 4,646,000 ------------ ------------ Total Liabilities and Stockholders' Equity ........................................ $ 67,742,000 $ 72,699,000 ============ ============
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 Fiscal Nine Months Ended -------------------------------------- -------------------------------------- September 23, 1995 September 28, 1996 September 23, 1995 September 28, 1996 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------------ ------------------ ------------------ ------------------ Net revenues..................................... $33,625,000 $34,818,000 $95,378,000 $95,903,000 Cost of goods sold............................... 21,989,000 22,453,000 63,373,000 62,526,000 ----------- ----------- ----------- ----------- Gross profit.................................. 11,636,000 12,365,000 32,005,000 33,377,000 Selling, general and administrative expenses..... 9,839,000 10,403,000 30,144,000 31,211,000 Non-recurring charges............................ - - 2,498,000 - Provision for doubtful accounts receivable....... 128,000 137,000 873,000 302,000 Interest expense................................. 1,191,000 1,182,000 3,698,000 3,558,000 ----------- ----------- ----------- ----------- 11,158,000 11,722,000 37,213,000 35,071,000 ----------- ----------- ----------- ----------- Income (loss) before income tax provision (benefit) ..................................... 478,000 643,000 (5,208,000) (1,694,000) Provision (benefit) for income taxes............. 171,000 63,000 (38,000) 190,000 ----------- ----------- ----------- ----------- Net income (loss)................................ 307,000 580,000 (5,170,000) (1,884,000) Preferred stock dividends........................ - 77,000 - 77,000 ----------- ----------- ----------- ----------- Net Income (loss) applicable to common stock..... $307,000 $503,000 ($5,170,000) ($1,961,000) =========== =========== =========== =========== Net income (loss) per common share............... $0.05 $0.09 ($0.87) ($0.31) =========== =========== =========== =========== Weighted average number of common shares......... 6,520,000 6,655,000 5,921,000 6,000,000 =========== =========== =========== ===========
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 Nine Months Ended ------------------------------------------ September 23, 1995 September 28, 1996 (Unaudited) (Unaudited) ------------------ ------------------ Cash Flows From Operating Activities: Net loss ($5,170,000) ($1,961,000) Adjustments to reconcile net loss to net cash (used in) provided by.. operating activities:.......................................... Depreciation and amortization..................................... 2,138,000 1,976,000 Write-off of certain trademarks and other long-term assets........ 1,243,000 - Provision for probable credit losses.............................. 873,000 302,000 Deferred income taxes............................................. (25,000) - Changes in operating assets and liabilities: Increase in accounts receivable................................ (1,145,000) (5,155,000) (Increase) decrease in inventories............................. 6,041,000 (1,309,000) Decrease in prepaid expenses and other current assets.......... 634,000 491,000 Increase (decrease) in accounts payable........................ (2,097,000) 693,000 (Decrease) increase in accrued expenses........................ 53,000 (924,000) Financing costs incurred....................................... (1,395,000) (252,000) ----------- ----------- Net cash provided by (used in) operating activities.................. 1,150,000 (6,139,000) ----------- ----------- Cash Flows From Investing Activities: Capital expenditures.............................................. (543,000) (487,000) Purchase of interest rate cap..................................... (338,000) - ----------- ----------- Net cash used in investing activities................................ (881,000) (487,000) ----------- ----------- Cash Flows From Financing Activities: Net receipts (payments)under revolving notes payable.............. (5,482,000) 7,223,000 Payments of long-term debt........................................ (707,000) (77,000) Expenses of issuance of preferred shares.......................... - (250,000) Proceeds from stock option exercises.............................. - 309,000 Proceeds from debt restructuring.................................. 22,000,000 - Payments under debt restructuring................................. (22,049,000) - Proceeds from issuance of subordinated convertible debentures..... 5,000,000 - Purchase and retirement of Common Stock........................... (28,000) (128,000) Sale of Common Stock to Savings Plan.............................. 25,000 170,000 ----------- ----------- Net cash (used in) provided by financing activities.................. (1,241,000) 7,247,000 ----------- ----------- Net (decrease) increase in Cash and Cash Equivalents................. (972,000) 621,000 Cash and Cash Equivalents, Beginning of Period....................... 4,874,000 1,143,000 ----------- ----------- Cash and Cash Equivalents, End of Period............................. $3,902,000 $1,764,000 =========== =========== Supplemental Disclosures of Cash Flow Information: Interest paid..................................................... $3,270,000 $3,179,000 =========== =========== Income taxes paid................................................. $73,000 $75,000 =========== =========== Income taxes received............................................. ($1,003,000) - =========== =========== Non-Cash Activities The Company contributed 29,629 of its shares of Common Stock to the Danskin, Inc. Savings Plan in March 1996. The Company recorded an additional $164,000 over $600,000 originally recorded in fiscal 1995 related to warrants outstanding to its lender for which the convertibility into shares of Common Stock of the Company increased from 7% to 10% of then outstanding shares of Common Stock on June 22, 1995. On July 31, 1996, the Company issued 10% cumulative preferred shares, $5,000,000 principal value, in exhange for subordinated convertible debentures.
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 September 28, 1996, as well as its results of operations for the fiscal three and nine months ended September 29, 1996 and September 23, 1995, and its cash flows for the nine months ended September 28, 1996 and September 23, 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 45 factory outlet and three full price retail stores in 20 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 immediately after the Restructuring and as of September 28, 1996 amounted to $21,923,000. Scheduled quarterly payments commenced on September 30, 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 $21,324,000 as of September 28, 1996, with availability in excess of utilization of $4,311,000. The Company classifies $10,000,000 of its revolving obligations as long term debt. 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 has been 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, the exchange of such debentures for preferred stock and payment of the related dividends, 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 anti-dilution protection for First Union for any new issuance of securities. In connection with the Restructuring, interest rates on all obligations under the Loan and Security Agreement were set at prime plus 1.5% (9.75% at September 28, 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. The Company completed the sale of subordinated convertible debentures to a bond fund on August 17, 1995. The debentures had an aggregate face value of $5,000,000, accrued interest at 8% and would have matured on September 1, 2002. The initial conversion price was $3.15, representing 1,587,300 shares, subject to adjustment for dilution. The proceeds of this sale were used to reduce the Company's bank revolving credit obligations. The debenture contained 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. The Company issued 10% cumulative preferred shares, $5,000,000 principal value, on August 6, 1996, having a liquidation preference of $5,000 per share, in exchange for the subordinated convertible debentures. The preferred shares are entitled to vote on an as converted basis, and have an initial conversion price of $2.76, currently representing 1,811,594 shares. Such conversion price may be reset on the first and second anniversaries of the issuance under certain circumstances and will be adjusted in the event of dilution. The new preferred stock has the right to vote separately as a class for the election of one Director. The value of the preferred shares is accounted for as equity. 7 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (continued) 4. The Company received notification from the Nasdaq Stock Market, Inc. on August 6, 1996, that its request to have its Common Stock listed on the Nasdaq Small Cap Market, instead of on the Nasdaq National Market, had been approved. 5. Inventories are stated at the lower of cost or market on a first-in, first-out basis. Inventories consisted of the following:
December 30, September 28, 1995 1996 ------------ ------------- (unaudited) (unaudited) Finished goods $18,792,000 $19,181,000 Work-in-process 6,431,000 7,204,000 Raw materials 4,461,000 4,833,000 Packaging materials 1,165,000 938,000 ----------- ----------- $30,849,000 $32,158,000 =========== ===========
6. 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 pretax charge against income in fiscal 1993 related to production problems caused by an unauthorized change in product specifications by a yarn vendor. Following a fairness hearing held on May 29, 1996, the Court entered an Order and Final Judgement approving a settlement of the consolidated actions. The settlement was funded in its entirety by defendants unrelated to the Company and by the carrier of the Company's director's and officer's liability insurance policy. The Company also recovered a portion of its cost of defending the action from the carrier. The Order and Final Judgment certifies the class and releases all of the defendants from claims by the class members arising from the purchase of the Company's securities, as well as claims for contribution or indemnification arising from a class member's claims. 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. The action does not seek any damages from the Company. This matter has been settled, subject to court approval, by agreement among the plaintiffs, the defendants and the carrier of the Company's directors' and officers' liability policy. 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 Canadian licensee threatening legal action to recover damages resulting from the "unethical manner" in which it conducted negotiations concerning the relationship. The Company has commenced litigation against a principal of the former licensee for fraud in the willful under reporting of royalties that were due under the prior license agreement and for 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 on its consolidated financial position or results of operations. The Company has been named as third party defendant in Beatrice Company v. Robinson, Silverman, etc., U.S. District Court, Southern District of New York, 96 Civ. 4110 (HB), an action for conversion by the defendant of a tax refund check in the amount of $1,141,323.85 that was issued by the Internal Revenue Service in the name of "Esmark, Inc." and aparently mailed to the Company's headquarters. The check had been destined for the Company's wholly owned subsidiary, Danpen, Inc. ("Danpen"), the former name of which was "Esmark, Inc.", and which in turn was obligated to turn the check over to Beatrice Company, since it related to the 1984 tax year of Danpen. The Company has in turn filed a fourth party complaint against Byron A. Hero, Jr., its former Chairman of the Board and Chief Executive Officer, alleging conversion and breach of fiduciary duty. Beatrice charges in its complaint that Mr. Hero had received the check in his capacity as the principal of Esmark and endorsed it to his own uses, even though the check bore the employer identification number of Danpen and even though the 1984 tax year to which the refund applied was a year prior to the formation of Esmark. Beatrice filed its claim against Robinson, Silverman for conversion of the check in having established a client trust account on behalf of Mr. Hero, from which the funds were disbursed. Robinson, Silverman impleaded the Company on a theory of negligence in having allowed the check to fall under the control of Mr. Hero. The Company believes that this claim is without merit and that any potential liability that might result will not have a material adverse effect on its consolidated financial position or results of operations. 7. 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 and nine months ended September 1996 and 1995. The breakdown of income tax expense between current tax expense and deferred tax expense is not available for the three and nine months ended September 1996 and 1995. No allocation between current and deferred income taxes was made during the three and nine months ended September 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 September 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. 9 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (continued) 8. The Company is a judgment creditor of Esmark, its former parent, and it has fully reserved the amount of $6,099,000 owed to it through March 1995. In light of Esmark's financial condition, the Company no longer accrues interest on this indebtedness for financial statement purposes. On June 6, 1996, the U.S. Bankruptcy Court for the Southern District of New York entered an order placing Esmark in Chapter 7 liquidation under the Bankruptcy Code, granting the relief which had been sought in an involuntary bankruptcy petition, and it appointed a Trustee to administer the liquidation. On June 7, 1996, pursuant to authorization of the Bankruptcy Court, Sun America Life Insurance Company ("SunAmerica") purchased at a foreclosure sale 2,010,000 shares of the Company's Common Stock (the "Esmark Shares"), that had been owned by Esmark, and that Esmark had pledged to SunAmerica to secure the repayment of certain indebtedness owing to SunAmerica by a subsidiary of Esmark. SunAmerica subsequently re-registered these shares in the name of its nominee. These shares represent approximately 33% of the Company's outstanding Common Stock. In 1992, Esmark was granted an irrevocable 10-year proxy to vote 990,000 shares of the Company's Common Stock by Electra Investment Trust P.L.C. ("Electra"), the registered owner of such shares (the "Electra Shares"). The Company has received an opinion of Delaware counsel that by virtue of the foreclosure sale of the Esmark Shares to SunAmerica, this proxy became revocable, although to date Electra has not yet revoked it. Since Esmark is being liquidated under Chapter 7 of the Bankruptcy Code the Trustee in Bankruptcy voted the Electra Shares at the Annual Meeting of Stockholders held on October 16, 1996, voting to withhold authority for the election of the two Directors who had been nominated. Because of the appointment of the Trustee for the Esmark estate, Byron A. Hero, Jr. is no longer in control of Esmark, and accordingly the agreement between the Company and Mr. Hero dated September 16, 1994, obligating him to cause Esmark to vote the Electra Shares in accordance with the terms of the agreement, is no longer in effect as to this obligation. 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 Electra Shares. On October 4, 1996 the Company entered into an agreement with SunAmerica which entitled SunAmerica to (a) designate two nominees for election to the Company's Board of Directors and to appoint at least one of these nominees to serve on each committee of the Board and (b) designate an additional person to serve as an observer of the Board. At the meeting of the Board of Directors following the Annual Meeting of Stockholders on October 16, 1996 the Board of Directors voted to increase the number of Directors constituting the entire Board from eight to ten and elected Donald Schupak and Michel Benasra, SunAmerica's designees, to fill the vacancies. At the same time it amended the Company's By-laws to provide that the size of the Board cannot be further increased without the affirmative vote of the SunAmerica designees. It also extended an invitation to Electra to designate an additional director to become a member of the Board, but Electra has declined this invitation. 10 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) Danskin, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (continued) 9. The Company adopted a shareholder rights plan on June 5, 1996, for stockholders of record on June 17, 1996, which would become effective in the event of an accumulation of more than 35% of its Common Stock by an acquiror. A rights agreement was executed on June 5, 1996 between the Company and its Rights Agent, a copy of which was filed as an exhibit to the Company's Report on Form 8-K filed on June 6, 1996. 10. The Company's Chairman of the Board, Howard D. Cooley, purchased 100,000 shares of the Company's common stock on June 3, 1996, through exercise of options at $3.00 per share. On June 5, 1996, the Company granted Mr. Cooley options to purchase 100,000 common shares, with an exercise price of $3.25, subject to adoption and approval of an amendment to the Company's stock option plan and increasing the number of shares available for issuance. 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 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 Three and Nine Months of Year Ending December 1996 with the Three and Nine Months of Year Ended December 1995 NET REVENUES: Net revenues amounted to $34.8 million for the three months ended September 1996, an increase of $1.2 million, or 3.6%, from the prior year three months ended September 1995. Net revenues for the nine months ended September 1996 amounted to $95.9 million, an increase of $0.6 million, or .6%, from the same prior year period. Wholesale revenues for the Company improved $0.3 million for the three month period, and declined $1.8 million for the nine-month period, whereas retail volume increased $0.9 million for the three month period and $2.4 million for the nine-month period ended September 1996 over the same prior year periods. Danskin activewear net revenues, which includes the Company's retail operations, amounted to $22.4 million for the three months ended September 1996, an increase of $1.3 million, or 6.2%, from the prior three months ended September 1995, and increased $1.8 million, to $60.6 million, or 3.1%, for the nine-month period ended September 1996, over the same prior year period. The Company's 48 retail stores generated $6.4 million in net revenues for the three months, and $15.7 million for the nine months ended September 1996, with seven additional stores opened in comparison with the prior year. Comparable retail store sales declined 3.8% for the three and nine months ended September 1996, which is comparable to general outlet industry trends. The Company continues to improve store product offerings, renegotiate existing leases and streamline store operations. Marketing of activewear wholesale products continues to address the industry's lifestyle casual wear trends, and to emphasize fashion and dance product offerings. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Pennaco legwear net revenues amounted to $12.4 million for the three months ended September 1996, a decline of $0.1 million, or .8%, from the three months ended September 1995, and declined $1.2 million, or 3.3%, to $35.3 million for the nine-month period ended September 1996, from the same prior year period. This decline is indicative of a continued weak sheer hosiery market in the department store class of trade. The re-launch of Anne Klein sheer hosiery and tights was successfully introduced in July 1996, largely offsetting other branded declines. The Company `s Round The Clock Lycra(R) 3D "Leg-solutions" hosiery (containing Lycra(R) in every course), launched in the fall of 1995, has been well received, and has partially offset significant declines in the traditional Lycra(R) business. The Company believes it is the largest producer of the "Lycra(R) 3D" hosiery and hopes to capitalize on its current position. GROSS PROFIT: Gross profit increased by $0.8 million, or 6.9%, to $12.4 million in the three months ended September 1996, from the prior year period, and increased $1.5 million, or 4.7%, to $33.4 million for the nine months ended September 1996, over the same prior year period. Gross profit as a percentage of net revenues increased to 35.6% in the three months ended September 1996 from 34.5% in the three months ended September 1995, and increased to 34.8% for the nine months ended September 1996, from 33.5% in the same prior year period. Gross margins for activewear were 41.1% and 38.4% in the three months, and 39.6% and 38.1% for the nine months ended September 1996 and 1995, respectively. This increase was primarily attributable to improvements in retail inventory mix for the three and nine month periods, and prior year liquidations of certain excess wholesale inventories during the quarter. Legwear gross profit declined to 25.8% in the three months ended September 1996 from 28.0% in the prior period, and improved to 26.6% for the nine months ended September 1996 from 26.0% in the prior period. The quarter decline was principally due to lower margins associated with new branded product launches and a continued competitive market in traditional Lycra(R) products. The year to date improvement in gross profit was primarily attributable to private label price increases and reductions in certain production costs. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses, which include retail store operating costs, increased by $0.5 million, or 5.0%, to $10.5 million, or 30.2% of net revenues, in the three months ended September 1996, and increased $0.5 million , or 1.6%, to $31.5 million, or 32.8% of net revenues, in the nine months ended September 1996, over the same prior year periods. Selling, general and administrative expenses, excluding retail store operating costs, increased $0.1 million, or 1.3%, to $7.6 million, or 21.8% of net revenues, from $7.5 million, or 22.3% of net revenues. Wholesale expenses for the nine months ended September 1996 declined $0.7 million, or 2.9%, to $23.3 million, or 24.3% of net revenues, from $24.0 million, or 25.2% of net revenues, in the same prior year period, despite a $0.5 million prior year insurance refund of certain legal costs. The wholesale decrease in the September 1996 nine-month period was principally a result of a reduction in the provision for doubtful accounts and lower compensation costs, partially offset by increased print advertising costs. OPERATING INCOME/LOSS: As a result of the foregoing, income from operations (i.e., income /loss before interest expense, non-recurring charges and income taxes) amounted to $1.9 million for the three and nine months ended September 1996, an improvement of $0.3 million for the three-month period and an improvement of $1.0 million for the nine month period. The legwear business contributed most significantly to the year to date improvement. INTEREST EXPENSE: Interest expense amounted to $1.2 million for the three months ended September 1996 and 1995, and $3.6 million and $3.7 million for the six months ended September 1996 and 1995, respectively. The Company's effective interest rate was 10.4% and 10.7% for the three months ended September 1996 and 1995, and 10.5% and 10.9% for the nine months ended September 1996 and 1995, respectively. Effective interest rates declined principally due to more favorable market rates and bank terms, as well as the lower interest rate of 8% associated with the subordinated convertible debentures. 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 and nine months ended September 1996 and June 1995. The Company's deferred tax balance of $3.9 million as of September 1996 and December 1995 was net of a valuation allowance, each amounting to approximately $6.0. NET INCOME (LOSS): As a result of the foregoing, net income was $0.5 million for the three months ended September 1996, an increase of $0.2 million from net income in the three months ended September 1995 of $0.3 million, and was a net loss of $2.0 million for the nine-month period, an improvement of $3.2 million from a $5.2 net loss in the prior year, which included a $2.5 million non-recurring charge. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 have been from bank financing, issuance of convertible securities, vendor credit terms and internally generated funds. Net cash flow used in operations increased by $7.3 million to $6.1 million for the nine months ended September 1996, from cash provided from operations of $1.2 million in the nine months ended September 1995, principally attributable to increases in working capital requirements in line with operations and an improved Activewear sales order bank. 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 $8.0 million of revolving credit balances into term obligations. Total term debt obligations aggregated $22.0 million after the Restructuring and as of September 28, 1996. Scheduled quarterly payments commenced on September 30, 1996 and range from $0.3 million to $1.5 million, with a final maturity in 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 $21.3 million as of September 28, 1996, with availability in excess of utilization of $4.3 million. The Company classifies $10.0 million of its revolving obligations as long term. In addition to the scheduled quarterly principal payments of the term debt, the Loan and Security Agreement provides for a semiannual 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 has been 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 subordinated convertible debentures, the exchange of such debentures for preferred stock and payment of the related dividends, and to increase an annual capital expenditure limitation to $2.0 million. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) 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 anti-dilution protection for First Union for any new issuance of securities. In connection with the Restructuring, interest rates on all obligations under the Loan and Security Agreement were set at prime plus 1.5% (9.75% at September 28, 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 subordinated convertible debentures to a bond fund on August 17, 1995. The debentures had an aggregate face value of $5.0 million, accrued interest at 8% and would have matured on September 1, 2002. The initial conversion price was $3.15, representing 1,587,300 shares, subject to adjustment for dilution. The proceeds of this sale were used to reduce the Company's bank revolving credit obligations. The debenture contained 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. The Company issued 10% cumulative preferred shares, $5.0 million principal value, on August 6, 1996, having a liquidation preference of $5,000 per share, in exchange for the subordinated convertible debentures. The preferred shares are entitled to vote on an as converted basis, and have an initial conversion price of $2.76, currently representing 1,811,594 shares. Such conversion price may be reset on the first and second anniversaries of the issuance under certain circumstances and will be adjusted in the event of dilution. The new preferred stock has the right to vote separately as a class for the election of one Director. The value of the preferred shares is accounted for as equity. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) 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. On April 9, 1996, the Company engaged the services of Dillon Read & Co. Inc. to assist in the process of equity raising efforts. On August 6, 1996, the Company issued 10% cumulative preferred shares in exchange for subordinated convertible debentures, with $5,000,000 principal value recorded in equity. 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. 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 6 in the Notes to Consolidated Condensed Financial Statements in Part I Financial Information of this Form 10-Q. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of the Company, for the year ended December 30, 1995, was held on October 16, 1996. Stockholders voted on and approved the following Directors by the votes indicated: Mary Ann Domuracki Howard D. Cooley For: 6,395,980 6,396,880 Withhold Authority: 1,015,711 1,014,811 Broker Non-votes: 0 0 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 10.5.12 Addendum to lease, dated August 23, 1996, between Henry Klinge and the Registrant. 10.5.4 Lease agreement, dated March 22, 1996, between the city of Grenada, Mississippi and the Registrant. *10.6.3D Amendment Three, dated April 4, 1996, to Employment Agreement, dated August 1, 1994, between the registrant and Mary Ann Domuracki. *10.6.4D Amendment Three, dated April 4, 1996, to Employment Agreement, dated August 1, 1994, between the registrant and Beverly Eichel. (b) Form 8-K Form 8-k filed on October 4, 1996, reporting an Item 5 event. 18 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. November 12, 1996 By: /s/Edwin W.Dean -------------------------- Edwin W. Dean Vice Chairman of the Board, General Counsel and Secretary November 12, 1996 By: /s/Beverly Eichel -------------------------- Beverly Eichel Executive Vice President and Chief Financial Officer (Principal Financial Officer) 19 STATEMENT OF DIFFERENCES The registered trademark symbol shall be expressed as ................. (R) EX-10 2 EXHIBIT 10.5.12 ADDENDUM #2 TO LEASE THIS ADDENDUM TO LEASE executed this 23rd day of August, 1996, between HENRIK KLINGE, an adult individual having an office at 4075 East Market Street, York, Pennsylvania 17402-0608, hereinafter referred to as 'Lessor', and DANSKIN, INC., a corporation having its principal offices at 111 West 40th Street, 18th Floor, New York, New York 10018, hereinafter referred to as 'Lessee'. WHEREAS, Lessor and Lessee executed a Lease Agreement dated September 12, 1990, for approximately 109,569 sq. ft. of the premises being located at 4075 East Market Street in York, Pennsylvania (hereinafter 'Lease'); and WHEREAS, the parties extended the terms of the Lease for an additional 3 years, to September 11, 1996 and increased the area by 37,000 sq. ft. to 146,569 sq. ft., as per the Addendum dated February 5, 1993 (hereinafter 'Addendum'); and WHEREAS the parties desire to extend the term of said Lease for an additional three years beyond it current term beginning on September 12, 1996, and, to decrease the premises being leased by Lessee from Lessor by approximately 12,000 sq. ft. to approximately 134,569 sq. ft. NOW, THEREFORE, in consideration of the mutual covenants herein contained, as well as for other good and valuable consideration, the receipt and adequate of which is hereby acknowledged, the parties agree as follows: 1. The parties hereby agree to extend the termination date of their Lease to September 11, 1999. 2. The parties agree that, effective September 12, 1996, Lessee will lease the original 109,569 sq. ft. described on Exhibit 'A' to the Lease, plus an additional area containing approximately 25,000 sq. ft. as described in Exhibit 'B' attached hereto and incorporated herein by reference. 3. Lessee agrees to pay Lessor as rental for the total leased area of approximately 134,569 sq. ft. the sum of $324.26 per month beginning September 12, 1996. 4. All the remaining terms and conditions of the Lease shall remain unchanged and are hereby ratified by the parties. IN WITNESS WHEREOF, The parties have hereunto set their hands and seals the day and the year first above written. Witness: - -------------------------- ------------------------------ LESSOR Attest: Edwin W. Dean Beverly Eichel - ------------------------------ ------------------------------ LESSEE EX-10 3 EXHIBIT 10.5.4 THIS INSTRUMENT PREPARED BY: INDEXING INSTRUCTIONS: Robert S. Lazarus, Esq. Sections 31 and 32, Watkins Ludlam & Stennis Township 23 North, Post Office Box 427 Range 5 East, Grenada Jackson, Mississippi 39205 County, Mississippi Phone Number: 601-949-4900 LEASE AGREEMENT THIS LEASE AGREEMENT made and entered into this the 22nd day of March, 1996, by and between the City of Grenada, Mississippi, hereinafter called "Lessor" and Danskin, Incorporated, hereinafter called "Lessee": W I T N E S S E T H: WHEREAS, the Lessor and Lessee are parties to that certain Lease Agreeement dated as of July, 1992 (the number of the day having been left blank), which was notarized on behalf of the Lessor on July 14, 1992 and on behalf of the Lessee on July 31, 1992 (the "Air Park I Lease") which agreement pertains to the property described in paragraph A of Article 1 below (the "Air Park I Property"); and WHEREAS, an addition has been constructed on certain property adjacent to the Air Park I Property which property is described in paragraph B of Article 1 below (the "Air Park II Property") and the Lessor and Lessee wish to terminate the Air Park I Lease and enter into a new lease covering the Air Park I Property and the Air Park II Property. ARTICLE 1. LEASED PREMISES Subject to the terms and conditions, and for the price hereinafter stipulated: Lessor leases, lets and demises unto Lessee, and Lessee leases from Lessor, the following described property situated in the County of Grenada, State of Mississippi. A. The property known as the Pennaco Warehouse property in the Grenada Air Industrial Park, to wit: A Part or Parcel Sections 31 and 32, Township 23 North, Range 5 East, Grenada County, Mississippi, and being more particularly described as follows: Beginning at a point on the south right-of-way line of The Airport Industrial Park Road, said point being 639.12 feet +or- North and 932.05 feet +or- West of the center of the Northwest Quarter of said Section 32, Thence run south 08 degrees 57' 26" west for 83.61 feet to a point; Thence run north 83 degrees 01' 32" east for 114.39 feet to a point; Thence run south 08 degrees 57' 26" west for 260.06 feet to an iron pin; Thence run south 00 degrees 00' 17" west for 317.99 feet to a point; Thence run south 89 degrees 46' 00" west for 1,169.92 feet to a point; Thence run north 42 degrees 02'56" east for 977.28 feet to a point; Thence run north 51 degrees 45' 34" east for 23.02 feet to a point on the south right-of-way line of said Industrial Park Road; Thence run along said right-of-way along a curve to the left with a radius of 765.35 feet, a delta angle of 33 degrees 56' 23" and an arc length of 453.36 feet to the said point of beginning of herein described tract of land containing 13.32 acres on which Pennaco Warehouse is located. and 2 B. The property known as the Danskin Warehouse property addition in the Grenada Air Industrial Park, to-wit: A Part or Parcel Sections 31 and 32, Township 23 North, Range 5 East, Grenada County, Mississippi, and being more particularly described as follows: Beginning at a point on the south right-of-way line of The Airport Industrial Park Road, said point being 639.12 feet +or- North and 932.05 feet +or- West of the center of the Northwest Quarter of said Section 32, Thence run south 08 degrees 57'26" west for 83.61 feet to a point; Thence run north 83 degrees 01 '32" east for 114.39 feet to a point; Thence run south 08 degrees 57'26" west for 260.06 feet to an iron pin; Thence run south 00 degrees 00'17" west for 317.99 feet to a point; Thence run south 89 degrees 46'00" west for 1,169.92 feet to a point; Thence run north 42 degrees 02' 56" east for 977.28 feet to a point; Thence run north 51 degrees 45' 34" east for 23.02 feet to a point on the south right-of-way line of said Industrial Park Road; Thence run along said right-of-way along a curve to the left with a radius of 765.35 feet, a delta angle of 33 degrees 56'23" and an arc length of 453.36 feet to the said point of beginning of herein described tract of land containing 13.32 acres on which Pennaco Warehouse is located, and the following: A strip of land 75 feet wide N 47 degrees 57 minutes 04 seconds W by 265 feet long N 42 degrees 02 minutes 56 seconds E bordering on Industrial Park Road and on the Northwest side of the above described property. which property is hereinafter referred to as the "Premises". This lease shall also cover the improvements located on the Premises, the cost of which improvements has been financed with the proceeds of General Obligation Industrial Bonds, Series 1991 and Series 1993 (collectively, the "Bonds") issued by the County (the Premises, together with such improvements are hereinafter referred to as the "Property"). 3 ARTICLE 2. TERM The term of this lease shall commence on the 1st day of January, 1996, and end at midnight on the 1st day of December, 2008. ARTICLE 3. RENTAL As rental for the premises, Lessee will pay to Lessor on or before the first day of the month specified in Exhibit A which is attached hereto and incorporated by reference herein, the amount set forth opposite such date. Lessee shall pay to Lessor a late charge of five percent (5%) of the amount of any payment due under this Lease Agreement including rent payments if payment is not received by Lessor within fifteen (15) days after the date the payment is due. In addition, after the expiration of the above fifteen (15) day period, all delinquent payments due under the terms of this Lease Agreement together with the above late charge shall bear interest at the lesser of 10% per annum or the maximum rate which Lessee could contract for and agree to pay for loans or advances of money under the laws of the State of Mississippi in effect at the time of the delinquency. The provisions of this paragraph shall not prevent Lessor from declaring a default for payments not made when due. Lessee acknowledges that the above 5% late charge is not a finance charge and that such charge is a reasonable charge for handling 4 delinquent accounts; however, it is not the intention of Lessor or Lessee to violate the usury laws of the State of Mississippi and this paragraph shall be subject to any limitation on finance charges applicable to the payments to be made hereunder. The Lessee agrees to pay school taxes to any city, county, school district or any other political subdivision in which the Property may be located and which has authority to tax the Property an amount equal to the ad valorem school taxes which would be levied by any of the foregoing on the Property to the same extent as the foregoing would levy taxes if the Lessee were the legal owner of the Property. Such amount shall be payable at the times and in the manner that such school taxes would otherwise be payable if the Lessee were the legal owner of the Property. Except as provided in the preceding paragraph, Lessor agrees that it will cooperate with the Lessee in connection with any ad valorem tax exemption for which the Lessee may be eligible under applicable Mississippi law and the Lessor agrees that it will exercise its discretion in order to provide the Lessee with any such exceptions or abatements. The Property shall be insured, at Lessee's expense, for fire and extended coverages in the amount of at least the amount of principal outstanding from time to time of the Bonds. The proceeds of all insurance policies for loss or damage to the Property shall be payable to the Lessee and Lessor as their interest may appear. All proceeds of insurance policies for loss or damage to Lessee's own machinery and equipment shall be paid to the Lessee. All fire 5 and extended coverage insurance required under this lease agreement shall: (1) be issued by and binding upon a solvent insurance or insurance companies qualified and admitted to do business in Mississippi; (2) be a primary policy or a combination of a primary policy and an excess liability policy; and (3) contain an endorsement requiring ten (10) days written notice from the insurance company to Lessor and Lessee before cancellation of the policy shall be effective. A certificate of each policy shall be deposited with Lessor on or before the commencement date and, upon renewal or cancellation thereof, a new certificate shall be deposited with Lessor not less than twenty (20) days before the expiration or termination of the policy then in effect. Any holdover at the expiration of this Lease shall be as a tenant at will. During such holdover tenancy, Lessee will be bound by all of the terms, conditions and covenants of this Lease Agreement. If the Lessee fails to make any of the payments required in this Article 3, the amount so in default shall continue as an obligation of the Lessee until such amount shall have been fully paid. ARTICLE 4. REPAIRS AND ALTERATIONS Lessor shall maintain, in good and usable order, the exterior portion and structural elements of the Property and the appurtenances thereto (including the roof, roof structures and supports, foundations and structural supports, walls, floors, air 6 conditioning and heating systems, excluding floor covering, wires and conduits within the floors or walls and above the ceiling). ARTICLE 5. MAINTENANCE BY LESSEE Except for the obligations of Lessor under the preceding Articles of this lease, Lessee agrees to maintain the interior of the Property (the area within the walls, including the paint on the walls, and from the ceiling, to and including the floor covering), and shall repair any damage caused by any act of or by the negligence of Lessee, its customers, licensees, agents or employees. When needed, Lessee agrees to replace any broken glass in the windows or doors, to replace any floor coverings, to replace any light bulbs or fixtures, repair the interior plumbing, and generally to keep the interior of the premises in good repair, including painting, maintenance of floor covering, repair of all interior electrical equipment and hardware. ARTICLE 6. CARE OF PREMISES Lessee shall keep the premises in a neat and clean condition, and shall permit no unlawful or immoral practice to be carried on within the premises with its knowledge or consent, or by it, and that it will, at all times, comply in its occupancy and use of the premises with all ordinances of the County and City of Grenada, Mississippi, and with all state and federal laws and regulations applicable to the Property. 7 ARTICLE 7. TAXES AND UTILITY CHARGES Lessee will pay, when due, all properly assessed property taxes and assessments on personal property of Lessee installed or stored in the building or upon the leased premises, and will pay all utility charges when due. ARTICLE 8. ALTERATIONS TO THE PREMISES At its own expense, Lessee may make any alterations, additions or changes to the interior partitions in the Property, but Lessee shall not make the alterations, additions or changes which affect the structure of the Property, or to the exterior of the Property, without the express written consent of Lessor. ARTICLE 9. ENTRY Lessor, or its agent or employees, shall have access to the Property at all reasonable time for inspection. ARTICLE 10. FIRE AND OTHER CASUALTIES If prior to full payment of the rent, the Property is destroyed (in whole or in part) by fire or other casualty, the net proceeds of any insurance resulting from claims for such losses shall be applied, at the discretion of the Lessee, for either of the following purposes: 8 The prompt repair, or replacement of the property damaged or destroyed to substantially the same condition as existed prior to the event causing such damage or destruction, as may be desired by the Lessee and as will not materially alter the character of the Property. If the Lessee elects to so repair, such net proceeds shall be paid to and held by the Lessor for such disposition. If the Net Proceeds are not sufficient to pay in full the costs of such repair of the property, the Lessee will nonetheless complete the work, repair or replacement thereof and will pay that portion of the costs thereof in excess of the amount of said net proceeds without reimbursement from Lessor and without any abatement or diminution of the rents payable under this Lease. Any balance of such net proceeds remaining after payment of all the costs of such repair or replacement may be retained by the Lessor and applied to the rent in inverse order of maturity. ARTICLE 11. HOLD HARMLESS Lessee shall keep and hold Lessor harmless from any liability for loss or damage to any person, property, or things, both real or personal, accruing from any act or omission by Lessee, its agents or employees, in or connected with, or about, the premises during the term of this Lease. ARTICLE 12. LESSEE'S FIXTURES, EQUIPMENT AND GOODS Any and all fixtures, equipment and goods installed by Lessee shall be and remain its property, and Lessee may, at any time, 9 remove the same from the Property. Lessee shall promptly repair any damage or injury to the Property caused by such removal. ARTICLE 13. DEFAULT In the event that Lessee shall fail to keep any covenant by it undertaken herein, desert or abandon the Property for longer than twenty (20) days, or fail to comply with any obligation undertaken by it, including the payment of rent when due, and such default should continue for a period of twenty (20) days after written notice thereof, or in the event Lessee should be adjudged a bankrupt, or make an assignment for the benefit of its creditors, or in the event a receiver should be appointed for Lessee, or in the event Lessee should suffer any seizure of its property to satisfy any final judgment rendered against it and fail to release the seizure within sixty (60) days after such seizure, then, upon the happening of such events, or any of them, Lessor may, at its option: (1) Declare all the remaining rental payments herein provided to be due and payable; or (2) Declare the lease terminated, and immediately enter upon and repossess itself of the leased premises without, in any manner, being guilty of trespass; or (3) Proceed with any other remedy available to it as the Lessor may desire. The failure of Lessor to exercise such option at the time of any default shall not bar or abridge its right to exercise such option at the time of any other default. 10 ARTICLE 14. ASSIGNMENT OR SUB-LETTING AND USE Lessee shall not assign this Lease, or sublet all, or any portion, of the Property without the prior written consent of the Lessor. The Property shall be used only for an industrial warehouse and related manufacturing facilities for the Lessee. ARTICLE 15. ASSUMPTION OF RISK Lessee agrees to carry, at all times, adequate public liability insurance to protect both Lessee and Lessor from any such liability for injury or damage to persons or property on or about the leased premises. The Lessee shall provide a copy of its certificate of insurance as herein mentioned. ARTICLE 16. NOTICES All notices, demands and requests which may or are required to be given to another party hereunder shall be in writing, and each shall be deemed to have been properly given when served personally on an executive officer of the party to whom such notice is to be given, or when sent postage prepaid by first class mail, registered or certified, return receipt requested, by deposit thereof in a 11 duly constituted United States Post Office or branch thereof located in one of the states of the United States of America is a sealed envelope addressed as follows: If to the Lessee: Danskin, Incorporated 111 W. 40 Street New York, New York 10018 Attn: Chief Financial Officer If to the Lessor: The City of Grenada P. O. Box 310 or 152 S. Main Street Grenada, Mississippi 38901 Attn: Larry Kegley, City Manager The Lessee and the Lessor may, by notice given hereunder, designate any further or different addresses and to which subsequent notices, certificates or other communications shall be sent. If any clause, provision or paragraph of this Lease be ruled invalid by any court of competent jurisdiction, the invalidity of such clause, provision or paragraph shall not affect any of the remaining provisions hereof. This Lease and every assignment and amendment hereof, shall be recorded in the office of the Clerk of the Chancery Court of Grenada County, Mississippi. This Lease shall be governed by and construed in accordance with the laws of the State of Mississippi. 12 ARTICLE 17. DELIVERY AT END OF LEASE Upon termination of this Lease, in course or for breach of any of its terms or conditions, Lessee agrees to return the Property to Lessor in substantially as good condition as when possession is delivered to Lessee, ordinary wear and tear excepted. Any trade fixtures which are not removed by Lessee within 30 days after termination shall become, and thereafter be, the property of Lessor. ARTICLE 18. WAIVER OF BREACH Each party agrees that no assent, expressed or implied by the other party to any breach of any of the covenants and agreements herein contained shall be deemed to be a waiver of any succeeding breach of the same or other covenants or agreements. ARTICLE 19. ATTORNEY'S FEES In the event either party should be required to resort to any legal action against the other party to enforce any obligation undertaken hereunder, the party to prevail in such action shall be entitled to receive reasonable attorney's fees, in addition to such other recovery to which such party may be entitled. 13 ARTICLE 20. COVENANTS EXTENDED TO SUCCESSORS All covenants and obligations undertaken by any party hereto shall extend to the heirs, successors, legal representatives, and assigns of such parties. ARTICLE 21. EASEMENTS AND RESTRICTIONS The Lessee herein reserves a drainage easement along all ditches which may be situated on the Premises. The Lessee agrees to adhere to all restrictions and easement of record. The Lessee shall also adhere to the following conditions, to-wit: (1) That the Lessor reserves unto itself, its successors and assigns, for the use and benefit of the public a right of flight for the passage of aircraft in the airspace above the surface of the Premises, together with the right to cause in said air space such noise as may be inherent in the operation of aircraft, now known or hereafter used, for navigation of or flight in the said airspace, and for use of said airspace for landing on, taking off from or operating on the Grenada Airport. (2) That the Lessor expressly agrees for itself, its successors and assigns to restrict the heights of structures, objects of natural growth and other obstructions on the Premises to a height of not more than 356 feet above sea level. 14 (3) That the Lessor expressly agrees for itself, its successors and assigns to prevent any use of the Premises which would interfere with landing or taking off of aircraft at the Grenada Airport, or otherwise constitute an airport hazard. ARTICLE 22. The Air Park I Lease is hereby terminated as of the effective date of this Lease Agreement. IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease to be executed in their respective names and the Lessor's seal to be hereunto affixed and in each case attested by their duly authorized officer, and the Lessor and the Lessee have caused this Lease to be dated as of the date first above written, although actually executed on the dates specified in their respective acknowledgments hereto. DANSKIN, INC. - Lessee By: Beverly Eichel ---------------------------- Beverly Eichel Chief Financial Officer ATTEST: EDWIN DEAN - ---------------------------- EDWIN DEAN, General Counsel and Secretary (SEAL) THE CITY OF GRENADA, MISSISSIPPI - Lessor By: Mike Hyneman ---------------------------- Mike Hyneman, Mayor ATTEST: Valleria Blaylock - ------------------------ Valleria Blaylock City Clerk - Comptroller (SEAL) 15 ACKNOWLEDGMENT OF LESSOR STATE OF MISSISSIPPI COUNTY OF GRENADA Personally appeared before me, the undersigned authority in and for the jurisdiction aforesaid, Mike Hyneman, and Valleria Blaylock, who acknowledged to me that they are the Mayor and City Clerk, respectively, of the City of Grenada, Mississippi (the "Lessor"), and that for and on behalf of the Lessor and as its act and deed, they signed, sealed and delivered the above and foregoing instrument on the day and in the year therein mentioned, they being first duly authorized so to do by the Lessor. GIVE UNDER MY HAND AND OFFICIAL SEAL OF OFFICE, this, the 13th day of February. [SEAL] Lois B. Freelon ------------------------------- NOTARY PUBLIC My Commission Expires: Notary Public State of Mississippi At Large My Commission Expires: January 22, 1999 BONDED THRU REIDEN-MARCHETT, INC. - ------------------------------------------- ACKNOWLEDGMENT OF LESSEE STATE OF NEW JERSEY COUNTY OF MIDDLESEX Personally appeared before me, the undersigned authority in and for the jurisdiction aforesaid, the within named Beverly Eichel and Edwin Dean who acknowledged to me that they are the Chief Financial Officer and General Counsel and Secretary of the Company, and that for and on behalf of said corporation and as its act and deed, they signed, sealed and delivered the foregoing instrument on the day and in the year therein mentioned, they being first duly authorized so to do by said corporation. WITNESS MY HAND AND OFFICIAL SEAL OF OFFICE, this the 22nd day of March 1996. Lynn G. Golubchik -------------------------------- NOTARY PUBLIC My Commission Expires: LYNN G. GOLUBCHIK - ---------------------- Notary Public of New Jersey My Commission Expires May 15, 2000. 16 RENT SCHEDULE
- --------------------------------------------------------- MONTHLY MONTH TOTA - --------------------------------------------------------- JANUARY 1996 13,600.00 FEBRUARY 1996 13,600.00 MARCH 1996 98,145.18 APRIL 1996 13,600.00 MAY 1996 13,600.00 JUNE 1996 13,600.00 JULY 1996 13,600.00 AUGUST 1996 13,600.00 SEPTEMBER 1996 98,145.18 OCTOBER 1996 13,600.00 NOVEMBER 1996 13,600.00 DECEMBER 1996 13,600.00 JANUARY 1997 13,600.00 FEBRUARY 1997 13,600.00 MARCH 1997 98,145.18 APRIL 1997 13,600.00 MAY 1997 13,600.00 JUNE 1997 13,600.00 JULY 1997 13,600.00 AUGUST 1997 13,600.00 SEPTEMBER 1997 98,145.18 OCTOBER 1997 13,600.00 NOVEMBER 1997 13,600.00 DECEMBER 1997 13,600.00 JANUARY 1998 13,600.00 FEBRUARY 1998 13,600.00 MARCH 1998 98,145.18 APRIL 1998 13,600.00 MAY 1998 13,600.00 JUNE 1998 13,600.00 JULY 1998 13,600.00 AUGUST 1998 13,600.00 SEPTEMBER 1998 98,145.18 OCTOBER 1998 13,600.00 NOVEMBER 1998 13,600.00 DECEMBER 1998 13,600.00 JANUARY 1999 13,600.00 FEBRUARY 1999 13,600.00 MARCH 1999 98,145.18 APRIL 1999 13,600.00 MAY 1999 13,600.00 JUNE 1999 13,600.00 JULY 1999 13,600.00 AUGUST 1999 13,600.00 SEPTEMBER 1999 98,145.18 OCTOBER 1999 13,600.00 NOVEMBER 1999 13,600.00 DECEMBER 1999 13,600.00 JANUARY 2000 13,600.00 FEBRUARY 2000 13,600.00 MARCH 2000 98,145.18 APRIL 2000 13,600.00 MAY 2000 13,600.00 JUNE 2000 13,600.00 JULY 2000 13,600.00
- --------------------------------------------------------- MONTHLY MONTH TOTA - --------------------------------------------------------- AUGUST 2000 13,600.00 SEPTEMBER 2000 98,145.18 OCTOBER 2000 13,600.00 NOVEMBER 2000 13,600.00 DECEMBER 2000 13,600.00 JANUARY 2001 13,600.00 FEBRUARY 2001 13,600.00 MARCH 2001 98,145.18 APRIL 2001 13,600.00 MAY 2001 13,600.00 JUNE 2001 13,600.00 JULY 2001 13,600.00 AUGUST 2001 13,600.00 SEPTEMBER 2001 98,145.18 OCTOBER 2001 13,600.00 NOVEMBER 2001 13,600.00 DECEMBER 2001 13,600.00 JANUARY 2002 13,600.00 FEBRUARY 2002 13,600.00 MARCH 2002 98,145.18 APRIL 2002 13,600.00 MAY 2002 13,600.00 JUNE 2002 13,600.00 JULY 2002 13,600.00 AUGUST 2002 13,600.00 SEPTEMBER 2002 98,145.18 OCTOBER 2002 13,600.00 NOVEMBER 2002 13,600.00 DECEMBER 2002 13,600.00 JANUARY 2003 13,600.00 FEBRUARY 2003 13,600.00 MARCH 2003 98,145.18 APRIL 2003 13,600.00 MAY 2003 13,600.00 JUNE 2003 13,600.00 JULY 2003 13,600.00 AUGUST 2003 13,600.00 SEPTEMBER 2003 98,145.18 OCTOBER 2003 13,600.00 NOVEMBER 2003 13,600.00 DECEMBER 2003 13,600.00 JANUARY 2004 13,600.00 FEBRUARY 2004 13,600.00 MARCH 2004 98,145.18 APRIL 2004 13,600.00 MAY 2004 13,600.00 JUNE 2004 13,600.00 JULY 2004 13,600.00 AUGUST 2004 13,600.00 SEPTEMBER 2004 98,145.18 OCTOBER 2004 13,600.00 NOVEMBER 2004 13,600.00 DECEMBER 2004 13,600.00
- --------------------------------------------------------- MONTHLY MONTH TOTA - --------------------------------------------------------- JANUARY 2005 13,600.00 FEBRUARY 2005 13,600.00 MARCH 2005 98,145.18 APRIL 2005 13,600.00 MAY 2005 13,600.00 JUNE 2005 13,600.00 JULY 2005 13,600.00 AUGUST 2005 13,600.00 SEPTEMBER 2005 98,145.18 OCTOBER 2005 13,600.00 NOVEMBER 2005 13,600.00 DECEMBER 2005 13,600.00 JANUARY 2006 13,600.00 FEBRUARY 2006 13,600.00 MARCH 2006 98,145.18 APRIL 2006 13,600.00 MAY 2006 13,600.00 JUNE 2006 13,600.00 JULY 2006 13,600.00 AUGUST 2006 13,600.00 SEPTEMBER 2006 98,145.18 OCTOBER 2006 13,600.00 NOVEMBER 2006 0.00 DECEMBER 2006 0.00 JANUARY 2007 0.00 FEBRUARY 2007 0.00 MARCH 2007 84,545.18 APRIL 2007 0.00 MAY 2007 0.00 JUNE 2007 0.00 JULY 2007 0.00 AUGUST 2007 0.00 SEPTEMBER 2007 84,545.18 OCTOBER 2007 0.00 NOVEMBER 2007 0.00 DECEMBER 2007 0.00 JANUARY 2008 0.00 FEBRUARY 2008 0.00 MARCH 2008 84,545.18 APRIL 2008 0.00 MAY 2008 0.00 JUNE 2008 0.00 JULY 2008 0.00 AUGUST 2008 0.00 SEPTEMBER 2008 84,545.18 OCTOBER 2008 0.00 NOVEMBER 2008 0.00 DECEMBER 2008 0.00
EX-10 4 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 5 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 aEmployee, 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-27 6 10-Q
5 9-MOS DEC-31-1996 SEP-30-1996 1,764,000 0 19,484,000 (1,258,000) 32,158,000 56,275,000 9,537,000 7,226,000 72,699,000 32,723,000 0 60,465 0 5,000,000 (414,465) 72,699,000 95,249,000 95,903,000 62,526,000 31,211,000 0 302,000 3,558,000 (1,694,000) 190,000 (1,884,000) 0 0 0 (1,884,000) (.31) 0
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