<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[Amendment No. ............................]
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
OAK HILL SPORTSWEAR CORPORATION
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(Name of Registrant as Specified in Its Charter)
MICHAEL A. ASCH
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii),
14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which trans-
action applies:
--------------------------------------------------
2) Aggregate number of securities to which transaction
applies:
--------------------------------------------------
3) Per unit price or other underlying value of trans-
action computed pursuant to Exchange Act
Rule 0-11:*
The filing fee of $2,800 was calculated based on a $14,000,000
purchase price for the sale of assets. This price was determined
based upon the Company's estimate of what the net book value of
the inventory and certain other assets being sold will be at the
closing and is subject to adjustment depending on what the
actual net book value is at closing.
---------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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- ----------
*Set forth the amount on which the filing fee is
calculated and state how it was determined.
<PAGE>
/ / Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule and
the date of its filing.
1) Amount Previously Paid:
--------------------------------------
2) Form Schedule or Registration Statement No.: 14A
(Prelim. Proxy Statement)
------------------------------------
3) Filing Party:
------------------------------------------------
4) Date Filed:
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<PAGE>
OAK HILL SPORTSWEAR CORPORATION
1411 Broadway
New York, New York 10018
--------------
NOTICE OF 1995 ANNUAL MEETING OF SHAREHOLDERS
--------------
Dear Shareholder:
The Annual Meeting of Shareholders (the "Meeting") of Oak Hill Sportswear
Corporation (the "Company") will be held at Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York, on Monday,
July 24, 1995, at 9:30 A.M., to:
(1) elect four directors to the Board of
Directors of the Company;
(2) approve a Non-Qualified Stock Option Plan for
the Company;
(3) approve the sale of substantially all of the assets
of the Company through the sale of the business and
certain assets of the Company's Sportswear Division
to Donnkenny Apparel, Inc. and the possible future
sale of the Company's Harmal Division (the "Sale of
Assets"); and
(4) act upon such other matters as may properly
come before the Meeting.
The action proposed by the Board of Directors of the Company in connection
with the Sale of Assets, if consummated, entitles shareholders of the Company
fulfilling the requirements of Section 623 of the New York Business Corporation
Law ("NYBCL") to shareholders' appraisal rights. A copy of Section 623 of the
NYBCL is attached as Annex F to the accompanying Proxy Statement.
The Board of Directors has fixed the close of business on June 15, 1995 as
the record date for determining shareholders of the Company entitled to notice
of and to vote at the Meeting.
Joseph Greenberger,
Secretary
June 28, 1995
YOUR VOTE IS IMPORTANT
Whether or not you plan to attend the Meeting,
please sign and return the accompanying proxy card.
<PAGE>
Confidential, For Use of Commission Only
OAK HILL SPORTSWEAR CORPORATION
1411 Broadway
New York, New York 10018
(212) 789-8900
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PROXY STATEMENT
FOR
1995 ANNUAL MEETING OF SHAREHOLDERS
--------------
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SUMMARY
Certain significant matters discussed in this
Proxy Statement are summarized below. This summary is not
intended to be a complete discussion of the matters contained
herein, and is qualified in all respects by the
detailed information appearing elsewhere in this Proxy
Statement and the Annexes hereto. Shareholders are urged to
review carefully this Proxy Statement and each of the
Annexes hereto. Cross references used in this summary are
to captions in this Proxy Statement.
The Annual Meeting
The Annual Meeting of Shareholders (the "Meeting") of Oak Hill
Sportswear Corporation (the "Company") will be held at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New
York, on Monday, July 24, 1995, at 9:30 A.M.
Record Date
Only holders of record of the Company's Common Stock at the close of
business on June 15, 1995 (the "Record Date") are entitled to notice of and to
vote at the Meeting. On the Record Date, there were 2,057,576 shares of Common
Stock outstanding, each entitled to one vote.
Matters to be Voted Upon
Item 1 - Election of four directors
Item 2 - Approval of a Non-Qualified Stock Option
Plan
Item 3 - Approval of the Sale of Assets
Item 4 - Any other matters that may properly come
before the Meeting.
All shares of Common Stock represented at the Meeting by properly
executed proxies received prior or at the Meeting, unless the proxies have
previously been revoked, will be voted in accordance with the instructions on
such proxies. If no instructions are given, proxies will be voted (i) FOR
management's nominees for directors, (ii) FOR the proposal to approve a
Non-Qualified Stock Option Plan and (iii) FOR the proposal to approve the Sale
of Assets.
1
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Quorum; Required Vote
A majority of the outstanding shares of Common Stock entitled to vote,
represented in person or by proxy, is required for a quorum at the Meeting. Each
nominee for director of the Company shall be elected by the vote of a plurality
of the shares of Common Stock present, or repre- sented, at the Meeting. The
affirmative vote of a majority of the shares of Common Stock present, or
represented, at the Meeting is required to approve the Company's Non- Qualified
Stock Option Plan. The affirmative vote of share- holders holding at least
66 2/3% of the outstanding shares of Common Stock is required to approve the
Sale of Assets.
Item 1 -- Election of Directors
Four directors are to be elected at the Meeting to hold office until
the next Annual Meeting of Shareholders and until their successors are elected
and qualified. The Nominating Committee of the Board of Directors has nominated
Arthur L. Asch, Joseph Greenberger, Steven Kotler and Wilmer J. Thomas, Jr., all
of whom are currently directors of the Company, as nominees for election as
directors (see "Item 1--Election of Directors").
Item 2 -- Approval of Non-Qualified Stock Option Plan
Shareholders will be asked to approve a Non- Qualified Stock Option
Plan (the "NQO Plan"), a copy of which is attached as Annex A. The NQO Plan is
to provide a continuing, long-term incentive to officers and selected employees
of the Company so that it may be able to continue to hire and retain qualified
personnel. The NQO Plan was approved by the Board of Directors of the Company on
October 11, 1994 and must be approved by shareholders of the Company on or
before December 31, 1995 or it will not become effective. (See "Item 2 --
Approval of Non-Qualified Stock Option Plan.")
The Board of Directors unanimously recommends that shareholders vote
FOR adoption of the Non-Qualified Stock Option Plan.
2
<PAGE>
Item 3 -- Approval of Sale of Assets
Shareholders will be asked to approve the sale of substantially all of
the assets of the Company through the sale of the business and certain assets
of the Company's Sportswear Division (the "Proposed Transaction") to Donnkenny
Apparel, Inc. ("Donnkenny") pursuant to the terms and conditions of the Asset
Purchase Agreement between the Company and Donnkenny, dated as of May 23, 1995,
as amended on June 26, 1995 (the "Asset Purchase Agreement"), a copy of which is
attached as Annex B, and a possible future sale of the Harmal Division. Thus,
the vote to approve the Sale of Assets will include an authorization for the
Company to sell its Harmal Division at a future time at such price, and on such
terms and conditions, as the Board of Directors believes are appropriate at such
time (the "Harmal Authorization").
The Proposed Transaction with Donnkenny. The
Proposed Transaction pursuant to the Asset Purchase Agree-
ment provides for the sale by the Company to Donnkenny of
inventory, certain fixed assets, security deposits, trade
names and trademarks, contracts and goodwill of the
Company's Sportswear Division.
The Purchase Price to be paid by Donnkenny in cash
is expected to be approximately $14,000,000, of which
$1,000,000 will be placed in a one year escrow to provide
security for the Company's indemnification obligations and
its warranty of certain inventory under the Asset Purchase
Agreement. After payment of expenses estimated at $1,000,000,
the balance of the proceeds of approximately $12,000,000 will
be used to pay the Company's bank indebtedness.
The actual purchase price will be derived from the
following formula: $2,000,000 plus the net book value of the
transferred inventory, fixed assets, security deposits and
prepaid items of the Sportswear Division as of the Closing
Date.
The Company and Donnkenny have agreed to close the
Proposed Transaction in escrow on June 29, 1995, effective the
close of business on June 30, 1995, pending the results of the
shareholder vote on the Sale of Assets. If the shareholders approve
the Sale of Assets, the consummation of the Proposed Transaction
will have occurred as of June 30, 1995.
Effect of Sale of Assets on the Company. Following
the consummation of the Proposed Transaction, the Company
expects to have liquid assets, after taking into account its
retained assets and known liabilities, including all
accounts payable and other liabilities of the Sportswear
Division arising prior to the Closing Date, as well as all
liabilities of the Company on the corporate level, including
3
<PAGE>
its liabilities under its bank credit agreements. Although
the amount cannot be quantified, the Company believes that
it could have approximately $5,000,000 in cash and cash
equivalents by the end of 1995. There can be no assurance,
however, that such liquid assets will be realized. In
addition, the retained assets also include the Harmal
Division and certain real estate in Mississippi, which the
Company may sell. The proceeds of such sales, if any, are
not included in the foregoing estimate.
The Company has not yet decided its future direc-
tion, which would depend, in part, upon the extent of liquid
assets that are realized following the Proposed Transaction.
Relevant factors include the amounts to be realized upon the
sale, if any, of the Harmal Division, the ongoing operating
losses of the Harmal Division and the consummation of the
sales, if any, of the Company's real estate and other fixed
assets. The Company may not liquidate for at least one year
following the Proposed Transaction pursuant to the terms of
the Asset Purchase Agreement. In any event, to the extent required
by law, any plan of liquidation will be submitted to the
shareholders for their approval. The Company may continue to
operate the Harmal Division or possibly expand into another
business. The undertaking of any new line of business, how-
ever, would be restricted by the noncompetition provisions
contained in the Asset Purchase Agreement. Also, such
expansion may require the hiring of additional management
personnel.
Arthur L. Asch and Michael A. Asch will become
employees of Donnkenny following the consummation of the
Proposed Transaction. However, they will continue in their
current positions with the Company at substantially reduced
salaries to reflect that they will be providing limited time
to the activities of the Company. They believe, however,
that they will be able to devote sufficient time to meet the
Company's needs in the foreseeable future. The Harmal
Division will continue to be operated by its current manage-
ment and employees.
Following the sale of the Sportswear Division, the
Company will have available financing, although subject to a
reduced borrowing base (that is, approximately 35% of the
Company's eligible accounts receivable), under its bank
credit agreement. The Company believes that such level of
financing will be sufficient for its Harmal Division and its
other operating and corporate needs.
As the Proposed Transaction involves the sale of
assets of the Company for cash, the shareholders of the
Company will retain their equity interests in the Company
following the consummation of the Proposed Transaction. As
the Harmal Authorization involves shareholder approval of a
possible future sale of the Harmal Division pursuant to
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terms and conditions to be determined by the Board of
Directors in the future, the effect, if any, of such sale on
the equity interests of shareholders cannot be determined at
this time.
Background of Sale of Assets; Fairness of
Transaction; Recommendation of Board of Directors. The
Board of Directors agreed to enter into the Asset Purchase
Agreement principally because of its belief that the
Company's financial condition was declining in light of its
tight credit position and the Proposed Transaction offered
the best alternative at the current time. The Board also
took into account, among other things, that the Company had
explored various possible sale or merger transactions over
the last several years. See "Item 3 -- Approval of Sale of
Assets -- Background of the Sale of Assets" for a description
of the process followed in connection with the Sale of
Assets.
The Board of Directors believes that the Proposed
Transaction is fair to, and in the best interests of, the
Company and its shareholders. The Board has unanimously
approved the Proposed Transaction pursuant to the Asset
Purchase Agreement. See "Conflicts of Interest" for a
description of the interests of Arthur L. Asch in the
Proposed Transaction.
The Board of Directors of the Company unanimously
recommends that shareholders vote FOR approval of the Sale
of Assets.
In reaching its determination, the Board reviewed
the terms of the Asset Purchase Agreement and related
agreements, as well as the possible future direction of the
Company. The principal factor considered by the Board was
the Board's belief that the Company's financial condition
was declining in light of its tight credit position and the
inability of the Company to borrow the funds that would be
required for its working capital and capital expenditures at
its planned level of sales for the remainder of 1995 and
1996. The Board also considered, among other things, the
oral and written presentations and the fairness opinion of
Janney Montgomery Scott, Inc., dated May 23, 1995, a copy of
which is attached as Annex E. At the Board's meeting held on
May 18, 1995, Janney Montgomery delivered its opinion to the
Board that, as of such date, the Proposed Transaction pursuant
to the Asset Purchase Agreement was fair, from a financial point of
view, to the shareholders of the Company. Shareholders are
urged to read the fairness opinion in its entirety. Both
Janney Montgomery Scott, Inc. and the Board took into
account the pro forma financial effects of the Proposed
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Transaction. See "Selected Historical and Unaudited Pro
Forma Financial Data of the Company."
Conflicts of Interest. In considering the
recommendation of the Proposed Transaction by the Board of
Directors, shareholders should be aware that Arthur L. Asch,
Chairman of the Board and Chief Executive Officer of the
Company, and his son, Michael A. Asch, Vice President and
Chief Financial Officer of the Company, have an interest in
the Proposed Transaction in addition to the interests of
shareholders of the Company generally. Following
consummation of the Proposed Transaction, as provided by the
Asset Purchase Agreement, each of Arthur L. Asch and Michael
A. Asch will also be employed by Donnkenny pursuant to their
Employment Agreements with Donnkenny, forms of which are
attached as Annex C and D, respectively.
Conditions to Closing of Proposed Transaction.
The obligations of the Company and Donnkenny to consummate
the Proposed Transaction pursuant to the Asset Purchase
Agreement are subject to certain conditions, which condi-
tions may be waived by the appropriate party, including,
among other things, approval of the Company's shareholders
and consents of the Company's bank lenders to the release of
their liens on the assets to be sold.
Termination. The Asset Purchase Agreement may be
terminated and the Proposed Transaction may be abandoned by
(i) mutual consent of the parties; (ii) either party by
notice if the Closing Date shall not have occurred on or
before July 31, 1995; (iii) the Company, if its Board of
Directors withdraws its recommendation of the Proposed
Transaction in order to approve the execution of a defini-
tive agreement relating to another Acquisition Proposal
after determining that the failure to take such action would
be inconsistent with its fiduciary duties under applicable
law; or (iv) Donnkenny, if it does not obtain satisfactory
bank financing. If the Asset Purchase Agreement is termi-
nated by the Company pursuant to either (ii) or (iii) above,
and the Company closes the transaction contemplated by such
Acquisition Proposal within one year, the Company must pay
Donnkenny a termination fee of $1,000,000 plus its legal
expenses incurred in connection with the Proposed
Transaction. If Donnkenny terminates the Asset Purchase
Agreement pursuant to (iv) above, Donnkenny must pay the
Company a termination fee of $1,000,000 plus its legal
expenses incurred in connection with the Proposed
Transaction.
6
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Rights of Dissenting Shareholders. Any share-
holder of the Company is entitled to seek rights as a dis-
senting shareholder in respect of the Sale of Assets, in
compliance with Section 623 of the NYBCL, a description of
which is provided in "Appraisal Rights" below, and the full
text of which is attached as Annex F. Failure to comply
strictly with the statutory provisions may result in the
termination of such rights a dissenting shareholder.
Receipt of cash for shares of Common Stock by
dissenting shareholders upon the exercise of appraisal
rights will be taxable transactions for federal income tax
purposes and may also be taxable transactions for state,
local or other tax purposes.
7
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<PAGE>
INTRODUCTION
Proxies in the form enclosed are solicited by the Board of Directors (the
"Board of Directors") of Oak Hill Sportswear Corporation (the "Company") for use
at the 1995 Annual Meeting of Shareholders (the "Meeting") scheduled to be held
on Monday, July 24, 1995 at 9:30 A.M., and at any adjournments or postponements
thereof. All properly executed proxies received prior to or at the Meeting will
be voted. If a proxy specifies how it is to be voted, it will be so voted. If no
specification is made, it will be voted to elect the Board of Directors' four
nominees for directors (see "Election of Directors" below), to approve a
Non-Qualified Stock Option Plan for the Company (see "Approval of Non-Qualified
Stock Option Plan" below), to approve the sale of substantially all of the
assets of the Company through the sale of the business and certain assets of the
Company's Sportswear Division to Donnkenny Apparel, Inc. ("Donnkenny") and the
possible future sale of the Company's Harmal Division (see "Approval of Sale of
Assets" below), and, if other matters properly come before the Meeting, in the
discretion of either of the persons named in the proxy.
All information contained in this Proxy Statement has been supplied by the
Company, except for certain information contained in this Proxy Statement
concerning Donnkenny, which has been supplied by Donnkenny.
No persons have been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitations of proxies hereby and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any other person.
Shares Entitled to Vote
Holders of record of all of the outstanding shares of Common Stock of the
Company (the "Common Stock") at the close of business on June 15, 1995 (the
"Record Date") are entitled to notice of and to vote at the Meeting. On the
Record Date, there were 2,057,576 shares of Common Stock, $.02 par
8
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value per share, outstanding, each entitled to one vote. The Notice of Meeting,
this Proxy Statement, the accompanying proxy card and the Annual Report of the
Company for its fiscal year ended December 31, 1994 are being mailed on or about
June 28, 1995 to all holders of Common Stock on the Record Date.
Shareholder Vote Required for Proposals
Each nominee for director of the Company shall be elected by the vote of a
plurality of the shares of Common Stock present, or represented, at the Meeting
at which a quorum is present. The approval of the Company's Non-Qualified Stock
Option Plan requires the affirmative vote of a majority of the shares of Common
Stock present, or represented, and entitled to vote at the Meeting at which a
quorum is present. The approval of the Sale of Assets requires the affirmative
vote of at least two-thirds (66 2/3%) of all outstanding shares of Common
Stock.
Proxies and Revocation of Proxies
Execution and delivery of a proxy card will not affect a shareholder's
right to attend the Meeting and vote in person. A shareholder in whose name
shares of Common Stock are registered as of the Record Date and who has given a
proxy may revoke it at any time before it is voted by executing and delivering a
written revocation to the Secretary of the Company, by presentation of a later
dated proxy or by attending the Meeting and voting by ballot (which has the
effect of revoking the prior proxy). Attendance at the Meeting, however, will
not in and of itself revoke a proxy.
A shareholder who is a beneficial owner, but not a registered owner, of
Common Stock as of the Record Date, cannot vote his or her shares of Common
Stock except by the shareholder's broker, bank or nominee in whose name the
shares are registered executing and delivering a proxy on such shareholder's
behalf or such shareholder attending the Meeting with a proxy or other
authorization to vote from the registered owner and voting.
Cost of Solicitation
The Company has retained Kissel-Blake Inc., for a fee of $4,000, plus $4.10
per shareholder solicited by telephone, plus reimbursement of expenses, to
assist in its solicitation of proxies from shareholders, brokers, banks and
other nominees. Brokers, banks, and other nominees will be reimbursed for
out-of-pocket and other reasonable clerical expenses incurred in obtaining
instructions from beneficial owners of the Common Stock. In addition to the
solicitation by mail, solicitation of proxies may, in certain instances, be made
personally or by telephone by directors, officers and a few regular employees of
the Company. It is expected that the expense of such special solicitation will
be nominal. All expenses incurred in connection with this solicitation will be
borne by the Company.
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Available Information
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Office at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material also can be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549 at prescribed rates. In addition,
material filed by the Company should be available for inspection at the offices
of NASDAQ Stock Market, 1735 K Street, N.W., Washington, D.C. 20006-1506.
Incorporation of Certain Materials
The Company's Annual Report on Form 10-K for the year ended December
31, 1994, dated as of March 30, 1995, and the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, dated as of May 15, 1995, previously
filed with the Commission (Commission File No. 0-5613) and attached hereto as
Annex G, are hereby included in this Proxy Statement. The Company's 1994 Annual
Report, which is being mailed to the Company's shareholders herewith, is
incorporated by reference herein.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the Meeting shall be deemed incorporated by reference into
this Proxy Statement and to be a part hereof from the respective dates of filing
of such documents with the Commission. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as modified
or superseded, to constitute part of this Proxy Statement.
This Proxy Statement incorporates documents by reference that are not
presented herein or delivered herewith. Such documents (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference)
are available to any person, including any beneficial owner of Common Stock, to
whom this Proxy Statement is delivered, on written or oral request to: Oak Hill
Sportswear Corporation, 1411 Broadway, New York, New York 10018 Attn: Chief
Financial Officer.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PRINCIPAL HOLDERS OF COMMON STOCK......................................................................... 8
ITEM 1 -- ELECTION OF DIRECTORS........................................................................... 8
Certain Information Regarding Management's Nominees.............................................. 8
Meetings of Board of Directors and Committees.................................................... 10
Director Compensation............................................................................ 10
Executive Officers............................................................................... 10
Executive Compensation........................................................................... 11
Company Employment Agreements.................................................................... 12
Deferred Compensation Plans...................................................................... 13
Stock Options.................................................................................... 13
Change-in-Control Arrangements................................................................... 13
Compensation Committee Interlocks and Insider Participation...................................... 13
Compensation Committee Report.................................................................... 13
Performance Graph................................................................................ 14
ITEM 2 -- APPROVAL OF NON-QUALIFIED STOCK OPTION PLAN..................................................... 15
Summary of the Plan.............................................................................. 15
Purpose.......................................................................................... 15
Number of Shares Covered by the NQO Plan......................................................... 15
Administration................................................................................... 16
Eligibility and Extent of Participation.......................................................... 16
Purchase Price, Period and Exercise of Options................................................... 16
Expiration and Transfer of Options............................................................... 16
Adjustments of Shares............................................................................ 16
Amendments to, and Termination of, the NQO Plan.................................................. 16
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Federal Income Tax Consequences of the NQO Plan.................................................. 17
ITEM 3 -- APPROVAL OF SALE OF ASSETS...................................................................... 17
Introduction..................................................................................... 17
Brief Synopsis of the Proposed Transaction....................................................... 18
NYBCL Section 909 Shareholder Approval Requirement; NYBCL Section 713............................ 18
Effect of Sale of Assets on Holding of Shareholders.............................................. 18
Background of the Sale of Assets................................................................. 18
Recommendation of the Board of Directors; Reasons for the Sale of Assets......................... 23
Conflicts of Interest............................................................................ 25
Credit and Security Agreements of the Company; Use of Proceeds................................... 25
Post Proposed Transaction Operations of the Company.............................................. 26
Summary of the Asset Purchase Agreement.......................................................... 27
Accounting Treatment of the Proposed Transaction................................................. 31
</TABLE>
12
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<TABLE>
<CAPTION>
<S> <C>
Federal Income Tax Consequences of the Proposed Transaction...................................... 31
Fairness Opinion................................................................................. 31
Historical Common Stock Prices................................................................... 34
Selected Historical and Unaudited Pro Forma Financial Data of the Company........................ 35
Business of Donnkenny............................................................................ 36
Selected Financial Information of Donnkenny Inc. and Subsidiaries................................ 36
Unaudited Pro Forma Consolidated Balance Sheet of the Company.................................... 37
Unaudited Pro Forma Consolidated Statements of Operations of the Company......................... 39
Appraisal Rights................................................................................. 40
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING............................................................. 42
FILINGS UNDER SECTION 16(a)............................................................................... 43
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.............................................................. 43
ANNEX A: NON-QUALIFIED STOCK OPTION PLAN
ANNEX B: ASSET PURCHASE AGREEMENT, AS AMENDED
ANNEX C: EMPLOYMENT AGREEMENT BETWEEN DONNKENNY AND ARTHUR L. ASCH
ANNEX D: EMPLOYMENT AGREEMENT BETWEEN DONNKENNY AND MICHAEL A. ASCH
ANNEX E: FAIRNESS OPINION
ANNEX F: NEW YORK BUSINESS CORPORATION LAW SECTION 623
ANNEX G: THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994
AND QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995
</TABLE>
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PRINCIPAL HOLDERS OF COMMON STOCK
The following are believed by the Company to be the beneficial
owners of more than 5% of the outstanding Common Stock, as of May 15, 1995.
Number Percent of
Name and Address of Shares Outstanding
- ----------------- ----------- -----------
Arthur L. Asch 336,951(1) 16.4%
1411 Broadway
New York, New York 10018
Alphi Investment Management 186,100(2) 9.0%
Company
155 Pfingston Road
Suite 360
Deerfield, Illinois 60015
Kennedy Capital Management 141,000(2) 6.9%
425 N. New Ballas Road
Suite 181
St. Louis, Missouri 63141
(1) Includes 25,000 shares held by Arthur L. Asch's wife. Arthur L. Asch
has disclaimed a beneficial ownership of these shares. Excludes options
to purchase 40,000 shares which options become exercisable in four
equal cumulative annual installments to commence October 11, 1995.
(2) As reported in the most recent Schedule 13D or 13G
received by the Company.
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ITEM 1 -- ELECTION OF DIRECTORS
Certain Information Regarding Management's Nominees
Four directors are to be elected at the Meeting to hold office until the
next Annual Meeting of Shareholders and until their successors are elected and
qualified. Arthur L. Asch, Joseph Greenberger, Steven Kotler and Wilmer J.
Thomas, Jr., who are currently directors, are nominees for election as
directors. Nominees receiving a plurality of the votes cast at the Meeting will
be elected. The current term of office of the directors expires at the
conclusion of the Meeting. The Board of Directors has no reason to believe that
any nominee will be unable to serve as a director of the Company. If any nominee
should not be available to serve as a director of the Company, either person
named in the proxy as a proxy may vote for a substitute nominee designated by
the Nominating Committee of the Board of Directors.
The following table gives certain information as of May 15, 1995
concerning the current directors, the nominees of the Board of Directors for
election as directors and the ownership of the Common Stock by all officers,
directors and nominees as a group.
<TABLE>
<CAPTION>
Director Number of Percent of
Name Age Biographical Information Since Shares Outstanding
----- --- -------------------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Arthur L. Asch 53 Chairman of the Board of 1979 336,951(1) 16.4%
Directors and Chief Executive
Officer of the Company, and
member of the Executive
Committee.
Joseph Greenberger 59 Secretary of the Company and 1979 -- --
member of Stock Option Commit-
tee. Partner of Greenberger &
Forman, a New York law
firm.(2)
Steven Kotler 48 President since March 1987, 1979 25,675(3) 1.2%
and Managing Director, since
1986, of Wertheim Schroder &
Co. Incorporated (investment
bankers) and, prior thereto,
general partner of Wertheim &
Co., its predecessor.
Chairman of the Company's
Executive Committee and member
of Audit, Nominating and Stock
Option Committees. Director
of Del Laboratories, Inc.
(cosmetics and drugs) and Moore
Medical Corp. (wholesale
drugs). Member of Board of
Governors of the American
Stock Exchange.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Bruce Slovin 59 President and Director of 1979 -- --
MacAndrews & Forbes Holdings
Inc. and Revlon Group Incor-
porated (industrial holding
companies). Director of
Revlon, Inc. (beauty and per-
sonal care); Andrews Group,
Incorporated (publishing and
entertainment); Continental
Health Affiliates, Inc. (nurs-
ing home ownership and manage-
ment); Cantel Industries, Inc.
(distributor of furniture and
medical equipment); Infutech,
Inc. (home health care); and
The Coleman Company, Inc.
(outdoor recreation
manufacturer.)
Peter C. Sutro 64 Retired. From 1987 to 1991 1979 -- --
President of M.P.I. Satellite
(Italia) S.p.A. (marketing and
importing of satellite tele-
vision reception equipment to
Europe). Director of Moore
Medical Corp.
Wilmer J. Thomas, Jr. 68 Private investor and finan- 1979 2,000 *
cial consultant. Member of
the Company's Executive,
Audit, Nominating and Stock
Option Committees. Director
and Vice Chairman of Great
Dane Holdings, Inc. (truck
trailers and automotive stamp-
ing components) and its
Treasurer from 1989 to 1994.
Director of Moore Medical
Corp.
All directors and 382,626 18.6%
executive officers
as a group (8 persons)(4)
</TABLE>
16
<PAGE>
(1) See Note 1 to "Principal Holders of Common Stock."
(2) Joseph Greenberger's law firm earned approximately $36,000 in fees
from the Company for services rendered in 1994.
(3) All such shares are held by the Kotler Family Foundation, Inc., of
which Steven Kotler is Trustee. Steven Kotler has disclaimed beneficial
interest in these shares.
(4) The Company maintains directors and officers liability insurance with
Cigna Insurance Co., pursuant to a policy effective from September 22,
1994 through September 22, 1995 at an annual premium of $29,225.
* Less than 1%.
Meetings of Board of Directors and Committees
The Board of Directors had seven formal meetings during 1994. Other than
Bruce Slovin (who was not present at two such meetings), all directors attended
at least 75% of the Board of Directors meetings in 1994. The Board has an
Executive Committee, an Audit Committee, a Nominating Committee and a Stock
Option Committee. The Executive Committee has all the authority which, under the
New York Business Corporation Law ("NYBCL"), may be delegated to such an
Executive Committee; it has been specifically delegated the functions of a
compensation committee. The Executive Committee had several informal meetings
during 1994. The Audit Committee recommends the firm of independent public
accountants to be engaged as the Company's auditors and participates in such
accounting reviews as it deems appropriate. It had one meeting during 1994. The
Nominating Committee recommends to the Board of Directors the slate of the
nominees for election as directors and also recommends officers and other
Company officials; it will consider nominations by shareholders made in writing
to the Chairman of the Board of Directors. The Nominating Committee had two
meetings during 1994. The Stock Option Committee is authorized to award options
under the Company's stock option plans. It had one meeting during 1994.
Director Compensation
Directors who are not officers were each paid $10,000 in 1994. Steven
Kotler, as Chairman of the Executive Committee, was paid an additional $10,000
in 1994 and Wilmer J. Thomas, Jr. was paid an additional $10,000 in 1994 under a
consulting arrangement with the Company pursuant to which he consults with
senior officers regarding financial and transaction matters.
17
<PAGE>
Executive Officers
The Company currently has two executive officers other than its Chief
Executive Officer. Their ages, business experience over the last five years and
the number of shares of Common Stock owned by each of them are set forth below:
<TABLE>
<CAPTION>
Number of Percent of
Name Age Business Experience Shares Outstanding
---- ---- -------------------- ---------- ------------
<S> <C> <C> <C> <C>
Michael A. Asch(1) 28 Vice President and Chief 18,000(2) .9%
Financial Officer of the
Company since March 1994. Vice President
- Operations of the Company's Domestic
Division from January 1993. Since
February 1992, President and principal of
Anniston Capital, Inc. (investment
banking). From August 1989 to January
1992, Associate - Investment Banking of
Robert Fleming Inc.
Tedd D. Drattell 34 Treasurer of the Company since -- --
October 1994. From December
1993 to October 1994, Chief Financial
Officer of Leather's Best (leather
importing/exporting). From March 1983 to
December 1993, Chief Financial Officer
and Controller of Sterling Imports Ltd.,
d/b/a Jason Brooke Imports
(wine/beverage importing and
distribution).
</TABLE>
- ----------------
(1) Michael A. Asch is the son of Arthur L. Asch.
(2) Excludes options to purchase 34,000 shares which become exercisable in
four equal cumulative annual installments to commence October 11, 1995.
18
<PAGE>
Executive Compensation
The following table summarizes all compensation paid by the
Company during its fiscal year ended December 31, 1994, and for the two prior
fiscal years, to its Chief Executive Officer and each of its most highly
compensated executive officers as of December 31, 1994, whose total compensation
exceeded $100,000 during 1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
------------------- ----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Restricted Number of All
Principal Annual Stock Options LTIP Other
Position Year Salary Bonus Compensation Award(s) Granted Payouts Comp.
- --------- ---- ------ ----- ------------ --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur L. Asch (2) (3)
Chairman of
the Board
(Chief
Executive
Officer) 1994 $500,000 -- -- -- 40,000(4) -- $ 8,400
1993 $500,000 -- -- -- -- -- $ 13,550
1992 $630,000 -- -- -- -- -- $ 13,131
Michael A. Asch 1994 $121,218 -- -- -- 34,000(4) -- $ 6,673
Vice President
(Chief
Financial
Officer)(1)
</TABLE>
- ----------
(1) Michael A. Asch became Chief Financial Officer in March 1994.
(2) No executive officer's perquisites equalled or exceeded the lesser of
$50,000 or 10% of cash compensation.
(3) Represents the following amounts paid under the Company's defined
contribution pension (PP) and profit sharing plans (PSP): For Arthur L.
Asch in 1994, $5,400 PP and $3,000 PSP; in 1993, $8,833 PP and $4,717 PSP;
in 1992, $8,554 PP and $4,577 PSP. For Michael A. Asch in 1994,
$4,248 PP and $2,424 PSP.
(4) Excludes like number of options granted in tandem with such options,
subject to shareholder approval of the Company's Non-Qualified Stock
Option Plan. See Option/SAR Grants Table and Item 2 - Approval of
Non-Qualified Stock Option Plan.
19
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Option/SAR Grants in Last Fiscal Year Rates of Stock Price
Appreciation for Option
Individual Grants Term(3)
----------------- ------------------------
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise
Option/SARs to Employees Price Expiration
Name Granted(#) in Fiscal Year ($/share) Date 5%($) 10%($)
- ---- ---------- -------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Arthur L. Asch 40,000(1) 32.3%(2) $4.68 10/11/99 $29,600 $86,400
Michael A. Asch 34,000(1) 27.4%(2) $4.68 10/11/99 $25,160 $73,440
</TABLE>
(1) The options are incentive stock options granted under the Company's
Incentive Stock Option Plan. The options vest and become exercisable in
ratable portions on each of October 11, 1995, October 11, 1996, October
11, 1997 and October 11, 1998, subject to acceleration in the event of
a "change in control" (as defined in the option agreements) and
forfeiture of the unvested portion of the options in the event of
certain specified terminations of employment. The number of securities
underlying options granted reported above excludes a like number of
options granted in tandem with the incentive stock options, subject to
shareholder approval of the Company's Non-Qualified Stock Option Plan.
See Item 2 - Approval of Non-Qualified Stock Option Plan.
(2) The percentages were calculated without regard to options granted to
Company employees to acquire an aggregate of 174,000 shares subject to
shareholder approval of the Company's Non-Qualified Stock Option Plan.
Upon such approval, the incentive options will be terminated (see
"Approval of Non-Qualified Stock Option Plan" below).
(3) Before tax effects.
20
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexer- in-the-Money
Shares cised Options/SARs at Options/SARs at
Acquired on Value Fiscal Year-End ($) Fiscal Year-End ($)
Name Exercise(#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- ------------ ------------------------- --------------------------
<S> <C> <C> <C> <C>
Arthur L. Asch 0 NA 0/40,000(1) 0
Michael A. Asch 0 NA 0/34,000(2) 0
</TABLE>
(1) Excludes grant of tandem options to acquire 40,000 shares under the
Company's Non-Qualified Stock Option Plan, subject to shareholder approval
of the Plan (see "Approval of Non-Qualified Stock Option Plan" below).
(2) Excludes grant of tandem options to acquire 34,000 shares under the
Company's Non-Qualified Stock Option Plan, subject to shareholder approval
of the Plan. See Item 2 - Approval of Non-Qualified Stock Option Plan.
21
<PAGE>
Company Employment Agreements
Arthur L. Asch's employment agreement with the Company expired on December
31, 1994. Pursuant to this employment agreement, Arthur L. Asch received an
annual base salary of $500,000 for 1993 and 1994, and was entitled to a bonus if
the Company achieved certain targeted pre-tax earnings. Arthur L. Asch is
serving as Chief Executive Officer without an employment agreement and, pending
current discussions regarding the terms of a new agreement, is currently
receiving a salary at the rate of $500,000 per year (see "Donnkenny Employment
Agreements" below).
In December 1994, the Company entered into an employment agreement with
Michael A. Asch for a term from January 1, 1995 through December 31, 1996.
Pursuant to the agreement, Michael A. Asch is to receive an annual salary of
$215,000 and $230,000 for 1995 and 1996, respectively (see "Donnkenny Employment
Agreements" below).
Deferred Compensation Plans
The Company has non-contributory defined contribution pension and profit
sharing plans covering certain employees (including executive officers) of the
Company.
The Company has no defined benefit plans.
Stock Options
The Company has an Incentive Stock Option Plan ("ISO Plan"), which
terminates on March 21, 1999, and is proposing for approval at the Meeting a
Non-Qualified Stock Option Plan ("NQO Plan"), which the Board of Directors
approved on October 11, 1994. On October 11, 1994, tandem options to purchase an
aggregate of 74,000 shares under each Plan were granted to the two named
executive officers of the Company (see "Approval of Non-Qualified Stock Option
Plan"). During 1994, no executive officer of the Company exercised any options
and no options previously granted to any executive officer were repriced. The
Company has no stock appreciation rights ("SAR") plan.
Change-in-Control Arrangements
The option grants made to Messrs. Asch under the Incentive Stock Option
Plan as well as the option grants made to Messrs. Asch under the Company's
Non-Qualified Stock Option Plan, subject to shareholder approval of the Plan,
provide that if, during the period of their employment with the Company, there
should be a change in control (as defined in the grant) of the Company, vesting
is accelerated and therefore the full balance of the option (to the extent not
previously exercised) may be exercised by the holder until the earlier to occur
of October 11, 1999 and 15 days following the change of control. The Company's
Stock Option Committee has determined that the Proposed Transaction will not
constitute a change in control for purposes of such option awards and therefore
there will be no acceleration of the vesting (see "Approval of Sale of Assets"
below).
22
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Board of Directors has no separate Compensation Committee. The
Executive Committee, which consists of Steven Kotler (Chairman), Wilmer J.
Thomas, Jr., and Arthur L. Asch (the Company's Chief Executive Officer),
performs the role of a Compensation Committee. Arthur L. Asch did not
participate in the deliberations or vote during 1993 by the Committee relating
to his employment agreement which expired on December 31, 1994.
Compensation Committee Report
The compensation paid to Arthur L. Asch for 1994 was fixed by the
provisions of his employment agreement, as amended on April 16, 1993. The terms
of the agreement, as amended, were determined by arm's-length negotiations
between Arthur L. Asch and the other members of the Executive Committee, and
provided for base salaries, and for bonuses if the Company's pre-tax earnings
exceeded certain levels (see "Company Employment Agreements" above).
It is the Committee's policy that the Company have an employment contract
with its chief executive officer for a fixed employment term. The 1993 amended
employment agreement, which expired December 31, 1994, reflected that policy.
The reduction in Arthur L. Asch's base salary from prior years contained in the
amended employment agreement reflected the Committee's consideration in 1993 of
the Company's prior performance. The Committee also considered the compensation
paid to chief executive officers of other companies in the women's apparel
industry. The Chairman of the Committee is currently in discussions with Arthur
L. Asch concerning the terms of a new employment agreement.
The Executive Committee relies on Arthur L. Asch to recommend the
compensation for other executive officers. In recommending the compensation for
such other officers, Arthur L. Asch considered the compensation paid to
similarly situated officers of other companies in the women's apparel industry
and the executive's performance.
Steven Kotler, Chairman
Wilmer J. Thomas, Jr.
Arthur L. Asch
If the Sale of Assets is consummated, Arthur L. Asch will not have an
employment agreement with the Company. He will, however, receive $50,000 per
year for his continuing work for the Company. Although Arthur L. Asch will be
23
<PAGE>
a full time employee of Donnkenny, he will have the right under his
employment agreement with Donnkenny to spend such time as may be appropriate
(consistent with his obligations as Chairman of the Oak Hill Sportswear Division
of Donnkenny) to carry out his continuing obligations to the Company (see
"Donnkenny Employment Agreements" below).
Performance Graph
The following graph compares the cumulative return on $100 invested at the
close of trading on the last trading day of 1989 (assuming the reinvestment of
dividends) of the Company, the S&P 500 Index and a peer group of companies. The
peer group represents the Value Line Apparel Index, excluding those companies
with market capitalizations over $500 million, as of December 31, 1994, and is
comprised of: Farah Inc., Garan Inc., Hartmarx Corp., Kellwood Co., Oshkosh
B'Gosh, Inc. Class A Shares, Oxford Industries, Inc., Phillips-Van Heusen and
Tultex Corp. Those companies excluded as a result of the market capitalization
criteria were Fruit of the Loom, Liz Claiborne, Russell Corp. and V.F. Corp. The
peer group is weighted by market values of the companies in the group at the
beginning of each measurement period.
$160.00|------------------------------------------------------------------|
| |
| & & |
$140.00|------------------------------------------------------------------|
| & |
| & # |
$120.00|------------------------------------------------------------------|
| |
| # |
$100.00|---*&#------------------------------------------------------------|
| & # |
| # |
$80.00 |------------------------------------------------------------------|
| |
| # * |
$60.00 |------------------------------------------------------------------|
| * * |
| * |
$40.00 |-------------------------------------*----------------------------|
| |
$20.00 |------------------------------------------------------------------|
| |
$0.00 |----|----------|---------|-----------|-----------|-----------|----|
1989 1990 1991 1992 1993 1994
Source: Value Line, Inc.
*=Oak Hill Sportswear Corp. &=S&P 500 #=Peer Group
===========================================================================
1989 1990 1991 1992 1993 1994
---------------------------------------------------------------------------
Oak Hill Sportswear Corp. $100.00 $ 49.06 $ 56.60 $ 41.51 $ 53.77 $ 66.04
---------------------------------------------------------------------------
S&P 500 $100.00 $ 96.83 $126.41 $136.25 $150.00 $151.97
---------------------------------------------------------------------------
Peer Group $100.00 $ 62.48 $ 94.17 $110.30 $131.57 $ 83.51
===========================================================================
24
<PAGE>
ITEM 2 -- APPROVAL OF NON-QUALIFIED STOCK OPTION PLAN
At the Meeting, shareholders will be asked to approve a Non-Qualified Stock
Option Plan (the "NQO Plan"), a copy of which is attached as Annex A, which
NQO Plan was approved by the Board of Directors on October 11, 1994. The
affirmative vote of a majority of the shares of Common Stock present, or
represented, and entitled to vote at the Meeting at which a quorum is present
is necessary to approve the NQO Plan.
On October 11, 1994, the Stock Option Committee (the "Committee") granted
options under the NQO Plan to the following:
Name Shares Expiration Date Exercise Prices
----- ------- ------------------ ----------------
Arthur L. Asch 40,000 10/11/99 $4.25
(Chief Executive
Officer)
Michael A. Asch 34,000 10/11/99 $4.25
(Chief Financial
Officer)
Lynn Siemers Cross 50,000 10/11/99 $4.25
50,000 10/11/99 $3.625
All Executive 74,000 10/11/99 $4.25
Officers as a
group
(2 persons)
All Non-Executive 100,000 10/11/99 $3.625-$4.25
Employees
(1 person)
The foregoing options under the NQO Plan were issued in tandem with options
under the Company's ISO Plan to the same individuals, exercisable for the same
number of shares, and on the same terms, except that the exercise price of
options under the ISO Plan for both Arthur L. Asch and Michael A. Asch is $4.68.
In the event the NQO Plan is not approved by shareholders on or before December
31, 1995, that Plan will not be effective, all options granted thereunder will
be invalid, and the options for the same number of shares to the same
individuals granted in tandem under the ISO Plan will be effective. In the event
the NQO Plan is approved by that date, the options granted thereunder will be
effective and the options under the ISO Plan will terminate. The number of
shares with respect to which the options granted under the NQO Plan reported
above may be exercised shall be automatically reduced by the number of shares,
if any, with respect to which the tandem incentive stock option is exercised at
any time prior to the expiration or cancellation of the incentive stock option.
On May 18, 1995, the closing price of the Common Stock was $1 13/16.
25
<PAGE>
The option grants provide that if, during the period of the holder's
employment by the Company, there should be a change of control (as defined in
the grant and interpreted by the Committee) of the Company, the full balance of
the option (to the extent not previously exercised) may be exercised by the
holder until the earlier to occur of October 11, 1999 or 15 days following the
change of control. The Committee has determined that the Proposed Transaction
will not constitute a change of control for this purpose. Options held by
Messrs. Asch will continue to vest in accordance with the option grant so long
as they remain employed by the Company following the Sale of Assets.
Summary of the Plan
The following summarizes the material features of the Plan.
Purpose
The primary purpose of the NQO Plan is to provide a continuing, long-term
incentive to officers and selected employees of the Company so that it may be
able to continue to hire and retain qualified personnel.
Number of Shares Covered by the NQO Plan
Under the NQO Plan, options to purchase up to 199,250 shares may be
granted. Any options that are canceled or terminated without exercise are
available for future grant. No one person may receive options to purchase in
excess of 100,000 shares under the Plan.
Administration
The NQO Plan is administered by the Committee, which consists of not less
than three members of the Board, each of whom is a "disinterested person" within
the meaning of Rule 16b-3 promulgated under the Exchange Act. The
interpretations and constructions by the Committee of any provisions of the Plan
and of options granted thereunder, and such determinations of the Committee as
it deems appropriate for the administration of the Plan and of options granted
thereunder, are final and conclusive on all persons having any interest
thereunder. The present members of the Committee are Joseph Greenberger, Steven
Kotler and Wilmer J. Thomas, Jr.
26
<PAGE>
The Committee has the authority, in its discretion and subject to the
express provisions of the Plan, to determine the individuals to receive options,
the time when they will receive such options, the purchase price and the number
of shares which will be subject to each option, and the other terms and
provisions of the respective options (which need not be identical).
Eligibility and Extent of Participation
Options may be granted to selected key employees of the Company. As of
April 13, 1995, approximately 50 individuals were eligible to receive options,
and options were held by three individuals. Subject to the terms of the NQO
Plan, the Committee has full and final authority to determine the persons who
are to be granted options under the Plan and the number of shares of Common
Stock subject to each option.
Purchase Price, Period and Exercise of Options
The purchase price for each share issuable upon exercise of an option is to
be determined by the Committee, but may not be less than 50% of the fair market
value of such shares on the date the option is granted. The purchase price for
the shares issued upon exercise of options may be in cash, the Company's common
stock or a combination thereof.
An option may be exercisable in such amounts and at such times as may be
determined by the Committee at the time of grant of such option. Options may be
exercisable immediately, but shall not be exercisable more than five years from
the date of grant of such options. To the extent that an option is not exercised
within the period of exercisability fixed by the Committee, it will expire as to
the then unexercised part.
Expiration and Transfer of Options
Options are non-transferable, except by will or by the laws of descent and
distribution. To the extent that options remain exercisable at the time any
Optionee's employment with the Company terminates, such options expire ten days
after a voluntary termination and ninety days after any other termination.
27
<PAGE>
Adjustment of Shares
If any change is made in the Shares subject to the NQO Plan, or subject to
any option granted under the Plan, through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination of
shares, rights offerings, change in the corporate structure of the Company, or
otherwise, such adjustment shall be made as to the maximum number of shares
subject to the Plan, and the number of shares and prices per share of stock
subject to outstanding options as the Committee may deem appropriate.
Amendments to, and Termination of, the NQO Plan
The Company's Board of Directors may from time to time make such amendments
to the NQO Plan as it may deem proper and in the best interests of the Company,
provided that no amendment shall be made which would impair, without the consent
of the applicable optionholders, any option theretofore granted under the Plan
or deprive any optionholder of any shares which he may have acquired through or
as a result of the Plan or without shareholder approval to increase the number
of shares subject to options under the Plan. The Plan may be terminated at any
time by the Company's Board of Directors except with respect to options then
outstanding under the Plan. Otherwise, it shall terminate on October 11, 2004,
except with respect to options then outstanding.
Federal Income Tax Consequences of the NQO Plan
The following summary of the Federal income tax consequences of the grant
and exercise of options, and the disposition of shares purchased pursuant to the
exercise of options, is intended to reflect the current provisions of the Code
and the regulations thereunder. This summary is not intended to be a complete
statement of applicable law, nor does it deal with state and local tax
considerations.
No tax obligation will arise for the optionee or the Company upon the
granting of options under the NQO Plan. Upon exercise of an option, the optionee
will recognize ordinary income in an amount equal to the excess, if any, of the
fair market value, on the date of exercise, of the stock acquired over the
exercise price of the option. Thereupon, the Company will be entitled to a tax
deduction in an amount equal to the ordinary income recognized by the optionee
(i) provided that applicable federal income tax withholding requirements are
satisfied and (ii) subject to the possible limitations on deductibility under
Section 162(m) of the Internal Revenue Code of 1986, as amended, of compensation
paid to executives designated by that section. The optionee's tax basis in the
28
<PAGE>
underlying shares of Common Stock acquired by exercise of the option will equal
the exercise price plus the amount taxable as compensation to the optionee. Any
additional gain or loss realized by an optionee on disposition of the shares
generally will be long-term or short-term capital gain or loss to the optionee
depending on the holding period and will not result in any additional tax
deduction to the Company.
The payment by an optionee of the exercise price, in full or in part, with
previously acquired shares of common stock will not affect the tax treatment of
the exercise described above. No gain or loss generally will be recognized by
the optionee upon the surrender of the previously acquired shares of common
stock to the Company, and shares received by the optionee, equal in number to
the previously surrendered shares, will have the same tax basis as the shares
surrendered to the Company and will have a holding period that includes the
holding period of the shares surrendered. The value of shares received by the
optionee in excess of the number of shares surrendered to the Company will be
taxable to the optionee. Such additional shares will have a tax basis equal to
the fair market value of such additional shares as of the date ordinary income
is recognized, and will have a holding period that begins on the date ordinary
income is recognized.
ITEM 3 -- APPROVAL OF SALE OF ASSETS
Introduction
At the Meeting, shareholders of the Company will be asked to approve the
sale of substantially all of the assets of the Company through the sale of the
business and certain assets of the Company's Sportswear Division (the "Proposed
Transaction") to Donnkenny Apparel, Inc. ("Donnkenny") pursuant to the terms and
conditions of the Asset Purchase Agreement between the Company and Donnkenny,
dated as of May 23, 1995, as amended on June 26, 1995 (the "Asset Purchase
Agreement"), a copy of which is attached as Annex B, and a possible future sale
of the Company's Harmal Division. As the terms of the Proposed Transaction
include employment agreements for Arthur L. Asch and Michael A. Asch, as well as
one other member of management (see "Donnkenny Employment Agreements" below), a
vote in favor of the Sale of Assets includes a vote in favor of such employment
agreements. The vote includes an authorization for the Company to sell the
Company's Harmal Division at a future time at such price, and on such terms and
conditions, as the Board of Directors believes are appropriate at such time. A
vote in favor of the Sale of Assets does not constitute authorization by the
shareholders of any plan of liquidation. To the extent required by law, any such
plan of liquidation will be submitted to the shareholders for their approval.
The Company has no current intention to liquidate.
29
<PAGE>
Certain capitalized terms that are used but not defined in this Proxy
Statement have the meanings ascribed to such terms in the Asset Purchase
Agreement.
On May 22, 1995, the Board of Directors of the Company unanimously approved
the Sale of Assets and directed that it be submitted to shareholders of the
Company for their approval. The Board of Directors recommends a vote for
approval of the Sale of Assets. To the knowledge of the Company, those members
of the Board of Directors, as well as the executive officers of the Company, who
are also shareholders of the Company, intend to vote their Common Stock,
representing approximately 18.6% of the outstanding Common Stock of the Company
as of the Record Date, for approval of the Sale of Assets. Included in such
Common Stock is 16.4% of the outstanding Common Stock owned by Arthur L. Asch
and his wife, as well as an additional .9% owned by Michael A. Asch, which they
have agreed with Donnkenny will be voted in favor of the Sale of Assets. The
Sale of Assets requires the approval of at least two-thirds (66 2/3%) of the
Company's outstanding Common Stock (see "NYBCL Section 909 Shareholder Approval
Requirement; NYBCL Section 713" below).
Brief Synopsis of the Proposed Transaction
The Proposed Transaction will be consummated pursuant to the Asset Purchase
Agreement between the Company and Donnkenny subject to certain conditions to
Closing, including the NYBCL Section 909 Shareholder Approval Requirement (see
"NYBCL Section 909 Shareholder Approval Requirement; NYBCL Section 713" and
"Conditions to Closing" below). The Proposed Transaction provides for the sale
of inventory, certain fixed assets, security deposits, trade names and
trademarks, contracts and the goodwill of the Company's Sportswear Division to
Donnkenny (The "Sold Assets"). The Company also agreed to lease certain
warehouse properties located in Mississippi to Donnkenny, subject to an option
to purchase such facilities. The Company will retain the Harmal Division, which
is the subject of the Harmal Authorization, as well as cash, accounts
receivable, certain assets and part of its business relating to its
manufacturing division, and third party claims of the Sportswear Division. The
Company will also retain all accounts payable and other liabilities of the
Sportswear Division arising prior to the Closing Date of the Asset Purchase
Agreement, as well as all liabilities of the Company, such as under its bank
credit agreements.
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The Purchase Price to be paid by Donnkenny will be $2,000,000 plus the net
book value of the inventory, fixed assets, security deposits and prepaid items
as of the Closing Date. The cash price is estimated to be approximately
$14,000,000. Of this total amount $1,000,000 will be placed in a one-year escrow
pursuant to the Escrow Agreement (see "Consideration" below) to provide security
for the Company's indemnification obligations to Donnkenny and an inventory
warranty (see "Warranty of Inventory; Indemnification; Escrow Agreement" below).
The escrow is not the exclusive source for such indemnification obligations or
warranty. Donnkenny has agreed to assume post-Closing obligations of the
Sportswear Division relating to its executory contracts, leases and letters of
credit. In addition, Donnkenny intends to enter into employment agreements with
Arthur L. Asch and Michael A. Asch and assume the Company's employment agreement
with Lynn Siemers Cross, President of the Sportswear Division. The execution and
delivery of such agreements are conditions to the Closing for both Donnkenny and
the Company (see "Donnkenny Employment Agreements" and "Conditions to Closing"
below).
NYBCL Section 909 Shareholder Approval Requirement; NYBCL
Section 713
Pursuant to Section 909 of the NYBCL, the affirmative vote of at least
two-thirds (66 2/3%) of the outstanding Common Stock the Company is necessary to
approve the sale of "all or substantially all" of the assets of the Company (the
"NYBCL Section 909 Shareholder Approval Requirement"). The Company believes that
the Sale of Assets covered by the Proposed Transaction and the Harmal
Authorization constitutes a sale of "substantially all" of the assets of the
Company within the meaning of NYBCL Section 909 (see "Applicability of NYBCL
Section 909 to the Proposed Transaction" below). Accordingly, the Board of
Directors is soliciting the vote of the Company's shareholders with respect to
the Sale of Assets. The NYBCL Section 909 Shareholder Approval Requirement is a
condition to Closing for both the Company and Donnkenny. Accordingly, if at
least two-thirds (66 2/3%) of the outstanding Common Stock do not vote to
approve the Sale of Assets, the Proposed Transaction will not be consummated and
the Harmal Authorization will not be effective. In such circumstances, however,
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the Company would be legally permitted to sell its Harmal Division and retain
its Sportswear Division without requiring shareholder approval, as the sale of
the Harmal Division would not constitute a sale of "substantially all" of its
assets within the meaning of NYBCL Section 909.
As the Proposed Transaction also involves an employment agreement for
Arthur L. Asch (see "Donnkenny Employment Agreements" below), a vote approving
the Sale of Assets will also be a vote approving the terms of such agreement. If
the requirements of NYBCL Section 713 are met, which the Board of Directors
believes to be the case, the vote in connection with the Sale of Assets will
also be a shareholder vote for purposes of NYBCL Section 713. Under that
section, a transaction between a corporation and any other corporation in which
a director of the former has a "substantial financial interest," shall not be
voidable by that reason alone, if the material facts as to such director's
interest in such transaction are disclosed in good faith either (i) to the board
of directors, and such transaction is approved by a vote of the other directors
(NYBCL Section 713(a)(1)), or (ii) to the shareholders, and approved by a vote
of such shareholders (NYBCL Section 713(a)(2)). The Proposed Transaction,
including Arthur L. Asch's employment agreement, was so approved by the Board of
Directors of the Company. The shareholder vote under NYBCL Section 909,
described above, will also be considered a shareholder vote on the employment
agreement for purposes of NYBCL Section 713(a)(2).
Effect of Sale of Assets on Holdings of Shareholders
Because the Sale of Assets in connection with the Proposed Transaction
involves the sale of assets of the Company for cash, and not a sale of an equity
interest in the Company, the shareholders of the Company will retain their
equity interests in the Company following the consummation of the Proposed
Transaction. Because the Harmal Authorization, however, involves shareholder
approval of the possible future sale of the Harmal Division pursuant to terms
and conditions to be determined by the Board of Directors at such future date,
the effect, if any, of such a sale pursuant to the Harmal Authorization on the
equity of the shareholders of the Company cannot be determined at this time. If
the Board of Directors determines that the Company should be liquidated, to the
extent required by law, any authorization for a plan of liquidation will be
submitted to shareholders for their approval. (See "Post Proposed Transaction
Operations of the Company" below.)
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Background of the Sale of Assets
Arthur L. Asch, on behalf of the Company, and
Richard Rubin, the Chairman of the Board and Chief Executive
Officer of Donnkenny, on behalf of Donnkenny, held
discussions regarding the possibility of merging the Company
with Donnkenny in mid 1992. Mr. Rubin initiated the
discussions, which explored the potential operating synergies
from a merger of the Company and Donnkenny using the
Company's common stock. Prior to such discussions, Mr. Asch
and Mr. Rubin were casual acquaintances and had no business
relationship. Donnkenny decided against proceeding with a
merger.
During 1992 and the first half of 1993, the
Company explored with several private companies and/or their
financial representatives the possibility of a reverse
merger with the Company, pursuant to which the Company would
remain as a public entity.
In June 1993, the Company engaged Financo, Inc.
("Financo") as its sole and exclusive agent for the purpose
of identifying sale or merger opportunities for the Company,
including pursuing the reverse merger discussions previously
begun by Arthur L. Asch. On June 23, 1993, the Company
publicly announced its engagement of Financo for the purpose
of assisting the Company in identifying potential strategic
alternatives to enable it to enhance shareholder value. The
Company supplied Financo with the names of 15 companies,
including Donnkenny, with whom discussions had already taken
place regarding a sale or merger involving the Company.
Many of the names given related to only the most preliminary
contacts by the Company. The fee structure with Financo was
less for any company so listed. The Financo engagement was
subsequently amended as of November 23, 1993 to make the
agency relationship non-exclusive and to provide that it
would not cover any sale or merger that was consummated
after November 23, 1994. Thus, the Company believes that
the Financo engagement is effectively terminated and no fees
will be due thereunder from the Sale of Assets.
During Financo's engagement, it contacted and
supplied information about the Company to numerous other
companies. Arthur L. Asch held meetings to conduct
preliminary discussions with several companies who expressed
some interest. In two cases, companies expressed interest
only in the Sportswear Division and not in the Harmal
Division; one of the discussions involving a reverse merger
would have first required a spinoff of the Harmal Division.
The Company did not pursue any of the opportunities with any
company other than Donnkenny primarily because the Company
did not view the profitability or financial condition of
such companies as acceptable, there were no apparent
operating synergies, or such companies did not have an
interest in proceeding with the discussions with the
Company.
Although the Company had preliminary discussions
with numerous companies, other than Donnkenny's offer, the
Company did not receive any offers for the acquisition of or
merger into the Company. Financo's role at the meetings
between the Company and such other companies varied
depending upon the circumstances. In some situations,
Financo had discussions with such other companies without
any involvement by the Company, and in other cases, Financo
assisted the Company in negotiations and the analysis of
potential transactions.
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In August 1993, the Company reinitiated discussions
with Donnkenny because the Company believed that there were
potential synergies from a combination with Donnkenny and the
capitalization and the value of Donnkenny's parent had increased
as a result of its initial public offering. Public information
concerning the Company was sent to Donnkenny for review. Financo,
on behalf of the Company, entered into a confidentiality
agreement with Donnkenny, permitting Donnkenny to do certain due
diligence, with a view toward a possible transaction involving
the Company. Under the confidentiality agreement, Donnkenny
agreed for a period of two years (i) not to hire, or solicit to
hire, any management or other employees of the Company whose
identity it became aware of as a result of its due diligence
investigation without the written consent of the Company, or (ii)
to propose any transaction involving the Company's securities,
business or assets or encourage any other person to do so. In a
separate agreement, the Company made a similar agreement as to
Donnkenny's management and employees as described in clause (i)
above.
Edward Creevy, Chief Financial Officer of Donnkenny,
conducted initial due diligence by reviewing certain of the
Company's operational reports, contracts, leases and tax returns.
Financial reports prepared by Financo and the Company highlighted
the potential incremental sales opportunities, cost savings and
plant efficiencies that would inure to Donnkenny as a result of
combining the Sportswear Division with Donnkenny's operations.
Such discussions assumed that Donnkenny would offer employment to
the employees of the Sportswear Division, as well as to its
management. In December 1993, there were further discussions
between Gil Harrison of Financo and Donnkenny, in which Donnkenny
appeared to express interest in the purchase of only the sweater
business of the Sportswear Division. However, Donnkenny decided
not to pursue any transaction at that time, and, except as described
below, had no further contact with the Company after December 1993.
By April 1994, the Company was focusing its
attention on its need for supplemental financing, especially
in view of its increased needs for letters of credit for
imported inventory, as its then bank lenders had reduced its
borrowing capacity as of January 1, 1994 and did not agree
to provide the additional financing that the Company had
requested. The Company started discussions with possible
new financing sources, including new bank lenders, as well
as sources for subordinated debt or capital investment. In
May 1994, shortly after a second public offering by
Donnkenny, Inc., the parent of Donnkenny (its initial public
offering having taken place the year before), the Company
again opened discussions regarding business combination
opportunities with Donnkenny. The Company's principal
reason for reinitiating the discussions was its need for
additional credit. However, after brief discussions, Donnkenny
declined to pursue a business combination proposal.
Financo, at the Company's request, then proposed
that Donnkenny invest $5,000,000 in the Company either in
the form of redeemable debt or preferred equity, with an
option to purchase all or part of the business of the Company.
Mr. Harrison of Financo prepared and circulated preliminary
term sheets outlining various possible scenarios; however,
by June 1994, Donnkenny had declined to pursue these
discussions further and the Company did not request any
further advisory services from Financo.
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In June 1994, the Company entered into
negotiations with a group of investors for the sale of the
Harmal Division. The parties discussed, but never reached
an agreement upon, a price equal to $450,000 over the net
book value of assets to be acquired, which at that time was
approximately $4,500,000, plus a portion of the equity of
the purchasing company. The discussions continued on and off
through March 1995 at lower purchase prices. However, no
agreement was reached because the investors had difficulty
financing the acquisition of the Harmal Division and because
the financial condition of the Harmal Division was beginning
to decline. This decline also made it more difficult for
the investors to finance the acquisition of the Harmal
Division. The management of the Harmal Division also made an
informal bid in June 1994 to acquire the Harmal Division,
but at a significantly lower price that was below its then
book value. That bid was not pursued by the Company because
the Company believed that the bid was too low. The Company
has also had preliminary discussions with other parties from
time to time regarding the Harmal Division, but because the
discussions were at a very preliminary stage and no offers
were received, the Company did not bring such discussions
before the Board of Directors for its consideration. The
discussions were terminated because such parties did not
proceed to make offers to the Company.
By August 1994, the Company had completed its
current agreements with BankAmerica Business Credit, Inc.
and its prior lenders, Chemical Bank and Republic National
Bank of New York (see "Credit and Security Agreements of the
Company; Use of Proceeds" below). The operating earnings in
the last quarter of 1994 and in the first quarter of 1995
did not meet the Company's expectations, and the management,
once again, anticipated that the Company would experience a
credit short-fall starting in June 1995 if its bank
agreements or its business plans were not revised.
In April 1995, Arthur L. Asch, on behalf of the
Company, initiated discussions once again with Donnkenny as
to a possible sale of the Company's sportswear business to
Donnkenny. Donnkenny expressed some interest. Due
diligence began and various financial and operating data
were given to Donnkenny to review. Following the Donnkenny,
Inc. Board of Directors meeting on April 19, 1995, Mr.
Rubin expressed a willingness to proceed with discussions,
indicating an interest in the Sportswear Division, including
its employees and the management of the Company. Price
discussions, previously started, continued between Arthur L.
Asch and Mr. Rubin. Representatives of Donnkenny visited
the Company's warehouses in Mississippi in late April 1995.
During April and May 1995, there were various
meetings and telephone conferences among Arthur L. Asch and
Michael A. Asch for the Company and Richard Rubin and Edward
Creevy for Donnkenny, together in some cases with their counsel,
to negotiate the terms of the Asset Purchase Agreement, the
Service Agreement, the Consulting Agreement, the Donnkenny
Employment Agreements, the LSC Employment Agreement, the
Mississippi Lease, and the Escrow Agreement. The parties
discussed the terms of the Asset Purchase Agreement,
including the purchase price for the Sportswear Division,
the representations and warranties in the Asset Purchase
Agreement, the closing conditions, the covenants between
signing and closing, the warranty of the Inventory and the
indemnification provisions. The negotiations on the Service
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Agreement related to the fee for the services, the amount of
time Donnkenny would be obligated to collect the Company's
accounts receivable and the right of the Company's employees
to utilize the personnel, equipment, supplies and services
of Donnkenny. The discussions on the Consulting Agreement
related to the fee for the consulting services. The
negotiations on the Employment Agreements related to the
salary of the employees and the non-competition provisions.
The negotiation of the Mississippi Lease related to the term
of the Lease and the option to purchase the property. The
negotiations on the Escrow Agreement related to the duration
of the escrow. The parties agreed on all open points, the
terms of which are described in "Summary of Asset Purchase
Agreement." There were also meetings and telephone
conferences between the management and counsel as to, among
other things, the terms and structure of the transaction,
the necessity for the approval of the Proposed Transaction
by the shareholders of the Company and due diligence
matters.
As part of the transaction, Mr. Rubin offered to
employ Arthur L. Asch and Michael A. Asch, as well as
Ms. Siemers Cross, President of the Sportswear Division, to
manage and operate the Sportswear Division if the Proposed
Transaction were to take place. It became a mutual
condition to the closing of the transaction; subsequently
Donnkenny asked Messrs. Asch and Ms. Siemers Cross to agree
in writing that they would enter into such agreements, which
they did when the Asset Purchase Agreement was executed.
Mr. Rubin's offer was that Donnkenny would continue the
employment of these individuals through the date of their
employment agreements with the Company, generally at the
same base salary. In the case of Michael A. Asch, that date
is December 31, 1996. Although his base salary with the
Company is currently $215,000 annually, Mr. Rubin offered
$190,000 to keep Michael A. Asch's salary in line with
comparable Donnkenny employees; in the case of Ms. Siemers
Cross, that date was expected to be December 31, 1996; her
base salary was $375,000 annually. At the time of Mr.
Rubin's offer, Ms. Siemers Cross was employed without a
written employment agreement, although the term of the
agreement and salary had been agreed upon. Her agreement
with the Company was signed on May 19, 1995, which also
provided for a discretionary bonus although prior
discussions had focused upon a formula bonus. (see
"Donnkenny Employment Agreements" below).
As Arthur L. Asch is currently employed by the
Company without an agreement, the subject of which remains
under discussion (see "Compensation Committee Report"
above), Donnkenny offered to employ him through December 31,
1997, the date that Arthur L. Asch advised Richard Rubin was
the termination date that his new employment agreement (if
made) would have used. Richard Rubin also offered to
maintain Arthur L. Asch's current base salary of $500,000
annually, the level to which his salary had been reduced at
the end of April 1995. The salaries to be paid by
Donnkenny to Arthur L. Asch and Michael A. Asch were
subsequently reduced to $450,000 and $165,000 per year,
respectively, to take into account that these individuals
would also be compensated by the Company following the
consummation of the Proposed Transaction at an annual rate
of $50,000 and $25,000, respectively (see "Donnkenny
Employment Agreements" below). As Donnkenny had originally
been willing to pay these additional amounts as salaries,
Donnkenny agreed instead to pay for certain ongoing
consulting services from the Company (see "Service
Agreement; Consulting Agreement" below).
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On May 5, 1995, Janney Montgomery Scott, Inc.
("Janney Montgomery") was engaged by the Company to consider
whether the Proposed Transaction was fair from a financial
point of view to the Company and its shareholders (see
"Fairness Opinion" below).
On May 11, 1995, the Board of Directors held a
meeting to review an outline of the terms of the Proposed
Transaction, including the Donnkenny Employment Agreements.
All of the directors, except for Bruce Slovin, were present,
in person or by conference telephone. Mr. Slovin was
advised by one of the outside Board members after the
meeting as to its substance. A representative of Paul,
Weiss, Rifkind, Wharton & Garrison, special counsel to the
Company, was also present. Arthur L. Asch advised the Board
that the Company had been requested by Donnkenny to sign a
non-binding letter of intent by May 15, 1995 because of the
latter's desire to make an announcement on Tuesday morning,
May 16, 1995. As the Company's Quarterly report was due for
filing with the SEC on May 15, 1995, the Company and
Donnkenny agreed to have the letter of intent signed in time
for a public release on May 15, 1995. Arthur L. Asch
advised the Board that he had agreed to sign such a letter
as long as it was subject to Board of Director approval of
the definitive agreement and the receipt of a favorable
fairness opinion. The Board of Directors did not take any
formal action with respect thereto. It was later reviewed
by the Chairman of the Executive Committee, an outside
director, before it was signed by Arthur L. Asch.
On May 17, 1995, each member of the Board of
Directors received drafts of the Asset Purchase Agreement,
the Donnkenny Employment Agreements, the Proxy Statement and
Pro Forma financial data. At the May 18, 1995 meeting of
the Board of Directors all directors except one (Peter
Sutro, then serving on jury duty) were present. The
directors reviewed in detail the terms of the Asset Purchase
Agreement and related agreements, as well as the possible
future direction of the Company. A representative of Paul,
Weiss, Rifkind, Wharton & Garrison and representatives of
Janney Montgomery were also present. See "Fairness Opinion"
below for a description of Janney Montgomery's presentation,
after which the firm delivered its opinion to the Board
that, as of May 18, 1995, the transaction was fair, from a
financial point of view, to the shareholders of the Company.
The outside directors, without Arthur L. Asch being present,
also discussed the future employment of Arthur L. Asch and
Michael A. Asch with Donnkenny, as well as the continued
employment of both of them with the Company. The directors
asked that certain points be revised or clarified in the
Asset Purchase Agreement before a final vote on the
transaction would be taken.
Following the meeting, Mr. Sutro was briefed by
Arthur L. Asch and one of the outside directors as to its
substance. Further negotiations were held between
representatives of the Company and Donnkenny as to points
raised by the Board and certain other open issues. The
Board met again, by telephone, on May 22, 1995 as to the
final resolution of such points. Thereafter, the Board
unanimously approved the Proposed Transaction and the Harmal
Authorization and directed that the matter be submitted to
the shareholders with the Board's recommendation that the
shareholders vote FOR the Sale of Assets. (See "Conflicts
of Interest" below for a description of the interests of
Arthur L. Asch in the Proposed Transaction.)
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Further negotiations between management and
counsel took place by telephone conference, with all members
of the Board being kept informed. These negotiations
included discussions relating to conditions precedent to the
Closing, the parties' desire for a Closing on or before June
30, 1995, the termination fees for the Company and Donnkenny
if the Proposed Transaction is not consummated and which
Inventory would be subject to warranty. The Asset Purchase
Agreement was signed on May 23, 1995.
During the negotiations leading to the signing of
the Asset Purchase Agreement, both the Company and Donnkenny
anticipated that the Closing thereunder would occur on or
about June 30, 1995. After it became apparent that the
shareholder vote on the Sale of Assets could not be held
prior to that date, the Company and Donnkenny executed an
amendment to the Asset Purchase Agreement on June 26, 1995
to provide for a closing of the Sale of Assets in escrow
(the Closing") on June 29, 1995, effective the close of
business on June 30, 1995 (the "Closing Date") subject
to the results of the shareholder vote. If the
shareholders approve the Sale of Assets, the consummation
of the Proposed Transaction will have occurred as of
June 30, 1995. (See "Closing in Escrow" below.)
Recommendation of the Board of Directors; Reasons for the Sale of Assets
The Board of Directors believes that the Sale
of Assets is fair to, and in the best interests of, the
Company and its shareholders. The Board of Directors has
unanimously approved the Sale of Assets. However, the
decision to sell all or any part of the Harmal Division and
the price and other terms and conditions of such sale is
subject to future approval of the Board of Directors.
The Board of Directors recommends to the Company's
shareholders that they vote FOR the Sale of Assets.
(See "Background of the Sale of Assets" for a description of
attendance of directors and actions taken at the May 11, 1995,
May 18, 1995 and May 22, 1995 meetings of the Board of Directors.
See also "Conflicts of Interest" below for a description of the
interests of Arthur L. Asch in the Proposed Transaction.)
In reaching its conclusions as to the Sale of
Assets, the principal factor considered by the Board of
Directors was the Board's belief that the Company's
financial condition was declining in light of its tight
credit position and that the Proposed Transaction was the
best alternative available at the current time.
Prior to the most recent discussions leading up to
the Proposed Transaction, management had reported to the
Board that the Company's cash flow from operations was
expected to be negative in the first six months of 1995 and
that the Company would be required to make certain
amendments to its bank agreement. In connection with the
bank agreement amendment, the bank changed its excess credit
availability to a discretionary line of credit, rather than
a mandatory line of credit, based upon a formula. As a
result, management advised the Board that borrowing under
the BankAmerica Agreement (defined in "Credit and Security
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Agreements of the Company; Use of Proceeds below) would not
provide the Company with all of the funds necessary for its
working capital and capital expenditures to operate its
business at its planned level of sales for the remainder of
1995 or for 1996. The management first reported this
situation to several outside directors in March 1995 and to
the whole Board on March 28, 1995. The directors discussed
at that meeting, and at a second meeting the next day,
various options to deal with the situation, including
modifying the Company's business plans to curtail projected
levels of sales and inventories and reduce expenses,
including the salaries of the management and key employees,
and revising the Company's existing borrowing arrangements
(subject to the approval of its lenders) or selling certain
capital assets. The Board at that time also discussed
selling one or more divisions of the Company or raising
additional capital.
The Board was advised at its May 11, 1995 meeting
that the Company expected to report a net loss of $1,048,000
for its quarter ended March 31, 1995 (which was publicly
announced on May 15, 1995), and that a similar loss in the
second quarter of 1995 should be anticipated.
The Board took into account that the credit
situation appeared to be a recurring problem. It noted that
the credit problem arose again this year because of the
decline in earnings commencing in the fourth quarter in
1994, even though the Company had entered into a new credit
agreement and renegotiated its loans with its prior lenders
in August, 1994 (see "Credit and Security Agreements of the
Company; Use of Proceeds" below). Moreover, the Board noted
that, as an increasing proportion of the Company's inventory
has been purchased from outside the United States, the
Company has experienced even greater financing needs to
cover letters of credit. The Board concluded that the
continuing restrictions on credit, including letters of
credit, would require the Company to reduce its future
purchases of inventory, especially for the second half of
1995 and for the full year of 1996. Thus, the Board
concluded that, in the absence of other alternatives, the
Company would have to shrink its business. The Board took
into account that, because of the Company's declining
financial condition, partly as a result of the overall
decline in the women's apparel business, it was not
sufficiently likely that its bank lenders would provide the
necessary additional financing to meet its needs for the
rest of 1995 and 1996. The Board therefore concluded that
the Sale of Assets was an appropriate alternative.
The Board of Directors also took into account the
following additional factors in reaching its conclusion as
to the Sale of Assets:
1. The terms of the Asset Purchase Agreement,
including (a) the right of the Company to terminate the
agreement if a more favorable transaction should become
available to the Company, upon payment to Donnkenny of a
termination fee believed by the Board to be reasonable under
the circumstances (see "Termination; Termination Fee"
below), (b) that Donnkenny agreed to assume the obligations
made under the Company's outstanding letters of credit for
inventory to be delivered after the Closing (in an estimated
amount of $9,000,000), (c) the purchase price, including the
payment of $2,000,000 in excess of the book value of the
assets being sold, primarily for the goodwill of the
Sportswear Division, (d) that Donnkenny has no closing
condition with respect to any material adverse change in the
business, assets, liabilities, condition or operation of the
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Company between signing and closing, unless such change had
been within the reasonable control of the Chief Executive
Officer or Chief Financial Officer of the Company or
President of the Sportswear Division, and (e) that if
Donnkenny terminates the Asset Purchase Agreement because it
is unable to obtain financing, Donnkenny would have to pay
the Company a termination fee believed by the Board to be
reasonable under the circumstances (see "Termination;
Termination Fee").
2. The financial risks of the Proposed
Transaction not taking place because of the required
shrinkage described above, including the necessity for a
significant reduction in employees and the need to work out
lease arrangements and other fixed costs, and the risk that
there would be a severe limit on credit availability under
the Company's bank agreements even for a reduced operation.
3. An analysis of the financial effects on the
Company of the Proposed Transaction being completed. In
this regard, the Board took into account the Pro Forma
Consolidated Statements, included elsewhere in this Proxy
Statement, which showed that for the fiscal year ended
December 31, 1994 the pro forma effect of the Proposed
Transaction was to modestly decrease the net income, but for
the quarter ended March 31, 1995, the pro forma effect was
to significantly reduce the net loss of the Company.
Moreover, the Board took into account that the pro forma
financials did not take into account interest income that
could have been earned had the Company held the cash assets
generated from the Proposed Transaction. The Board also
noted that, while the shareholder's equity would have been
reduced on a pro forma basis, the tangible net book value
per share would have been modestly increased, and there
would have been substantially less bank indebtedness
remaining, as of March 31, 1995 (see "Selected Historical
and Unaudited Pro Forma Financial Data of the Company"
below).
The Board also considered that, after payment of
the expenses of the Proposed Transaction, collection of the
retained accounts receivable, payment of accounts payable
and other retained liabilities, there could be available
liquid assets for future use by the Company, possibly before
the end of 1995. In addition, the Harmal Division or other
retained capital assets might be sold (see "Post Proposed
Transaction Operations of the Company" below).
4. The opinion of Janney Montgomery that the
Proposed Transaction is fair from a financial point of view
to the Company and its shareholders (see "Fairness Opinion"
below).
5. The recent market prices for the Common Stock
and the potential liquid assets per share that could be
achieved from the consideration to be received in the
Proposed Transaction in relation thereto.
6. The reputation of Donnkenny as a financially
sound sportswear manufacturer and its offer of employment to
employees of the Sportswear Division as of the Closing Date,
as well as to the management of the Company.
7. The ongoing operating losses of the Harmal Division, the
prior efforts to sell the Harmal Division, the possible range of
selling prices for the Harmal Division and the substantial legal,
accounting and other costs that would be incurred if a
separate shareholder vote (which would require a full proxy
statement) were required solely in connection with such a
sale at a future date.
The Board of Directors also considered the
management's prior efforts relating to a possible sale of
all or parts of the Company, a possible reverse merger, and
possible capital infusions, as well as the discussions with
lenders regarding additional lines of credit, both over the
past few years and recently.
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The outside directors, without Arthur L. Asch
being present, discussed the future employment of Arthur L.
Asch and Michael A. Asch with Donnkenny, as well as the
continued employment of both of them with the Company. They
reviewed the circumstances relating to Donnkenny's offer of
employment to Arthur L. Asch and Michael A. Asch, as well as
to Ms. Siemers Cross and took into account the terms of the
Donnkenny Employment Agreements in their review of the
Proposed Transaction. In this regard, representatives of
Janney Montgomery, at the outside directors' request,
discussed with Mr. Rubin his offer of employment to the
management of the Company. Mr. Rubin advised the
representatives that his policy was to hire management of a
company being acquired as a means to assure the buyer of the
goodwill being acquired and that the hiring of Messrs. Asch
was essential to the Proposed Transaction from Donnkenny's
point of view. He added that acquisitions that include
management were the norm in the apparel business.
Based on the foregoing, the Board of Directors
believed that Sale of Assets through the sale of the
Sportswear Division at this time pursuant to the Proposed
Transaction and the possible future sale of the Company's
Harmal Division would be fair to and in the best interests
of the Company and its shareholders.
In view of the wide variety of factors considered
in connection with its evaluation of the Sale of Assets,
the Board of Directors did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its
determination.
Conflicts of Interest
In considering the recommendation of the Sale of Assets
by the Board of Directors, shareholders should be aware that
Arthur L. Asch, Chairman of the Board and Chief Executive
Officer of the Company, and his son, Michael A. Asch,
Vice President and Chief Financial Officer of the Company,
have an interest in the Proposed Transaction that
is in addition to the interests of shareholders of the
Company generally. As noted under "Recommendation of the
Board of Directors" and "Reasons for the Sale of Assets"
above, the Board of Directors was aware of these interests
and considered them, among other matters, in approving the
Asset Purchase Agreement and the transactions contemplated
thereby.
Specifically, following consummation of the
Proposed Transaction, as provided in the Asset Purchase
Agreement, each of Arthur L. Asch and Michael A. Asch will
also become Donnkenny employees following the Closing
pursuant to their respective Employment Agreements with
Donnkenny (see "Donnkenny Employment Agreements" below).
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Credit and Security Agreements of the Company; Use of
Proceeds
The Company entered into a Loan and Security
Agreement with BankAmerica Business Credit, Inc., dated as
of August 9, 1994 and amended as of December 30, 1994 (the
"BankAmerica Agreement"), for a line of credit through
August 8, 1997 for both revolving loans and letters of
credit up to a maximum of $31,000,000. Borrowings under the
BankAmerica Agreement are secured by accounts receivable,
inventory, trademarks and other Company assets, including
the Sold Assets. The Company also executed on August 9,
1994 an Eighth Amendment to its Credit and Security
Agreement, dated April 16, 1993, with Chemical Bank and
Republic National Bank of New York (the "Chemical/Republic
Agreement"), to continue a secured loan in the amount of
$5,000,000, which became payable in installments through
December 31, 1995. As of March 31, 1995, $2,750,000
remained outstanding under the Chemical/Republic Agreement
of which $250,000 is due on June 30, 1995. The
Chemical/Republic Agreement is secured by substantially the
same assets as the BankAmerica Agreement.
A condition to Closing of the Asset Purchase
Agreement is that the Sold Assets be free of any liens. The
Company has reached an agreement with Republic National Bank
of New York and Chemical Bank pursuant to which the Company
will use the proceeds of the Proposed Transaction to repay
all amounts outstanding under the Chemical/Republic Agreement
and the banks will release their liens. The Company has also
reached an agreement in principle with BankAmerica pursuant
to which a portion of the proceeds of the Proposed
Transaction will be used to pay down the BankAmerica
facility and BankAmerica will release its liens on the Sold
Assets. The BankAmerica Agreement will be amended to
provide for a one year term with a reduced commitment of
$20,000,000, which decreases to $5,000,000 over the first
four months of the term, subject to a borrowing base of 35%
of eligible accounts receivable. The amended facility will
be secured by liens on the Company's retained assets,
including accounts receivable and the assets of the Harmal
Division. The management of the Company believes that this
modified facility will be sufficient for its Harmal Division
and its other operating and corporate needs.
The Company expects to use the proceeds, expected
to be approximately $14,000,000, from the Proposed
Transaction (i) to repay approximately $12,000,000 of bank
indebtedness, (ii) to fund the Escrow with $1,000,000 as
required by the Asset Purchase Agreement and (iii) to pay
expenses of the Proposed Transaction of approximately
$1,000,000 for the Donnkenny servicing fee, bank fees, fees
payable to Janney Montgomery, and legal, accounting,
printing, proxy soliciting and related costs. The Company
will continue to borrow from time to time for its working
capital needs.
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Post Proposed Transaction Operations of the Company
Following the consummation of the Proposed Transaction, the Company will
investigate opportunities to sell the Harmal Division. While there are no
prospective purchasers of the Harmal Division currently in serious discussions
with the Company, there have been some recent inquiries that the Company expects
to pursue. As the Harmal Division is experiencing ongoing operating losses,
unless business improves substantially, the Company expects that any such sale
will be valued at a price significantly below the net book value of the assets
constituting the Harmal Division, which was approximately $3,900,000 as of March
31, 1995 (see "Background of the Sale Assets" above). This $3,900,000 net book
value of the Harmal Division consisted of accounts receivable of approximately
$1,500,000, inventory of approximately $2,500,000, and other assets of
approximately $300,000, less total liabilities of approximately $400,000. Until
such time as the Harmal Division is sold, however, the Company will continue to
operate it with a view toward continuing its current line of business and
attempting to increase its sales to its previous higher levels.
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The Company expects to have some liquid assets, after taking into account
its retained assets and known liabilities, including certain assets and
liabilities of the Sportswear Division that are not being sold in the Proposed
Transaction, following the consummation of the Proposed Transaction. Although
the amount cannot be quantified, the Company believes that it could have
approximately $5,000,000 in cash and cash equivalents by the end of 1995, not
taking into account (i) reductions for the ongoing operating losses of the
Harmal Division, as well as for possible unknown liabilities, or known
liabilities that are greater than their current estimates, or (ii) increases for
the possible sale of the Harmal Division and certain other non-operating
properties of the Company. There can be no assurance, however, that such liquid
assets will be realized.
The Company has not yet decided its future direction, which would depend,
in part, upon the extent of liquid assets that are realized following the
Proposed Transaction. Relevant factors include the amounts to be realized upon
the sale, if any, of the Harmal Division, the ongoing operating losses of the
Harmal Division and the realization of the sales, if any, of the Company's real
estate and other fixed assets. The Company may not liquidate for at least one
year following the Proposed Transaction pursuant to the terms of the Asset
Purchase Agreement. To the extent required by law, any plan of liquidation
will be submitted to the shareholders for their approval. The Company has no
current intention to liquidate. The Company may continue to operate the Harmal
Division or possibly expand into another business. The undertaking of any new
line of business following the consummation of the Proposed Transaction,
however, would be restricted by the noncompetition provisions contained in the
Asset Purchase Agreement (see "Noncompetition and Nondisclosure Provisions"
below). Also, such expansion may require the hiring of additional management
personnel.
Arthur L. Asch and Michael A. Asch will become employees of Donnkenny
following the consummation of the Proposed Transaction. However, they will both
continue in their current positions with the Company at substantially reduced
salaries to reflect that they will only be providing limited time to the
activities of the Company (see "Donnkenny Employment Agreements" below). They
believe, however, that they will be able to devote sufficient time to meet the
Company's needs in the foreseeable future. The Harmal Division will continue to
be operated by its current management and employees.
Pursuant to the Service Agreement between the Company and Donnkenny (see
"Service Agreement; Consulting Agreement" below), the collection and processing,
on behalf of the Company, of all accounts receivable and all accounts payable
and accrued expenses of the Company in connection with the business of the
Sportswear Division created prior to the Closing will be conducted by Donnkenny,
and Messrs. Asch will be entitled to reasonable utilization of Donnkenny
personnel, equipment, supplies and services for the Company's business and
affairs, for a fee of $250,000. These services will be performed by the
Donnkenny employees who were formerly employed by the Sportswear Division.
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Pursuant to the Consulting Agreement between the Company and Donnkenny (see
"Service Agreement; Consulting Agreement" below), the Company will provide
consulting services to Donnkenny from the Closing until December 31, 1997 for a
fee of $75,000 per annum, subject to a $25,000 reduction in 1997 if Michael Asch
is not employed by Donnkenny in 1997.
Following the sale of the Sportswear Division, the Company will have
available financing, although subject to a reduced borrowing base level (that
is, approximately 35% of the Company's eligible accounts receivable as such term
is defined in the BankAmerica Agreement), under the BankAmerica Agreement. The
Company believes such level of financing will be sufficient for its Harmal
Division and its other operating and corporate needs.
Summary of the Asset Purchase Agreement
Introduction
The following is a summary of the terms of the Asset Purchase Agreement, a
copy of which is attached as Annex B to this Proxy Statement and is incorporated
herein by reference. This summary is qualified in its entirety by reference to
the Asset Purchase Agreement. Shareholders are urged to read carefully the Asset
Purchase Agreement in its entirety.
Assets To Be Sold
The Asset Purchase Agreement provides for the sale of all of the assets
relating to the Sportswear Division of the Company, except certain specific
Excluded Assets. The Sold Assets generally include the Company's right, title
and interest in and to the following assets relating to the Sportswear Division:
(i) inventory, supplies and raw materials; (ii) furniture, fixtures and
equipment; (iii) leases, licenses and permits; (iv) contracts and agreements;
(v) security deposits and prepaid items; (vii) goodwill; and (ix) trademarks and
trade names (including the assignment by the Company to Donnkenny of the right
to use the "Oak Hill" name except that the Company will retain the right to use
"Oak Hill Sportswear Corporation" as its corporate name).
The Excluded Assets generally include: (i) cash and accounts receivable,
(ii) certain real estate and other fixed assets located in Mississippi;
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(iii) corporate records; and (iv) all assets unrelated to the Sportswear
Division, including the Harmal Division, which will be retained by the Company
following the consummation of the Asset Purchase Agreement. The Company will
lease its warehouses in Mississippi to Donnkenny for five years, subject to
Donnkenny's right to terminate at any time after one year, for $250,000 per
year, together with an option to purchase such facilities for $1,200,000,
subject to reduction for 50% of the rental payments previously paid as of the
date of exercise of such option to purchase and increase for capital
expenditures made by the Company, all as provided for in the lease between the
Company and Donnkenny (the "Mississippi Lease").
Consideration
In consideration for the Assets and the Company's covenant not to compete
(see "Noncompetition and Nondisclosure Provisions" below), Donnkenny has agreed
(i) to pay in cash by wire transfer of immediately available funds, at the
Closing, $14,000,000 and (ii) assume the Assumed Liabilities. $1,000,000
dollars of the Purchase Price will be held in escrow for one year to cover (i)
the adjustment to the Purchase Price (see next paragraph); (ii) the Company's
Warranty of Inventory; and (iii) the Company's indemnification obligations (see
"Warranty of Inventory; Indemnification" below). The Purchase Price is subject
to adjustments to the extent that the Final Valuation Amount (that is, the net
book value of the inventory, fixed assets, security deposits and prepaid
expenses on the day immediately preceding the Closing Date) is different from
$12,000,000.
The Assumed Liabilities generally consists of the following: (i)
post-closing obligations of the Company under executory contracts, leases and
letters of credit and (ii) other liabilities arising from or in connection with
the Sportswear Division after the Closing Date. Donnkenny will not assume any
liabilities of the Company other than the Assumed Liabilities. Thus, the Company
will remain liable for the obligations or liabilities of the Sportswear Division
arising prior to the Closing Date.
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Certain General Covenants
The Company has agreed, among other things, to conduct its business until
the Closing Date in the ordinary and usual manner, to refrain from authorizing
or incurring any additional long-term debt, to refrain from entering into or
terminating material contracts in connection with the Sportswear Division and to
maintain in force certain insurance policies.
In addition, the Company has agreed to permit Donnkenny to make
investigations of the Sold Assets and books and records of the Company. The
Company and Donnkenny have agreed to use its reasonable best efforts to obtain
certain Required Consents, which include the consents of the Company's bank
lenders to the release of their liens on the Sold Assets (see "Credit and
Security Agreements of the Company; Use of Proceeds" above), the landlord under
the Company's New York lease for the space located at 1411 Broadway, New York,
New York 10018 and the approval of at least two-thirds of the Common Stock of
the Company to the Proposed Transaction, as well as to obtain other consents set
forth on a Schedule to the Asset Purchase Agreement, which consents are not
required for Closing.
Noncompetition and Nondisclosure Provisions
The Company has agreed that for the period of three years (the
"Noncompetition Period"), it will not (i) participate in any business that would
compete with the business of the Sportswear Division as currently conducted by
the Company or as conducted by Donnkenny following the Closing, including, in
any event, any business involving manufacturing or distributing women's knitwear
and sportswear products similar to those manufactured by the Sportswear Division
or Donnkenny; (ii) solicit or interfere, or otherwise deal, in a competitive
manner with any customers doing business with Donnkenny as successor to the
business of the Sportswear Division; (iii) employ, solicit or interfere with any
officer, director, employee or agent of Donnkenny (other than Arthur L. Asch and
Michael A. Asch); or (iv) materially interfere with the operation of Donnkenny's
business. However, the Company may acquire the outstanding stock of public
companies engaged in such competitive businesses as long as the Company does not
acquire 10% or more of such stock and does not control such companies.
Donnkenny Employment Agreements
Upon the consummation of the Proposed Transaction, Arthur L. Asch and
Michael A. Asch will enter into separate employment agreements with Donnkenny
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(the "Donnkenny Employment Agreements"), a copy of each of which is attached to
this Proxy Statement as Annex C and Annex D, respectively. The initial terms of
the Donnkenny Employment Agreements with Arthur L. Asch and Michael A. Asch
begin on the Closing Date and end on December 31, 1997 and December 31, 1996,
respectively. Upon the conclusion of such initial terms, subject to the
employee's agreement, Donnkenny has the option to renew each of the Donnkenny
Employment Agreements for a one-year period.
Pursuant to the Donnkenny Employment Agreements, Arthur L. Asch and Michael
A. Asch will serve as Chairman and Vice President, respectively, of the Oak Hill
Sportswear Division (the "Oak Hill Division") of Donnkenny. Lynn Siemers Cross,
the current President of the Sportswear Division, will continue in such capacity
as an employee of Donnkenny.
For services rendered to Donnkenny, Arthur L. Asch and Michael A. Asch will
be compensated at an annual rate of $450,000 and $165,000, respectively. Arthur
L. Asch and Michael A. Asch may also receive discretionary bonuses from
Donnkenny.
Following the consummation of the Asset Purchase Agreement both Arthur L.
Asch and Michael A. Asch will also continue in their current positions with the
Company at substantially reduced salaries to reflect that they will only be
providing limited time to the activities of the Company. They believe, however,
that they will be able to devote sufficient time to meet the Company's needs in
the foreseeable future.
Upon the consummation of the Asset Purchase Agreement, Donnkenny will
assume all of the Company's rights and obligations under the employment
agreement, dated May 1, 1991, as amended on May 19, 1995, between the Company
and Ms. Siemers Cross (the "LSC Employment Agreement"). The LSC Employment
Agreement terminates on December 31, 1996. Ms. Siemers Cross, as President of
the Oak Hill Division, will receive an annual base salary of $375,000 (see
"Background of the Sale of Assets" above) and may also receive discretionary
bonuses from Donnkenny.
The Donnkenny Employment Agreements and the LSC Employment Agreement
contain customary provisions regarding termination due to disability, death and
for cause. The Donnkenny Employment Agreements contain a covenant not to compete
during the term of such agreements and covenants not to solicit Donnkenny's
customers or employees during the term of such agreements and for two year
periods following the expiration of such agreements. As executives of
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Donnkenny, Messrs. Asch and Ms. Siemers Cross may each become entitled to
benefits made available to such executives, including group life insurance,
group disability insurance, medical and hospitalization plans, pension and
profit sharing plans and stock options.
Service Agreement; Consulting Agreement
At the Closing of the Asset Purchase Agreement, the Company and Donnkenny
will enter into a service agreement, pursuant to which Donnkenny will collect
and process, on behalf of the Company, all accounts receivable of the Company in
connection with the business of the Sportswear Division, prior to the Closing
Date, and will process the payment, for the Company's account, of all accounts
payable of the Sportswear Division, as well as entitle Messrs. Asch to
reasonable utilization of Donnkenny personnel, equipment, supplies and services
for the Company's business and affairs, for a fee of $250,000. These services
will be performed by Donnkenny employees who are the former employees of the
Sportswear Division.
At the Closing of the Asset Purchase Agreement, the Company and Donnkenny
will enter into a consulting agreement, pursuant to which the Company will
provide consulting services to Donnkenny for the purpose of enhancing the value
of the business of the Sportswear Division, for a fee of $75,000 per annum
from the Closing Date until December 31, 1997, subject to a $25,000 reduction in
1997 if Michael A. Asch is not employed by Donnkenny in 1997.
Representations and Warranties
The Asset Purchase Agreement contains various customary representations and
warranties made by the Company. These include, among other things,
representations and warranties relating to (i) the execution and enforceability
of the Asset Purchase Agreement; (ii) the financial statements and other
financial and related information; (iii) the absence of certain undisclosed
liabilities; (iv) the absence of undisclosed material changes relating to the
Company since December 31, 1994; (v) matters regarding real estate, employees
and the Employee Retirement Income Security Act of 1974, intellectual property,
taxes, environmental laws, material contracts, litigations, insurance, the
condition of the Company's premises and equipment, prohibited payments, and the
Company's suppliers, customers, orders and commitments; (vi) the Company's title
to the Sold Assets and absence of Liens other than Permitted Liens on the
Assets; (vii) compliance with law; (viii) the use of brokers in connection with
the Proposed Transaction; and (ix) transactions with Affiliates.
Donnkenny makes representations and warranties relating to, among other
things: (i) the execution and enforceability of the Asset Purchase Agreement;
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(ii) the use of brokers in connection with the Proposed Transaction; (iii)
financial statements and other financial and related information; and (iv)
Donnkenny's financial ability to consummate the Proposed Transaction.
Conditions to Closing
The obligations of the Company and Donnkenny to consummate the Proposed
Transaction are subject to certain conditions, which conditions can be waived by
the appropriate party, including among other things, (i) the respective
representations and warranties of the Company and Donnkenny made in the Asset
Purchase Agreement being true and correct in all material respects as of the
Closing of the Asset Purchase Agreement, except for changes between the signing
and Closing not within the reasonable control of the Chief Executive Officer or
Chief Financial Officer of the Company or the President of the Sportswear
Division; (ii) obtaining the approval of the holders of at least two-thirds
(66 2/3%) of the Company's Common Stock; and (iii) obtaining the Required
Consents. As a condition to Donnkenny's obligation to close the Asset Purchase
Agreement, all Liens must be removed prior to Closing.
In addition, the Company and Donnkenny shall have executed the following
ancillary agreements: (i) Service Agreement; (ii) Donnkenny Employment
Agreements; (iii) the assumption of the LSC Employment Agreement; (iv) the
Escrow Agreement; (v) the Consulting Agreement; and (vi) the Mississippi Lease.
At Donnkenny's request, Arthur L. Asch and Michael A. Asch have agreed in
writing to execute and deliver the Donnkenny Employment Agreements, and Ms.
Siemers Cross to accept the assumption of her agreement, at the Closing.
Closing in Escrow
The Company and Donnkenny have executed an amendment to the Asset Purchase
Agreement to provide for the closing of the Sale of Assets in escrow on June 29,
1995, effective the close of business June 30, 1995, with Chemical Bank acting
as escrow agent (the "Closing Escrow Agent"). There will be deposited with the
Closing Escrow Agent, to be held in escrow pending the shareholder vote on the
Sale of Assets, (i) cash in the amount of the estimated cash portion of the
Purchase Price (the "Cash Purchase Price"), and (ii) all documents, instruments
and consents (except the Shareholder Approval) the receipt or execution of which
are conditions precedent to Closing, all of which shall be executed and dated as
of the Closing Date. The Company will continue to operate the business of the
Sportswear Division, but will keep a separate account ledger of the business
between the Closing Date and the Final Closing Date (the "Interim Period").
If the shareholders approve the Sale of Assets and the Closing under the
Asset Purchase Agreement occurs, the Closing Escrow Agent will (i) release the
Cash Purchase Price less the $1,000,000 being placed in the post-closing escrow
(the "Escrow Amount"), to the Company, (ii) release the Escrow Amount to the
post-closing escrow agent to be held pursuant to the Escrow Agreement and (iii)
release the documents, instruments and consents contemplated under the Asset
Purchase Agreement. The transfer of Sold Assets from the Company to Donnkenny
and the assumption of the Assumed Liabilities by Donnkenny will have occurred as
of June 30, 1995 and the Company will have been operating the Sportswear
Division for the account of Donnkenny during the Interim Period. To accomplish
that, Donnkenny will reimburse the Company for expenses paid or assume all
liabilities accrued in operating the Sportswear Division during the Interim
Period, and the Company will transfer to Donnkenny all inventory purchased and
accounts receivable arising during the Interim Period and the cash from
collection of any such accounts receivable.
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If the shareholders do not approve the Sale of Assets, the Closing
Escrow Agent will return the Cash Purchase Price to Donnkenny and return all
documents, instruments and consents in escrow to the executing parties. The
Company will have continued to operate the Sportswear Division, no transfer of
assets will have occurred and, thus, the escrow closing will have had no effect
on the Company's operations.
Warranty of Inventory; Indemnification; Escrow Agreement
The Company and Donnkenny have agreed that Donnkenny shall receive a 30%
gross margin, in the aggregate, on all sales of finished goods Inventory
relating to the summer of 1995 and earlier seasons. To the extent that Donnkenny
receives less or more than 30%, the Company or Donnkenny, as the case may be,
shall pay the other party the difference.
The Asset Purchase Agreement provides that each of the Company and
Donnkenny will indemnify and hold harmless the other party from and against
Losses resulting from any misrepresentation, breach of warranty or breach of
covenant or agreement contained in the Asset Purchase Agreement by the other
party. The representations and warranties of the parties under the Asset
Purchase Agreement will survive for one year after the Closing Date and
thereafter will terminate. At the Closing, $1,000,000 cash of the Purchase Price
will be placed in escrow for one year to provide security for the Company's
indemnification obligations and an inventory warranty to Donnkenny. The escrow
is not the exclusive source for such indemnification or warranty. In addition,
the Company will indemnify Donnkenny from any Loss arising from the Excluded
Liabilities and Donnkenny will indemnify the Company from any Loss arising from
the Assumed Liabilities.
Termination; Termination Fee
The Asset Purchase Agreement may be terminated and the Proposed Transaction
may be abandoned (i) by mutual consent of the Company and Donnkenny; (ii) by the
Company or Donnkenny by notice to the other parties if the Closing Date shall
not have occurred on or before July 31, 1995; (iii) by Seller, if the Board of
Directors of Seller withdraws its recommendation of the transactions
contemplated by the Asset Purchase Agreement in order to approve the execution
by Seller of a definitive agreement relating to another Acquisition Proposal and
the Board of Directors after consultation with independent legal counsel
determines that the failure to take such action would be inconsistent with its
fiduciary duties under applicable law; or (iv) by Donnkenny, in the event it
does not obtain satisfactory bank financing. The term "Acquisition Proposal"
generally means any proposal or offer to acquire, either by merger, acquisition
of stock or assets, or other business combination, a significant portion of the
assets of the Company or the Company's Sportswear Division. If the Asset
Purchase Agreement is terminated (a) by the Company pursuant to (ii) or
(iii) above, and the Company closes the transaction contemplated by the
Acquisition Proposal within one year, the Company is required to pay Donnkenny
a termination fee of $1,000,000 plus its legal expenses in connection with the
Proposed Transaction or (b) by Buyer pursuant to (iv) above, Donnkenny is
required to pay the Company, a termination fee of $1,000,000 plus its legal
expenses in connection with the Proposed Transaction.
Accounting Treatment of the Proposed Transaction
The Proposed Transaction is to be reflected in the Company's financial
statements as a disposal of a segment of business within the meaning of
Accounting Principles Board Opinion No. 30.
Federal Income Tax Consequences of the Proposed Transaction
The Proposed Transaction will be a taxable transaction to the Company
resulting in a net gain for tax purposes measured by the difference between the
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amount realized on the sale of the assets and the Company's tax basis in the
assets. Such gain should be offset by the Company's current operating losses and
prior year operating loss carryforwards resulting in little or no tax on the
sale. Shareholders of the Company will experience no direct federal income tax
consequences as a result of the Proposed Transaction.
Holders of shares of Common Stock who receive cash upon the exercise of
their appraisal rights, if applicable (see "Appraisal Rights" below), generally
will recognize gain or loss measured by the difference between the amount of
cash received and their aggregate tax basis in such shares. Such gain or loss
generally will be capital gain or loss, provided such shares are held as capital
assets as of the Closing Date of the Asset Purchase Agreement, and will be
long-term capital gain or loss if such shares have been held as of the Closing
Date of the Asset Purchase Agreement for more than one year. However,
shareholders who exercise appraisal rights and who are considered for federal
income tax purposes constructively to own shares actually owned by other persons
may, under certain circumstances, recognize dividend income (taxable as ordinary
income) equal to the full amount of the cash they receive.
The foregoing constitutes only a general description of the federal income
tax consequences to shareholders as a result of exercising their appraisal
rights. Any shareholder who intends to exercise appraisal rights is urged to
consult his own tax advisor as to the federal income tax consequences of
exercising such rights and also as to any state, local, or other tax
consequences.
Fairness Opinion
On May 18, 1995 Janney Montgomery Scott Inc. advised the Board of Directors
that, as of such date, the sale of assets pursuant to the Asset Purchase
Agreement was fair, from a financial point of view, to the shareholders of the
Company. A copy of the Janney Montgomery opinion, dated May 23, 1995, is
attached hereto as Annex E. The Company's shareholders are urged to read the
Janney Montgomery opinion carefully and in its entirety for assumptions made,
matters considered, procedures followed and limits of the review undertaken by
Janney Montgomery. The summary of the Janney Montgomery opinion set forth in
this Proxy Statement is qualified in its entirety by reference to the full text
of such opinion. The Janney Montgomery opinion was prepared for the Company's
Board, is directed only to the fairness from a financial point of view to the
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Company's shareholders as of May 23, 1995 of the Proposed Transaction and does
not constitute a recommendation to any shareholder as to how to vote at the
Meeting. Additionally, Janney Montgomery's opinion does not express an opinion
as to the price or trading range at which the Company's Common Stock will trade
subsequent to the date of its opinion.
In connection with its opinion, Janney Montgomery (i) reviewed
the Asset Purchase Agreement and the Donnkenny Employment Agreements; (ii)
reviewed and analyzed certain publicly available information concerning the
Company, including its borrowing arrangements; (iii) reviewed and analyzed
certain internal financial and operating information with respect to the
business, operations and prospects of the Company furnished to it by the
Company; (iv) reviewed and analyzed certain financial forecasts of the Company
prepared by management; (v) discussed the past and current operations and
financial condition and the prospects of the Company with management; (vi)
discussed with management of the Company the operating benefits anticipated from
the Proposed Transaction; (vii) reviewed the price and trading history of the
Company's Common Stock; (viii) compared the financial position and operating
results of the Company with those of publicly traded companies it deemed
relevant; (ix) compared certain financial terms of the Proposed Transaction to
certain financial terms of selected other business combinations and asset sales
it deemed relevant; (x) analyzed the pro forma financial statements of the
Company giving effect to the Proposed Transaction; (xi) interviewed management,
certain directors, Company counsel, certified public accountants and the
Chairman of Donnkenny; and (xii) conducted such other financial studies,
analyses and investigations and reviewed such other factors, as it deemed
relevant.
Janney Montgomery assumed and relied upon, without independent
verification, the accuracy and completeness of the information reviewed by it
for purposes of its opinion. With respect to financial projections, Janney
Montgomery assumed that they had been reasonably prepared on bases reflecting
the best currently available information and judgments of the future financial
performance of the Company. Janney Montgomery did not make any independent
valuation or appraisal of the assets, liabilities or internal financial controls
of the Company. Janney Montgomery assumed the following: (i) the transaction is
not part of a going private transaction, and (ii) the sale of assets pursuant to
the Proposed Transaction will not be viewed as a fraudulent conveyance. Janney
Montgomery's opinion is necessarily based on financial, economic, market and
other conditions as they existed on, and information made available to it, as of
the date of the opinion.
53
<PAGE>
The following is a brief summary of certain of the financial
analyses utilized by Janney Montgomery in connection with providing its opinion
to the Company's Board of Directors on May 18, 1995.
Corporate Stock Price Performance: As part of its analysis,
Janney Montgomery reviewed the history of the trading prices of the Company's
Common Stock since January 1, 1989. The review indicated that the Company's
Common Stock traded between $10 1/8 and $1 1/2 during this period. The Common
Stock price performance was compared to the performance of its peer group of
apparel companies (see "Selected Company Analysis" below).
Pro Forma Analysis: Janney Montgomery analyzed certain pro
forma effects of the sale of assets pursuant to the Proposed Transaction on the
earnings per share, consolidated capitalization and financial ratios. All of
those analyses were based on forecasts provided by the Company's management.
Janney Montgomery assumed that the forecasts were prepared in good faith and
reflected all known conditions which would affect their outcome. The pro forma
financial statements reflected the following items:
The sale of the Sportswear Division's inventory to
Donnkenny;
The establishment of a $1,000,000 escrow account;
The elimination of the Company's historical
goodwill related to the Sportswear Division;
The receipt of $2,000,000 as goodwill;
The sale of certain fixed assets at the Company's
corporate offices;
The expenditure of professional and other fees
relating to the transaction;
The writedowns and write-offs related to deferred
finance charges, prepaid expenses and deposits;
The elimination of a majority of the Company's
indebtedness to its bank lenders.
The analysis indicated that in 1994 pro forma earnings per
share would have been $.01 as compared to $.11, while the 1995 first quarter
comparison would have been $(.08) pro forma versus $(.51) actual.
54
<PAGE>
The pro forma balance sheet reflected total debt of $2,480,000
and shareholders' equity of $10,771,000 at March 31, 1995 compared with the
actual total debt of $10,844,000 and shareholder's equity of $11,837,000 at
March 31, 1995.
Selected Companies Analysis: Janney Montgomery compared
certain financial information of the Company with a group of publicly traded
companies in the apparel manufacturing industry (the "Oak Hill Comparable
Companies"). Due to their size and profitability, many of the companies are not
directly comparable to the Company. The Oak Hill Comparable Companies were
chosen by Janney Montgomery as companies that possess general business
characteristics representative of companies in the apparel manufacturing
business, although Janney Montgomery recognizes that each of the Oak Hill
Comparable Companies is distinguishable from the Company in certain respects.
The Oak Hill Comparable Companies consist of Farah Incorporated, Garan,
Incorporated, Hartmarx Corporation, Kellwood Co., Oshkosh B'Gosh, Inc., Oxford
Industries, Inc., Phillips-Van Heusen Corporation and Tultex Corp. In
connection with its selected companies analysis, Janney Montgomery examined
many aspects of the financial information of each company, including its
financial position, cash flow information, operating statement dates, data
contained in footnotes to financial statements, comparative size and
comparative profitability of the described companies and earnings estimates
made by research analysts and financial services. From this analysis,
Janney Montgomery concluded that the Company's market valuation was
substantially lower than those of its peers, particularly in relation to book
value and market capitalization to sales. In addition, the Company's
financial performance was generally not as strong as that of its peer group
in terms of sales growth, earnings, operating income and cash flow.
Janney Montgomery also reviewed the number of apparel
industry initial public offerings completed since January 1, 1992 to determine
the level of investor interest in the industry. Janney Montgomery concluded that
there were no apparel company initial public offerings with characteristics
similar to the Company. Therefore, in its determination of the fairness of the
Proposed Transaction from a financial point of view, Janney Montgomery deemed
this analysis to be less useful than other analyses.
Comparable Transaction Analysis: Janney Montgomery viewed the
Proposed Transaction as a sale of substantially all of the Company's assets and
examined certain completed merger, acquisition and asset sale transactions of
apparel manufacturing companies.
However, it concluded that the most recent acquisition
transactions in the apparel industry were not comparable to this transaction
because the acquired companies were profitable with strong financial
histories and prospects. The acquisitions reviewed were Salem Sportswear
Corporation and Nutmeg Industries, Inc.
Janney Montgomery also reviewed other recent acquisitions,
mergers and asset sales for transactions in the $10,000,000-to-$15,000,000
range, but determined that these transactions were also not generally comparable
to the asset sale.
55
<PAGE>
In any event, Janney Montgomery noted that the $2,000,000
goodwill component of the Asset Purchase Agreement could be viewed as a 14%
acquisition premium, which was substantially below current average acquisition
premiums. However, Janney Montgomery also noted that acquisition premiums are
primarily determined by the financial position, earnings history and prospects
of the acquired entity. In their view, the premium could be adequate in light of
the Company's past performance and future prospects.
Discounted Cash Flow Analysis: Janney Montgomery noted that
the Company did not have financial data available for it to prepare a discounted
cash flow analysis, which due to the nature of the transaction they concluded
was not required to formulate their opinion.
The summary set forth above does not purport to be a complete
description of the analyses performed by Janney Montgomery in arriving at its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Janney
Montgomery believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses, without
considering all the analyses or the above summary, could create an incomplete
view of the process underlying the analyses performed by Janney Montgomery in
connection with the preparation of its opinion letter. In addition, analyses
relating to the value of a business do not purport to be appraisals or to
reflect the prices at which businesses actually may be sold.
Janney Montgomery is a nationally recognized investment
banking firm and is continually engaged in the valuation of businesses and
securities in connection with mergers and acquisition, asset sales and
divestitures, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for corporate and other
purposes. Janney Montgomery has not provided investment banking services to the
Company prior to its services related to the Proposed Transaction. Janney
Montgomery does not make a market in the Company's Common Stock; however, as a
full service securities firm, Janney Montgomery may from time-to-time effect
transactions for its own account or the accounts of customers and hold positions
in securities of the Company. Janney Montgomery has been paid a fee of $75,000
for its opinion plus the reimbursement of its out-of-pocket expenses. Janney
Montgomery's fee was not contingent on the conclusion reached in its opinion.
56
<PAGE>
Historical Common Stock Prices
The Common Stock, trading symbol OHSC, is traded on the NASDAQ
Stock Market ("NASDAQ") and is designated a national market security (NMS).
Through the facilities of the NASDAQ/NMS reporting system, actual sale prices of
the Common Stock are available. The table below sets forth the high and low sale
prices for the Common Stock.
Prices
High Low
----- -----
1993:
1st quarter 4 1/4 2 3/4
2nd quarter 3 1/4 2 3/8
3rd quarter 2 3/4 2
4th quarter 5 1 1/2
1994:
1st quarter 5 3/8 3 9/16
2nd quarter 4 5/8 3 7/8
3rd quarter 4 3/4 3 3/4
4th quarter 5 1/8 4 1/8
1995:
1st quarter 4 1/8 2 7/8
2nd quarter (to June 27) 2 7/8 1 1/2
As of May 12, 1995, which date was the last business day
immediately preceding the public announcement by the Company and Donnkenny of
the Proposed Transaction, the range of bid and ask prices for the Common Stock
according to NASDAQ was (i) (Bid) 2 1/8, and (ii) (Ask) 2 3/8.
57
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following is a summary of selected historical and pro forma consolidated
financial information of the Company. The summary has been derived in part
from, and should be read in conjunction with, the selected financial data
and consolidated financial statements of the Company and the related notes
thereto included in the Company's Annual Report incorporated by reference
herein. Results of interim periods are not necessarily indicative of results to
be expected for the year and are subject to normal audit adjustments. The
selected pro forma financial information is derived in part from, and should be
read in conjunction with, the pro forma consolidated financial statements of
the Company and the related notes thereto included elsewhere in this Proxy
Statement. Historical and pro forma information for certain periods are derived
from financial statements not included herein. The unaudited pro forma financial
information is not necessarily indicative of the operating results or financial
position that would have been achieved if the proposed sale had been consummated
at the beginning of the periods presented, nor is it necessarily indicative of
future operating results or financial position.
Pro Forma Information (Unaudited)
----------------------------------
In Thousands Except Per Share Data
----------------------------------
Quarter Ended Year Ended
March 31, 1995 December 31, 1994
----------------------------------
SELECTED STATEMENT OF OPERATIONS DATA
Net sales $1,652 $8,884
Income (loss) from
continuing operations (158) 30
Income (loss) from
continuing operations
per common share ($0.08) $0.01
SELECTED BALANCE SHEET DATA
Total assets $18,699 $17,248
Long-term debt 1,546 --
Working capital 10,676 10,063
Stockholders' equity 10,771 11,730
Book value per share 5.23 5.68
Tangible book value
per share (a) $5.10 $5.54
58
<PAGE>
<TABLE>
<CAPTION>
Historical Financial Information
-------------------------------------------------------------------------------
In Thousands Except Per Share Data
-------------------------------------------------------------------------------
Quarter Ended March 31, Years Ended December 31,
----------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA
Net sales $16,835 $18,896 $84,153 $83,920 $86,410 $91,194 $118,224
Income (loss) from
continuing operations (1,048) 83 229 161 (1,347) 458 (3,572)
Income (loss) from
continuing operations
per common share ($0.51) $0.04 $0.11 $0.08 ($0.65) $0.22 ($1.74)
SELECTED BALANCE SHEET DATA
Total assets $28,154 $30,707 $27,364 $25,498 $27,841 $31,742 $35,602
Long-term debt 1,546 1,670 1,581 1,715 1,896 2,087 2,194
Working capital 8,991 9,979 9,921 9,819 9,509 10,773 9,946
Stockholders' equity 11,837 12,739 12,885 12,656 12,495 13,842 13,384
Book value per share 5.75 6.16 6.23 6.15 6.07 6.73 6.50
Tangible book value
per share (a) $4.79 $5.31 $5.23 $5.42 $5.32 $5.95 $5.70
</TABLE>
(a) Tangible book value per share was computed by dividing the stockholders'
equity of the Company, net of goodwill and deferred financing costs, by the
total shares of common stock outstanding at the end of the period indicated.
59
<PAGE>
Business of Donnkenny
Donnkenny, Inc. was incorporated in Delaware in 1978 and is a public
holding company with two subsidiaries, of which Donnkenny is its principal
operating subsidiary. The complete mailing address and telephone number of
Donnkenny are 1411 Broadway, New York, New York 10018 and (212) 730-7770.
Donnkenny designs, manufactures and markets a broad line of moderately priced
women's sportswear and sleepwear. In addition, Donnkenny manufactures and
markets men's, women's and children's sportswear and intimate apparel featuring
various licensed character images.
SELECTED FINANCIAL DATA OF DONNKENNY, INC. AND SUBSIDIARIES
(FROM THE 1994 ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-Q
(FOR THE QUARTER ENDED MARCH 4, 1995) OF DONNKENNY, INC.)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Data)
Fiscal Years Ended
----------------------------------------------------------------------
Three Months Ended December 3, December 4, December 5,
March 4, 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 39,112 $ 158,800 $ 144,080 $ 126,490
Gross profit 11,386 46,517 43,759 38,438
Income before taxes on 3,567 16,846 11,832 7,603
income and
extraordinary charge
Extraordinary charge -- 295 453 --
Net income 2,105 9,769 6,764 4,513
Income (loss) per
common share:
Net income before $0.31 $1.51 $1.47 $1.21
extraordinary charge
Extraordinary charge -- (.04) (.09) __
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $0.31 $1.47 $1.38 $1.21
- -----------------------------------------------------------------------------------------------------------------------------------
Working capital $ 59,241 $ 56,739 $ 28,814 $ 24,103
Total assets 110,561 111,626 93,112 79,669
Total shareholders' 62,541 60,436 39,782 3,361
equity
Book value per share 9.15 8.86 6.38 .90
Weighted average 6,839 6,665 4,908 3,734
shares outstanding
Cash dividends per -- __ __ .80
share
Number of shareholders N/A 1,422 1,310 5
Number of employees N/A 1,476 1,633 1,707
===================================================================================================================================
</TABLE>
60
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET OF THE COMPANY
(UNAUDITED)
The following unaudited pro forma consolidated balance sheet as of March 31,
1995 gives effect to the proposed sale of certain net assets of the Company's
Sportswear Division to Donnkenny as if such sale had been consummated on March
31, 1995. This pro forma consolidated balance sheet should be read in
conjunction with the historical consolidated financial statements and notes
thereto, the pro forma adjustments and the Asset Purchase Agreement included
elsewhere in this Proxy Statement. The following statement is not necessarily
indicative of the financial position that actually would have been achieved if
the proposed sale had taken place on March 31, 1995 (in thousands except for
share data).
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Continuing
Consolidated Debit Credit Operations
----------- ----------------------- -----------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 234 (a)$10,355 (a)$ 27 $ 1,200
(a) 250
(a) 750
(b) 8,362
Accounts receivable - net 12,072 12,072
Inventories 10,810 (a) 8,338 2,472
Other current assets 646 (a) 80 281
(a) 285
Assets held for sale (c) 1,033 1,033
------- ------- ------- -------
Total current assets 23,762 11,388 18,092 17,058
Property, plant and equipment - net 2,652 (a) 283 1,336
(c) 1,033
Goodwill - net 1,429 (a) 1,143 286
Other assets 311 (a) 22 19
(a) 270
------- ------- ------- -------
$28,154 $11,388 $20,843 $18,699
======= ======= ======= =======
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Continuing
Consolidated Debit Credit Operations
----------- ----------------------- -----------
<S> <C> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable $9,144 (b)$ 8,362 $782
Current portion of long-term debt 154 154
Accounts payable
& accrued expenses 5,143 (a) 27 5,116
Accrued income taxes 330 330
------- ------- -------
Total current liabilities 14,771 8,389 6,382
Long-term debt 1,546 1,546
Commitments
Stockholders' equity
Preferred stock, $1.00 par value, authorized
1,000,000 shares; -0- shares issued
Common stock, $.02 par value, authorized
12,000,000 shares; 4,869,828
shares issued 97 97
Capital in excess of par value 27,363 27,363
Retained earnings 1,385 (a) 1,066 319
Common stock held in treasury, at cost
(2,812,252 shares) (17,008) (17,008)
------- ------- ------- -------
Total stockholders' equity 11,837 1,066 10,771
------- ------- ------- -------
$28,154 $9,455 $18,699
======= ======= ======= =======
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet.
62
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
A description of the pro forma adjustments follows:
(a) Reflects the proposed sale of certain net assets of the Company's
Sportswear Division to Donnkenny and the costs and expenses associated
with the Proposed Transaction. See the Asset Purchase Agreement included
elsewhere in this Proxy Statement.
Net Consideration Expected to be Received $10,355
Net Assets (Liabilities) to be Sold (Assumed):
Cash held for sublease deposit $ 27
Inventories 8,338
Other current assets 80
Property, plant and equipment, net 283
Other assets 22
Accrued expenses - sublease deposit (27)
------
(8,723)
Costs and Expenses Related to the Proposed Sale:
Elimination of goodwill related to the
Sportswear Division $1,143
Elimination of deferred financing costs
(see Note (b))
Current 285
Long-term 270
Fees paid to Donnkenny (see "Service Agreement;
Consulting Agreement") 250
Transaction costs 750
------
(2,698)
-------
Loss on Proposed Transaction $(1,066)
=======
The net consideration expected to be received was estimated in
accordance with the terms described in "Consideration" above, as if the
Proposed Transaction had been consummated on March 31, 1995. Such estimate
includes a reserve for the estimated amount to be paid to Donnkenny under
the indemnification provision contained in the Asset Purchase Agreement (see
"Warranty of Inventory; Indemmification; Escrow Agreement" above), based on
March 31, 1995 inventory balances and historical experience. The purchase
price may be adjusted if the inventory sold by the Company to Donnkenny and
the gross margins achieved on the sale of such inventory by Donnkenny differ
from the amounts estimated.
To the extent the Proposed Transaction results in a taxable
net gain to the Company, the Company will not incur any tax liability on the
sale because of its current net operating losses and prior year operating
loss carryforwards (see "Federal Income Tax Consequences of the Proposed
Transaction" above).
63
<PAGE>
(b) Adjustments to record the use of proceeds from the Proposed Transaction to
reduce bank debt (see "Credit and Security Agreements of the Company; Use
of Proceeds" above).
(c) As the Company will no longer be in the business of the Sportswear Division
following the consummation of the Proposed Transaction (see "Noncompetition
and Nondisclosure Provisions" above), the Company plans to sell certain
assets and real estate located in Mississippi which had been used in such
business and which are not being sold or leased to Donnkenny pursuant to
the Asset Purchase Agreement (see "Assets to Be Sold" above). The Company
recently sold similar properties in the same area at a price in excess of
its net book value and does not expect to incur a material loss, if any, on
the sale of the remaining assets.
64
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following unaudited pro forma consolidated statements of
operations gives effect to the proposed sale of certain net assets of the
Company's Sportswear Division to Donnkenny as if the sale had been consummated
at the beginning of each period presented. These pro forma consolidated
statements of operations should be read in conjunction with the historical
consolidated financial statements and notes thereto, the pro forma adjustments
and the Asset Purchase Agreement included elsewhere in this Proxy Statement.
The following statements are not necessarily indicative of the results of
operations that actually would have been achieved if the proposed sale had
taken place on the dates indicated or which may be obtained in the future
(in thousands except for per share data).
<TABLE>
<CAPTION>
---------------------------------------------------------
Three Months Ended March 31, 1995 (Unaudited)
---------------------------------------------------------
Pro Forma
Historical Pro Forma Adjustments Continuing
Consolidated Debit Credit Operations
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales and other revenues $16,835 (a)$15,217 (b) $34 $1,652
------- ------- ------ ------
Costs and expenses:
Cost of Sales 13,953 (a) 12,596 1,357
Selling, general and administrative
expenses 3,521 (a) 3,068 453
------- ------- ------- ------
17,474 15,664 1,810
------- ------- ------- ------
Operating (loss) (639) 15,217 15,698 (158)
Interest expense - net 409 (c) 409
------- ------- ------- ------
(Loss) before provision (benefit) for taxes
(1,048) 15,217 16,107 (158)
Provision (benefit) for taxes
------- ------- ------- ------
Net (loss) ($1,048) $15,217 $16,107 ($158)
======= ======= ======= ======
Per share data:
Primary and fully diluted ($0.51) ($0.08)
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------
Year Ended December 31, 1994 (Unaudited)
---------------------------------------------------------
Pro Forma
Historical Pro Forma Adjustments Continuing
Consolidated Debit Credit Operations
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales and other revenues $84,153 (a)$75,394 (b) $125 $8,884
------- ------- ------- ------
Costs and expenses:
Cost of Sales 67,096 (a) 60,112 6,984
Selling, general and administrative
expenses 14,948 (a) 13,108 1,840
------- ------- ------- ------
82,044 73,220 8,824
------- ------- ------- ------
Operating income 2,109 75,394 73,345 60
Interest expense - net 1,850 (c) 1,850
------- ------- ------- ------
Income before provision for taxes
259 75,394 75,195 60
Provision for taxes
30 30
------- ------- ------- ------
Net income $229 $75,394 $75,195 $30
======= ======= ======= ======
Per share data:
Primary and fully diluted $0.11 $0.01
======= ======
</TABLE>
See Notes to Pro Forma Consolidated Statements of Operations.
66
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
A description of pro forma adjustments follows:
(a) Eliminates the historical results of operations of the Company's
Sportswear Division and the related Manufacturing Division.
(b) Represents the rental income, net of related expenses, from the lease of
certain warehouses to Donnkenny (see "Assets to Be Sold" above) and
revenues from the consulting agreement (see "Service Agreement; Consulting
Agreement" above), net of related expenses.
(c) If the Proposed Transaction had been consummated at the beginning of the
period presented, the proceeds from the sale would have been sufficient to
eliminate the debt on the Company's balance sheet at that date. Accordingly,
this adjustment eliminates the historical interest expense incurred in
connection with that debt. No interest or investment earnings have been
imputed on excess cash generated by the transaction. The Company estimates
that such cash would have approximated $2,500,000 and $1,100,000 at January
1, 1994 and January 1, 1995, respectively, if the Proposed Transaction had
been consummated on those dates. In addition, no interest or investment
earnings have been imputed on excess cash generated from the collection of
receivables, net of payment of liabilities, during those periods.
67
<PAGE>
Appraisal Rights
Introduction
NYBCL Section 910 sets forth the circumstances under which
shareholders of New York Corporation have dissenters' appraisal rights. NYBCL
Section 910(a)(1)(B) provides that a dissenting shareholder has appraisal rights
in connection with a vote taken to approve the sale of "all or substantially
all" of the assets of a corporation. The following section of this Proxy
Statement summarizes such appraisal rights under New York law.
Summary of Section 623 of the NYBCL
Shareholders of the Company who follow the procedures set
forth in Section 623 of the NYBCL (the "Appraisal Statute") will be entitled to
have their shares appraised by a New York court and to receive payment of the
"fair value" of such shares as determined by the court. The Appraisal Statute is
reprinted in its entirety as Annex F to this Proxy Statement. The following
discussion is not a complete statement of the law pertaining to appraisal rights
under the NYBCL and is qualified in its entirety by the full text of the
Appraisal Statute. Any shareholders who wish to exercise such appraisal rights
or who wish to preserve their right to do so, should review the following
discussion and Annex F carefully because failure to timely and properly comply
with the procedures specified will result in the loss of dissenters' appraisal
rights under the NYBCL.
All references in the Appraisal Statute and in this summary to
"shareholders" are to the record holders of the shares of Common Stock at the
Record Date as to which appraisal rights are asserted. A person having a
beneficial interest in shares of Common Stock that are held of record in the
name of another person, such as a broker, bank or nominee, must act promptly to
cause the record holder to follow the steps summarized below properly and in a
timely manner to perfect whatever appraisal rights the beneficial owner may
have.
Shareholders wishing to exercise their appraisal rights (i)
must deliver to the Company, prior to or at the Meeting, but before the vote is
taken on the Sale of Assets, a written objection to the Sale of Assets (the
"Notice of Election"), which shall include a notice of their election to
dissent, their names and residence addresses, the number of shares as to which
they dissent and a demand for payment of the fair value of their shares (which
Notice of Election must be in addition to and separate from any proxy or vote
against the Sale of Assets and should be addressed to the Company, 1411
68
<PAGE>
Broadway, New York, New York 10018, Attention: Secretary), and (ii) must not
vote in favor of the Sale of Assets. BECAUSE A PROXY THAT DOES NOT CONTAIN
VOTING INSTRUCTIONS WILL, UNLESS REVOKED, BE VOTED FOR APPROVAL OF THE SALE OF
ASSETS, A SHAREHOLDER WHO VOTES BY PROXY AND WHO WISHES TO EXERCISE APPRAISAL
RIGHTS MUST (A) VOTE AGAINST THE APPROVAL OF THE SALE OF ASSETS, OR (B) ABSTAIN
FROM VOTING ON THE SALE OF ASSETS. Neither a vote against the Sale of Assets, in
person or by proxy, nor a proxy directing such vote for an abstention will in
and of itself constitute a written objection to the Sale of Assets satisfying
the requirements of the Appraisal Statute (shareholders who timely file such
written objection and who do not vote their shares in favor of the Sale of
Assets are referred to hereinafter as "Dissenting Shareholders" and the shares
as to which such Dissenting Shareholders dissent are hereinafter referred to as
"Dissenting Shares").
Shareholders may not dissent as to less than all of the shares
of Common Stock as to which such shareholders have a right to dissent held by
such shareholders of record or that shareholders own beneficially. A nominee or
fiduciary may not dissent on behalf of any beneficial owner as to less than all
of the shares held of record by such nominee or fiduciary on behalf of such
owner and as to which such nominee or fiduciary has a right to dissent.
Within 10 days after the date on which shareholders approve
the Sale of Assets, the Company must send written notice by registered mail to
the Dissenting Shareholders that the Sale of Assets has been approved and
adopted.
At the Final Closing Date, the Dissenting Shareholders will
cease to have any of the rights of shareholders of the Company except the right
to be paid the fair value of their shares and any of the other rights under the
Appraisal Statute. A Notice of Election may be withdrawn by Dissenting
Shareholders prior to their acceptance in writing of an offer made by the
Company to pay for the value of such Dissenting Shares, except that a Notice of
Election may not be withdrawn later than 60 days following the Final Closing
Date unless the Company shall fail to make a timely offer to pay for the value
of the Dissenting Shares, in which case such Dissenting Shareholders shall have
60 days from the date such offer was made to withdraw their elections. In either
event, after such time, a Notice of Election may not be withdrawn without the
written consent of the Company. In order to be effective, withdrawal of a Notice
of Election must be accompanied by a return to the Company of any advance
payment made to the Dissenting Shareholders by the Company as described below.
69
<PAGE>
If any shareholders who demand appraisal of their shares under
the Appraisal Statute effectively withdraw or lose such right to appraisal after
the Final Closing Date, such shareholders shall have all rights as a shareholder
as of the Final Closing Date reinstated.
At the time of filing the Notice of Election, or within one
month thereafter, Dissenting Shareholders must submit the certificates
representing their shares to the Company or its transfer agent, and the Company
or the transfer agent, as the case may be, shall note conspicuously thereon that
a Notice of Election has been filed and shall return the certificates to the
Dissenting Shareholders. Any Dissenting Shareholder who fails to submit
certificates for such notation shall, at the option of the Company exercised by
written notice to such Dissenting Shareholder within 45 days of the date of
filing of such Notice of Election, lose their appraisal rights unless a court,
for good cause shown, shall otherwise direct.
Within 15 days after the expiration of the period within which
shareholders may file their Notice of Election, or within 15 days after the Sale
of Assets is consummated, whichever is later (but in no case later than 90 days
after the shareholder vote adopting the Sale of Assets), the Company must make a
written offer to pay for the shares held by Dissenting Shareholders at a price
which the Company considers to be their fair value. The Company is considering
whether it will make such offer in view of the fact that the Company has not
decided what its future direction will be.
The Appraisal Statute requires that the offer, when made, be
accompanied by (i) advance payment to the Dissenting Shareholders who have
submitted their certificates for notation thereon of the election to dissent of
an amount equal to 80% of such offer, or (ii) as to Dissenting Shareholders who
have not yet submitted their certificates for notation thereon of the election
to dissent, a statement that advance payment to them of an amount equal to 80%
of the amount of such offer will be made by the Company promptly upon submission
of their certificates. Acceptance of such advance payment by Dissenting
Shareholders will not constitute a waiver of their dissenters' appraisal rights.
If the Sale of Assets is not consummated within 90 days after approval of the
Sale of Assets by the shareholders, such offer may be conditioned upon the
consummation of the Sale of Assets.
70
<PAGE>
If within 30 days after the making of such offer, if made, the
Company and any Dissenting Shareholder agree on the price to be paid for such
shareholder's Dissenting Shares, the Company will pay the agreed price to such
holder within 60 days after the later of the date such offer was made or the
Closing Date, upon surrender of certificates representing such holder's shares.
No such payment may be made under the Appraisal Statute at any time when the
Company is insolvent or when payment would render it insolvent.
If the Company fails to make an offer within the 15 day period
described above, or if it makes an offer and any Dissenting Shareholder fails to
agree with it within 30 days of the making of such offer, the Appraisal Statute
states that the Company shall, within 20 days, institute a special proceeding in
the appropriate court to determine the rights of Dissenting Shareholders and to
fix the fair value of their shares. The Company does not intend to institute
such a special proceeding. However, if the Company does not institute such a
proceeding within such 20 day period, any one Dissenting Shareholder may, within
30 days after such 20 day period expires, institute a proceeding for the same
purpose. If such proceeding is not instituted by such Dissenting Shareholder
within such 30 day period, the shareholder's appraisal rights shall be
extinguished unless the New York Supreme Court, for good cause shown, shall
otherwise direct. All Dissenting Shareholders, other than those who agreed with
the Company as to the price to be paid for their shares, will be made parties to
such proceeding.
With respect to Dissenting Shareholders who are entitled to
payment, the court shall proceed to fix the value of the shares, which value
shall be the fair value as of the close of business on the day prior to the
Meeting. In fixing the fair value of the shares, the court considers the nature
of the Sale of Assets and its effects on the Company and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging in a
similar transaction under comparable circumstances and all other relevant
factors. The final order by the court shall include an allowance for interest
(unless the court finds the refusal of any Dissenting Shareholder to accept the
Company's offer as arbitrary, vexatious, or otherwise not in good faith) of such
rate as the court finds to be equitable, accruing from the Final Closing Date to
the date of payment under the Appraisal Statute.
All parties in the appraisal proceeding shall bear their own
costs and expenses, including counsel fees. The court may, however, in its
discretion, assess any of the costs, fees and expenses incurred by the Company
against Dissenting Shareholders (including those who withdraw their Notice of
Election) if the court finds that their refusal to accept the Company's offer of
payment was arbitrary, vexatious or otherwise not in good faith. Similarly, the
71
<PAGE>
costs, fees and expenses incurred by Dissenting Shareholders may be assessed by
the court, in its discretion, against the Company if the fair value of the
shares as determined by the court materially exceeds the amount which the
Company offers to pay or under certain other circumstances, including a failure
by the Company to follow certain procedures of the Appraisal Statute.
Within 60 days after the final determination of the
proceeding, the Company shall pay to each Dissenting Shareholder the amount
found in such proceeding to be due such shareholder, upon surrender of the
certificates representing shares.
Any shareholder who duly demands, prior to the Meeting, an
appraisal in compliance with the Appraisal Statute will not, after the Final
Closing Date, be entitled to vote the shares subject to such demand for any
purpose or be entitled to the payment of dividends or other distributions on
those shares, except dividends or other distributions payable to shareholders of
record as of a date prior to Final Closing Date.
Failure to follow the steps required by the Appraisal Statute
for perfecting appraisal rights may result in the loss of such rights. In view
of the complexity of the provisions of the Appraisal Statute, shareholders who
are considering dissenting from the Sale of Assets should consult their own
legal advisors.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Shareholders may present proposals for inclusion in the 1996
Proxy Statement provided they are received by the Company at its principal
executive offices no later than January 17, 1996 and are in compliance with
applicable regulation of the Securities and Exchange Commission.
FILINGS UNDER SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership of such securities with the Securities and Exchange Commission.
Officers, directors and greater than ten percent beneficial owners are required
by applicable regulations to furnish the Company with copies of all Section
16(a) forms they file. Other than Arthur L. Asch, the Company is not aware of
any beneficial owner of more than ten percent of its Common Stock.
72
<PAGE>
Based on a review of the copies of the Forms furnished to the
Company, the Company believes that all filing requirements applicable to its
officers and directors (other than two Forms 4 filed by Wilmer J. Thomas, Jr.,
reporting gifts of the Company's Common Stock) were complied with in a timely
manner during 1994.
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse LLP has been appointed the Company's
independent public accountants for 1995. A representative of Price
Waterhouse LLP is expected to be present at the 1995 Annual Meeting of
Shareholders, and will be available toanswer appropriate questions, and will
have an opportunity to make a statement if such representative should desire.
A SHAREHOLDER MAY OBTAIN, WITHOUT CHARGE, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31,
1994, BY WRITING TO: OAK HILL SPORTSWEAR CORPORATION, 1411 BROADWAY, NEW YORK,
NY 10018 ATTN: CHIEF FINANCIAL OFFICER.
73
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Arthur L. Asch or Joseph
Greenberger, or either of them, attorneys and proxies with full power of
substitution in each of them, in the name, place and stead of the undersigned to
vote as Proxy at the 1995 Annual Meeting of Shareholders of Oak Hill Sportswear
Corporation to be held at Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue
of the Americas, New York, New York on Monday, July 24, 1995, at 9:30 A.M.,
or at any adjournments or postponements thereof, according to the number of
votes that the undersigned would be entitled to cast if personally present.
If only one of said attorneys and proxies or substitutes shall
be present at such meeting or at any adjournments or postponements thereof, then
that one shall have all powers granted to such attorneys and proxies.
1. Election of Directors
/ / FOR all nominees listed / / WITHHOLD AUTHORITY to
below (except as marked vote for all nominees
to the contrary below) listed below
Arthur L. Asch, Joseph Greenberger, Steven Kotler, Wilmer J.
Thomas, Jr.
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in the space
provided below.)
- ----------------- ------------------ ------------------
2. Approve the Company's Non-Qualified Stock Option Plan
/ / FOR / / AGAINST / / ABSTAIN
3. Approve the sale of substantially all of the assets of the Company
through the sale of the business and certain assets of the Company's
Sportswear Division to Donnkenny Apparel, Inc. pursuant to the terms
and conditions of the Asset Purchase Agreement between the Company
and Donnkenny, dated as of May 23, 1995 as amended, and the possible
future sale of the Company's Harmal Division (the "Sale of Assets").
/ / FOR / / AGAINST / / ABSTAIN
74
<PAGE>
4. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before
the meeting.
(Please date and sign on reverse side)
This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, the
proxy will be voted FOR the election of management's nominees for directors, FOR
the proposal to approve a Non-Qualified Stock Option Plan for the Company, and
FOR the proposal to approve the Sale of Assets.
When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Please sign exactly as name appears herein.
----------------------------------
(Signature)
----------------------------------
(Signature, if held jointly)
Dated:______________________, 1995
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
75
<PAGE>
AMENDMENT NO. 1
TO
ASSET PURCHASE AGREEMENT
BETWEEN
OAK HILL SPORTSWEAR CORPORATION
AND
DONNKENNY APPAREL, INC.
This Amendment No. 1 to the Asset Purchase Agreement between
Oak Hill Sportswear Corporation, a New York corporation
("Seller"), and Donnkenny Apparel, Inc., a Delaware corporation
("Buyer"), dated as of May 23, 1995 (the "Agreement") is made as
of June 26, 1995.
All capitalized terms used and not defined herein shall have
the meanings ascribed to such terms in the Agreement.
WHEREAS, Seller and Buyer desire to amend the Agreement in
order to provide for a closing (the "Closing") on June 29, 1995,
effective the close of business on June 30, 1995 (the "Closing
Date"), upon the terms and subject to the conditions set forth in
this Amendment.
In consideration of the mutual promises set forth herein, and
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
1. The first sentence of Section 1.1 of the Agreement is
hereby deleted and the following is inserted in place thereof:
"Upon the terms and subject to the conditions set forth in this
Agreement and the Closing Escrow Agreement, and in accordance with
the terms of the Closing Escrow Agreement, at the closing (the
"Closing") of the transactions contemplated hereby (the
"Contemplated Transactions") on the Closing Date, Seller shall
sell, transfer, convey, assign and deliver to Buyer, and Buyer
shall purchase and acquire from Seller, free and clear of any and
all Liens (other than (i) Liens which will be discharged on or
prior to the Final Closing (ii) Liens arising in connection with
the failure to comply with Bulk Sales Laws, which Liens will be
discharged pursuant to the terms of Section 7.20 hereof and (iii)
the sublease set forth on Schedule 5.8(d)), all the assets of
Seller relating to the Sportswear Division, as the same shall
exist on the Closing Date, (collectively, the "Assets"); provided,
however, that the Assets do not include the Excluded Assets.".
2. The introductory clause of Section 2.1 of the Agreement
is hereby deleted and the following is inserted in place thereof:
"At the Closing, upon the terms and conditions set forth in this
<PAGE>
Agreement and Closing Escrow Agreement and in accordance with the
terms of the Closing Escrow Agreement Buyer shall assume and
thereafter pay, perform, satisfy and discharge only the following
obligations and liabilities of Seller, (collectively, the "Assumed
Liabilities"):".
3. Section 3.1 of the Agreement is hereby deleted in its
entirety and the following is inserted in place thereof:
3.1 Purchase Price. In consideration for the sale and
transfer of the Assets and Seller's covenant not to compete set
forth in Section 7.14(a) hereof, on the terms and subject to the
conditions set forth in this Agreement and the Closing Escrow
Agreement, Buyer agrees to (i) pay in cash by certified or
official bank check or wire transfer of next day funds, at Closing
on June 29, 1995, to Chemical Bank, as escrow agent (the "Closing
Escrow Agent"), to be held in an escrow account (the "Closing
Escrow Account") pursuant to an escrow agreement in form and
substance reasonably satisfactory to the parties, (the "Closing
Escrow Agreement") the sum of (a) $2,000,000, (b) $300,000,
representing the estimated net book value of the Fixed Assets (the
"Estimated Fixed Assets Valuation"), (c) $100,000, representing
the sum of the estimated net book value of the Security Deposits
(the "Estimated Security Deposits Valuation") and the prepaid
expenses (the "Estimated Prepaid Expenses Valuation"), and (d)
$11,600,000 representing the estimated net book value of the
Inventory (the "Estimated Inventory Valuation Amount" and,
together with the Estimated Fixed Assets Valuation, the Estimated
Security Deposits Valuation and the Estimated Prepaid Expenses
Valuation, the "Estimated Valuation Amount") and (ii) assume as of
the Closing Date, the Assumed Liabilities (the "Purchase Price").
As provided in and pursuant to the terms of the Closing Escrow
Agreement, at the Final Closing a portion of such amount shall be
delivered to U.S. Trust, as escrow agent or such other escrow
agent as may be agreed to by the parties ("Escrow Agent"), to be
held in an escrow account (the "Escrow Account") pursuant to the
terms of an escrow agreement in the form of Exhibit A hereto (the
"Escrow Agreement") and the balance of such amounts shall be
distributed as set forth in the Closing Escrow Agreement.
4. Section 3.2 of the Agreement is hereby deleted in its
entirety and the following is inserted in place thereof:
"Intentionally Omitted."
5. Section 3.3 of the Agreement is hereby amended by (i)
deleting the first sentence and inserting the following in place
thereof: "On July 10, 1995 a physical inventory of the Inventory
of the Sportswear Division as of the close of business on June 30,
1995 shall be taken by the employees of the Sportswear Division in
accordance with past practices, subject to the supervision of
Seller and Buyer and their respective accountants."; and (ii)
deleting the sixth sentence and inserting the following in place
thereof: "Buyer and Seller shall use their best efforts to cause
the Final Statement to be prepared not later than July 15, 1995.":
6. Section 4 of the Agreement is hereby deleted in its
entirety and the following is inserted in place thereof:
<PAGE>
"4. Closing; Final Closing.
4.1 Closing. Upon the terms and conditions set forth
herein, and subject to the provisions of Article 8 hereof, the
Closing shall take place at the offices of Squadron, Ellenoff,
Plesent, Sheinfeld & Sorkin, LLP, 551 Fifth Avenue, New York, New
York 10176, at 10:00 a.m. local time on June 29, 1995. The
parties agree that time is of the essence. The closing shall be
deemed to be effective as of the close of business on June 30,
1995 (the "Closing Date").
4.2 Closing Adjustment. The parties hereto acknowledge
and agree that the Closing shall occur prior to the date of the
meeting of the shareholders of Seller at which the Agreement and
the Contemplated Transaction will be submitted for approval and
adoption. The parties agree that, subject to Shareholder Approval
and the actions to be taken pursuant to Section 4.3 hereof, the
business of the Sportswear Division shall be conducted, from and
after the Closing Date, for the benefit of, and at the risk of,
Buyer. In accordance therewith:
(a) all closing documents and proceeds shall be
deposited and held in escrow with the Closing Escrow Agent,
pursuant to the Closing Escrow Agreement;
(b) between the Closing Date and the Final Closing
Date,
(i) the employees of Seller engaged in the
business of the Sportswear Division shall
continue to be employees of Seller and Seller
shall continue to conduct the business of the
Sportswear Division in the ordinary course,
including, without limitation, the purchase
and sale of inventory; Buyer hereby agrees
that such conduct during such period shall
not be deemed to constitute a violation of
the covenant not to compete set forth in
Section 7.14(a) hereof;
(ii) Seller shall cause its banks to continue to
issue letters of credit and other financial
accommodations with respect to the business
of the Sportswear Division in the ordinary
course of business;
(iii) Seller will maintain in force all
Contracts, including without limitation,
all insurance policies, relating to the
business of the Sportswear Division; and
(c) in order to carry out the parties' intent that the
Contemplated Transactions shall occur as of the Closing Date, the
parties agree that if the Final Closing takes place, the business
of the Sportswear Division shall have been operated for the
account of Buyer immediately following the Closing Date. The
parties agree to cooperate in all respects at and after the Final
Closing so that the economic effect of the transfer of the
business of the Sportswear Division to Buyer as of the Closing
Date shall be recognized and that:
<PAGE>
(i) Seller shall maintain a separate account
ledger of the business of the Sportswear
Division after the Closing Date;
(ii) all accounts receivable of the Sportswear
Division arising after the Closing Date shall
be deemed part of the "Assets" and all
proceeds in respect of such accounts
receivable shall be for the account of Buyer;
(iii) with respect to liabilities of the
Sportswear Division arising after the
Closing Date (the "Post-Closing
Liabilities"), (x) at the Final Closing,
Buyer shall reimburse Seller in cash for
all payments made by Seller with respect
to the Post-Closing Liabilities and
shall pay Seller in cash for all Post-
Closing Liabilities that cannot be
assumed by Buyer (including, without
limitation, out of pocket expenses
relating to employees and employee
benefit plans), and (y) all other Post-
Closing Liabilities shall be Assumed
Liabilities pursuant to the Assumption
Agreement and shall be paid, performed,
satisfied and discharged by Buyer; and
(iv) After the Final Closing, Buyer and Seller
shall use their best efforts to make
appropriate adjustment to carry out the
intent of this Section 4.3, including,
without limitation, determining whether
accounts receivable or liabilities arose
before or after the Closing Date. In the
event Buyer or Seller cannot agree, the
dispute shall be resolved pursuant to the
dispute mechanism set forth in Section 3.3.
4.3 Actions to be Taken at the Final Closing. The
final closing (the "Final Closing") shall occur at the offices of
Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin, LLP, as soon as
practicable (but in no event later than one Business Day) after
Seller shall have received Shareholder Approval. The date on
which the Final Closing occurs is referred to as the "Final
Closing Date". At the Final Closing, the following shall occur
(which shall be conditions to the consummation of the Contemplated
Transactions):
(a) Seller and Buyer shall jointly instruct the Closing
Escrow Agent to release the funds and documents held in escrow
pursuant to the Closing Escrow Agreement to the respective parties
hereto as provided therein.
(b) Seller shall deliver to Buyer a certificate (dated
the Final Closing Date and in form and substance reasonably
satisfactory to Buyer) executed by the Chairman of the Board of
Directors, the President or a Vice President of Seller certifying
that the Shareholder Approval has been obtained.
(c) Seller shall deliver to Buyer an opinion of Paul,
Weiss, Rifkind, Wharton & Garrison substantially the form and
substance reasonably satisfactory to Buyer.
<PAGE>
(d) The transactions contemplated by Section 7.23 shall
occur.
In addition, it shall be a condition to the Final Closing
that there shall be no judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding which prohibits,
restricts or delays consummation of the transactions contemplated
by this Agreement.
7. Section 7.11 (except in subsection (e) thereof) of the
Agreement is hereby amended (i) to delete the term "Closing Date"
in such Section and replace such term with the term "Final Closing
Date," and (ii) to delete the term "Closing" in subsection (h)
thereof and replace the first two occurrences of such term with
the term "Final Closing Date" and the third occurrence of such
term with the word "consummation."
8. Section 7.23 of the Agreement is hereby deleted in its
entirety and the following is inserted in place thereof:
"7.23 Letters of Credit. Seller shall, not later
than seven days prior to the date of the meeting of shareholders
of Seller at which the Contemplated Transactions will be voted
upon, furnish Buyer with a true and correct list of all letters of
credit outstanding with respect to the business of the Sportswear
Division, together with the name, telephone number and address of
a responsible person at each vendor or supplier which is the
beneficiary of any such letter of credit. At the Final Closing,
Buyer shall (i) provide Seller with a guarantee issued by Chemical
Bank, or another bank reasonably satisfactory to Seller, pursuant
to which such bank agrees to pay Seller's obligations with respect
to all letters of credit outstanding with respect to the
Sportswear Division on the Final Closing Date to the issuer(s) of
such letters of credit, or (ii) assume Seller's obligations under
such letters of credit in any other manner reasonably satisfactory
to Seller. Seller shall deliver to Buyer as soon as practicable
after the date hereof, a schedule of the dates of issuance of the
letters of credit set forth on Schedule 5.31."
9. Section 8.1 of the Agreement is hereby deleted in its
entirety and the following is inserted in place thereof:
8.1 Conditions Precedent to Obligations of Buyer. The
obligations of Buyer to consummate the Contemplated Transactions
are subject to the fulfillment, prior to or at the Closing, of
each of the following conditions (any or all of which may be
waived by Buyer):
(a) all representations and warranties of Seller and
contained herein or in any list, certificate, document or written
statement furnished by Seller to Buyer in connection with the
negotiation, execution or performance of this Agreement shall, in
each case, be true and correct in all material respects at and as
of the Closing Date with the same effect as though those
representations and warranties had been made at and as of that
time except for changes arising subsequent to the date hereof and
not within the reasonable control of any of Seller's Management;
<PAGE>
(b) Seller shall have performed, and complied in all
material respects with, all obligations and covenants required by
this Agreement to be performed or complied with by any such party
prior to or at the Closing;
(c) the Closing Escrow Agent shall have been furnished
with a certificate (dated the Closing Date and in form and
substance reasonably satisfactory to Buyer) executed by the
Chairman of the Board of Directors, the President or a Vice
President of Seller (the "Seller's Officer's Certificate")
certifying to the fulfillment of the conditions specified in
Sections 8.1(a) and 8.1(b) hereof;
(d) the Closing Escrow Agent shall have been furnished
with an opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
counsel to Seller, substantially in the form of Exhibit G hereto
with such changes as may be necessary to reflect the Final
Closing;
(e) there shall be no judgment, decree, injunction,
rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding which prohibits,
restricts or delays consummation of the transactions contemplated
by this Agreement; there shall be no pending lawsuit, claim or
legal action relating to the Contemplated Transactions which would
materially adversely affect such transactions or Buyer;
(f) the Closing Escrow Agent shall have received from
Seller copies of all Required Consents (other than the Shareholder
Approval);
(g) the Closing Escrow Agent shall have received a copy
of resolutions adopted by the Board of Directors of Seller
authorizing the execution, delivery and performance of this
Agreement by Seller, and a certificate of the Secretary or an
Assistant Secretary of Seller, dated the Closing Date, stating
that such resolutions were duly adopted and are in full force and
effect at such date and setting forth the incumbency of each
person executing this Agreement or any other document delivered
pursuant to this Agreement on behalf of Seller ("Seller's
Secretary's Certificate");
(h) Seller shall have executed and delivered to the
Closing Escrow Agent a Bill of Sale in form and substance
reasonably satisfactory to Buyer (the "Bill of Sale");
(i) Seller shall have executed and delivered to the
Closing Escrow Agent an Assignment of Intellectual Property in
form and substance reasonably satisfactory to Buyer (the
"Assignment of Intellectual Property");
(j) Seller shall have executed and delivered to the
Closing Escrow Agent an Assignment of Contracts substantially in
form and substance reasonably satisfactory to Buyer (the
"Assignment of Contracts");
(k) Seller shall have executed and delivered to the
Closing Escrow Agent an Assignment of Leases in form and substance
reasonably satisfactory to Buyer (the "Assignment of Leases");
(l) Seller shall have executed and delivered to the
Closing Escrow Agent a lease with respect to the warehouse
premises owned by Seller and located in Mantachie, Mississippi,
<PAGE>
substantially in the form of Exhibit H hereto (the "Mississippi
Lease");
(m) Seller shall have delivered to the Closing Escrow
Agent the Employment Agreements executed by Arthur L. Asch and
Michael Asch;
(n) Seller shall have delivered to the Closing Escrow
Agent the Siemers Cross Assumption executed by Lynn Siemers Cross;
(o) Seller shall have delivered to the Closing Escrow
Agent the Service Agreement executed by Seller;
(p) Seller shall have delivered to the Closing Escrow
Agent the Consulting Agreement executed by Seller;
(q) Seller shall have delivered to the Closing Escrow
Agent the Escrow Agreement executed by Seller and the Escrow
Agent; and
(r) Seller shall have delivered to the Closing Escrow
Agent UCC termination statements on Form UCC-3 and other documents
necessary to effectively release the Liens held by the Banks on
the Final Closing Date, duly executed by each Bank which has, at
the Closing Date, any security interest in the Assets, terminating
all such security interests of each such entity in the Assets;
(s) Seller shall have delivered to the Closing Escrow
Agent evidence satisfactory to Buyer that all Liens, other than
Liens held by the Bank, Liens arising in connection with the
failure to comply with the Bulk Sales Laws and the sublease set
forth on Schedule 5.8(d), have been cancelled, terminated and
extinguished, and
(t) Seller shall have executed and delivered to the
Closing Escrow Agent an assignment of accounts receivable arising
in connection with the operation of the business of the Sportswear
Division between the Closing Date and the Final Closing Date, in
form and substance reasonably satisfactory to Buyer (the "Interim
Receivable Assignment").
10. Section 8.2 of the Agreement is hereby deleted in its
entirety and the following is inserted in place thereof:
8.2 Conditions Precedent to Obligations of Seller. The
obligations of Seller to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, prior to or at
the Closing, of each of the following conditions (any or all of
which may be waived by Seller (or by any such party with respect
to itself), as the case may be):
(a) all representations and warranties of Buyer to
Seller shall be true and correct in all material respects at and
as of the Closing Date with the same effect as though those
representations and warranties had been made at and as of that
time (except for changes arising subsequent to the date hereof and
not within the reasonable control of Buyer);
<PAGE>
(b) Buyer shall have performed, and complied in all
material respects with, all obligations and covenants required by
this Agreement to be performed or complied with by it prior to or
at the Closing;
(c) the Closing Escrow Agent shall have been furnished
with a certificate dated the Closing Date and in form and
substance reasonably satisfactory to the Seller executed by the
Chairman of the Board of Directors, the President or a Vice
President of Buyer (the "Buyer's Officer's Certificate") and
certifying to the fulfillment of the conditions specified in
Sections 8.2(a) and 8.2(b) hereof;
(d) the Closing Escrow Agent shall have been furnished
with an opinion of Squadron, Ellenoff, Plesent, Sheinfeld &
Sorkin, LLP, counsel to Buyer, substantially in the form of
Exhibit I hereto;
(e) there shall be no judgment, decree, injunction,
rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding which prohibits,
restricts or delays consummation of the transactions contemplated
by this Agreement; there shall be no pending lawsuit, claim or
legal action relating to the transactions contemplated by this
Agreement which would materially adversely affect such
transactions or Seller;
(f) the Closing Escrow Agent shall have received a copy
of resolutions adopted by the Board of Directors of Buyer
authorizing the execution, delivery and performance of this
Agreement by Buyer, and a certificate of the Secretary or an
Assistant Secretary of Buyer, dated the Closing Date, stating that
such resolutions were duly adopted and are in full force and
effect at such date, and setting forth the incumbency of each
person executing this Agreement, or any other documents delivered
pursuant to this Agreement on behalf of Buyer ("Buyer's
Secretary's Certificate");
(g) the Closing Escrow Agent shall have received an
Assumption Agreement executed by Buyer substantially in form and
substance reasonably acceptable to Seller (the "Assumption
Agreement");
(h) the Closing Escrow Agent shall have received the
Mississippi Lease executed by Buyer;
(i) the Closing Escrow Agent shall have received the
Employment Agreements with Arthur L. Asch and Michael A. Asch
executed by Buyer;
(j) the Closing Escrow Agent shall have received the
Siemers Cross Assumption with Lynn Siemers Cross executed by
Buyer;
(k) the Closing Escrow Agent shall have received the
Service Agreement executed by Buyer;
(l) the Closing Escrow Agent shall have received the
Consulting Agreement executed by Buyer;
(m) the Closing Escrow Agent have received the Escrow
Agreement executed by Buyer and the Escrow Agent;
<PAGE>
(n) the Closing Escrow Agent shall have received the
Required Consents (other than the Shareholder Approval); and
(o) Buyer shall have executed and delivered to the
Closing Escrow Agent an assumption of liabilities arising in
connection with the operation of the business of the Sportswear
Division between the Closing Date and the Final Closing Date, in
form and substance reasonably satisfactory to the parties (the
"Interim Liability Assignment").
11. Whenever the Agreement is referred to in the Agreement
or any of the instruments, agreements or other documents executed
or delivered in connection therewith, such reference shall be
deemed to mean the Agreement as modified by this Amendment No. 1.
References in the Agreement to "the date hereof" shall refer to
May 23, 1995, the date on which the Agreement was originally
executed.
12. This Amendment may be executed in two counterparts, both
of which shall be deemed an original, and each party thereto may
become a party hereto by executing a counterpart hereof. This
Amendment and any counterpart so executed shall be deemed to be
one and the same instrument.
13. This Amendment shall be governed by, and construed and
enforced in accordance with the laws of the State of New York,
without regards to its principles of conflicts of law.
14. Except as amended hereby, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 1 as of the date first above written.
OAK HILL SPORTSWEAR CORPORATION
By: /s/ Arthur L. Asch
-----------------------------
DONNKENNY APPAREL, INC.
By: /s/ Richard Rubin
-----------------------------
<PAGE>
ANNEX C
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of , 1995 between
Donnkenny Apparel Inc., a Delaware corporation (the "Company"),
and Arthur L. Asch ("Employee").
W I T N E S E T H :
WHEREAS, the Company desires to enter into this Employment
Agreement with the Employee and the Employee desires to be employed by the
Company on the terms and conditions set forth in this new Employment Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the premises
and the mutual covenants herein contained, hereby agree as follows:
1. Term of Employment. Subject to the terms and conditions hereinafter
set forth, the Company shall employ Employee and Employee shall be employed by
the Company, or of any subsidiary or affiliate of the Company as the Company
shall from time to time select, for an employment term commencing as of the date
hereof and terminating on December 31, 1997 (the "Initial Term"). Subject to
Employee's agreement, this Agreement may be renewed at the conclusion of the
Initial Term for an additional one-year term at the option of the Company giving
the Employee written notice of its election to renew for an additional one-year
term. The Initial Term or such shorter period as may be contemplated by this
<PAGE>
Employment Agreement and any renewal term during which Employee shall be
employed pursuant to this Employment Agreement are hereinafter called the "Term
of Employment."
2. Scope of Employment. During the Term of Employment, Employee shall
be employed as the Chairman of the Oak Hill division of the Company (the
"Division"). In addition, Employee shall well and faithfully render and perform
such other reasonable executive and managerial services as may be assigned to
him, from time to time, by or under the authority of the Board of Directors, the
President or the Senior Vice-President of the Company. Except for his duties as
Chairman of the Board of Directors, Chief Executive Officer and a Director of
Oak Hill Sportswear Corporation, Employee will devote his full time and efforts
to the business and affairs of the Company, as now or hereafter conducted, and
shall be at all times subject to the direction and control of the Board of
Directors, the President or the Senior Vice-President of the Company. Employee
shall render such services to the best of his ability and shall use his best
efforts to promote the interests of the Company. Employee will not engage in any
capacity or activity which is, or may be, contrary to the welfare, interest or
benefit of the business now or hereafter conducted by the Company.
3. Location of Employment. Employee shall render services
primarily at the Company's offices that are located in Manhattan,
New York. Notwithstanding the foregoing, Employee acknowledges and
agrees that Employee's duties hereunder form time-to-time may
include such reasonable travel outside of Manhattan, New York
- 2 -
<PAGE>
consistent with past practices of Oak Hill Sportswear Corporation ("Seller"), as
the performance of Employee's duties may require.
4. (a) Compensation. As full compensation for all services provided for
herein, the Company will pay, or cause to be paid, to Employee, and Employee
will accept an annual salary during the Term of Employment at an annual rate of
four hundred fifty thousand ($450,000) dollars from the date hereof through
December 31, 1997, to be paid in regular installments in accordance with the
Company's usual paying practices, but not less frequently than monthly (the
"Base Salary").
Bonuses, if any, to be paid to Employee shall be discretionary.
The Base Salary and any bonus payments will be subject to such
deductions by the Company as the Company is from time to time required to make
pursuant to law, government regulations or order or by agreement with, or
consent of, Employee. Such payments may be made by check or checks of the
Company or any of its parent, subsidiaries or affiliates as the Company may,
from time to time, find proper and appropriate.
5. Expenses. Employee shall be entitled to reimbursement by the Company
for reasonable expenses actually incurred by him on its behalf, in the course of
his employment by the Company, upon the presentation by Employee, from time to
time, of an itemized account of such expenditures together with such vouchers
and other receipts as the Company may request, in accordance with Company policy
and Internal Revenue Service regulations.
- 3 -
<PAGE>
6. Vacation. Employee shall be entitled to vacations in
accordance with the Company's prevailing policy for its operating
executives.
7. Termination.
(a) Disability. If, during the Term of Employment, Employee
shall be unable, for a period of more than three (3) consecutive months or for
periods aggregating more than twenty (20) weeks in any fifty-two (52)
consecutive weeks to perform the services provided for herein as a result of
illness, incapacity or a physical or other disability of any nature, the Company
may, upon not less than thirty (30) days notice, terminate Employee's employment
hereunder. The Company shall pay to Employee, or his legal representatives,
compensation as specified in Paragraph 3 hereof to the end of the month in which
such termination occurs. Employee shall be considered unable to perform the
services provided for herein if he is unable to attend to the normal duties
required of him. Upon completion of the termination payments provided for in
this paragraph, all of the Company's obligations to pay compensation under this
Employment Agreement shall cease.
(b) Death. If Employee shall die during the Term of
Employment, this Employment Agreement shall terminate at the end of the month in
which Employee's death takes place and Employee's estate shall continue to
receive the compensation specified in Paragraph 3 hereof until the end of such
month and Employee's family's coverage under the Company's medical and
hospitalization plan will continue for a period of six (6) months thereafter,
- 4 -
<PAGE>
without prejudice to the rights of Employee (and his covered dependents) under
Section 4980B of the Internal Revenue Code.
(c) For Cause. In addition to the provisions for the
cancellation and/or termination hereof hereinabove provided, the Company may, at
any time and in its sole discretion, terminate and/or cancel this Employment
Agreement and the Term of Employment for cause (as hereinafter defined) by
sending notice to the Employee of its intention to so cancel and/or terminate.
Cancellation and/or termination under this paragraph shall become effective
within forty-eight (48) hours of the date of receipt of notice under this
paragraph, without Employee having any recourse against the Company for damages.
For purposes of this Employment Agreement, "cause" shall be
defined to mean (i) fraud, dishonesty or similar malfeasance, or (ii)
substantial refusal to comply or default in complying with the Company's
reasonable directions and/or failure to comply or perform any of the material
terms and/or obligations of this Employment Agreement and such refusal, default
or failure continues for a period of more than ten (10) days after receipt by
Employee of notice from the Company setting forth in reasonable detail the
activity by the Employee which the Company deems to be cause for termination of
this Employment Agreement, or (iii) Employee's alcohol or drug abuse.
8. Benefits.
(a) Employee shall be entitled to participate in all
group life insurance, group disability insurance, medical and
- 5 -
<PAGE>
hospitalization plans, pension and profit sharing plans as are presently being
offered by the Company or which may hereafter, during the Term of Employment, be
offered to its operating executives on a company wide basis.
(b) From and after the date of this Employment Agreement the
term "compensation" as used in any pension or profit sharing plan maintained by
the Division or the Company shall include only the Base Salary (exclusive of the
Bonus) payable hereunder.
9. Disclosure. Employee will not at any time, directly or
indirectly, disclose or furnish to any other person, firm or
corporation:
(a) any confidential non-public information concerning
the methods of conducting or obtaining business, of manufacturing
or advertising products, or of obtaining customers;
(b) any confidential non-public information acquired by him
during the course of his employment by the Company, including, without limiting
the generality of the foregoing, the names of any customers or prospective
customers of, or any person, firm or corporation who or which have or shall have
traded or dealt with, the Company (whether such customers have been obtained by
Employee or otherwise); and/or
(c) any confidential non-public information relating to the
products, designs, styles, processes, discoveries, materials, ideas, creations,
inventions or properties of the Company.
10. Covenants Not to Compete.
(a) During the Term of Employment, Employee agrees not
to engage, directly or indirectly, in any business which is
- 6 -
<PAGE>
competitive with the business now or at any time during the Term of Employment
conducted by the Company (other than Employee's employment with Seller).
(b) During the Term of the Agreement and for a period of two
(2) years following the last day of Employee's employment with the Company or if
the Employee is terminated for cause, two (2) years following the scheduled
expiration of the Term of Employment, Employee agrees not to directly or
indirectly, on behalf of himself or any business in which he may, directly or
indirectly, be engaged (other than in connection with Employee's employment with
Seller), recruit, solicit, induce (or attempt to induce), or have any part in,
the diversion of any of the Company's employees or sales representatives from
their relationships with the Company or retain or employ any of the Company's
employees or sales representatives.
(c) In addition, Employee shall not at any time, during or
after the termination of this Employment Agreement, engage in any business which
uses as its name, in whole or in part, Donnkenny, Lewis Frimel, Rockingham
Sleepwear, Wendy Wilson, Flirts, Lake Sleepwear, RBK, Mickey & Co. or any other
name used by the Company during or prior to the Term of Employment.
Additionally, Employee shall not use the names Oak Hill (other than in
connection with Employee's employment with Seller), Victoria Jones and Casey &
Max.
For the purposes of this Paragraph 9, Employee will be deemed
directly or indirectly engaged in a business if he participates in such business
as proprietor, partner, joint venturer, stockholder, director, officer, lender,
- 7 -
<PAGE>
manager, employee, consultant, advisor or agent or if he controls such business.
Employee shall not for purposes of this paragraph be deemed a stockholder or
lender if he holds less than ten (10%) percent of the outstanding equity or debt
of any publicly owned corporation engaged in the same or similar business to
that of the Company, provided that Employee shall not be in a control position
with regard to such corporation.
11. Inventions. As between Employee and the Company, all products,
designs, styles, processes, discoveries, materials, ideas, creations, inventions
and properties, whether or not furnished by Employee, created, developed,
invented, or used in connection with Employee's employment hereunder or prior to
this Employment Agreement, will be the sole and absolute property of the Company
for any and all purposes whatever in perpetuity, whether or not conceived,
discovered and/or developed during regular working hours. Employee will not
have, and will not claim to have, under this Employment Agreement or otherwise,
any right, title or interest of any kind or nature whatsoever in or to any such
products, designs, styles, processes, discoveries, materials, ideas, creations,
inventions and properties.
12. Arbitration. Any controversy arising out of or relating
to this Employment Agreement, including any modification or
amendment thereof, shall be resolved by arbitration in the City of
New York, pursuant to the rules then obtaining of the American
Arbitration Association. The parties agree that the arbitrators
sitting in any controversy shall have no power to alter or modify
- 8 -
<PAGE>
any express provision of this Employment Agreement, or to make any award which
by its terms effects such alteration or modification. The parties consent to the
application of the New York or Federal Arbitration Statutes and to the
jurisdiction of the Supreme Court of the State of New York, and of the United
States District Court of the Southern District of New York, for judgment on an
award and for all other purposes in connection with said arbitration and further
consent that any notice, process or notice of motion or other application to
either of said Courts or Judges thereof, or of any notice in connection with any
arbitration hereunder, may be served in or out of the State or Southern District
of New York by certified or registered mail, return receipt requested, or by
personal service, provided a reasonable time for appearance is allowed, or in
such other manner as may be permitted under the rules of the American
Arbitration Association or of either of said Courts. Judgment upon the award
rendered may be entered by any Court having jurisdiction. Any provisional remedy
which, but for this provision to arbitrate disputes, would be available at law,
shall be available to the parties hereto pending the final award of the
arbitrators.
13. Injunctive Relief. The parties hereto recognize that
irreparable damage may result to the Company and its business and
properties if Employee fails or refuses to perform his obligations
under this Employment Agreement and that the remedy at law for any
such failure or refusal may be inadequate. Accordingly,
notwithstanding the provisions of Paragraph 11 hereof to arbitrate
disputes arising hereunder, it is understood that the Company has
- 9 -
<PAGE>
not waived its rights to seek any provisional remedies (including, without
limitation, injunctive relief) and damages. The institution of any arbitration
proceedings shall not bar injunctive relief, or any other provisional remedy,
pending the final award of the arbitrators.
14. Absence of Restrictions. Employee represents and
warrants that he is not a party to any agreement or contract
pursuant to which there is any restriction or limitation upon his
entering into this Employment Agreement or performing the services
called for by this Employment Agreement.
15. Further Instruments. Employee will execute and deliver all such
other further instruments and documents as may be necessary, in the opinion of
the Company, to carry out the purposes of this Employment Agreement, or to
confirm, assign or convey to the Company any products, designs, styles,
processes, discoveries, materials, ideas, creations, inventions or properties
referred to in Paragraph 10 hereof, including the execution of all patent,
design patent, copyright, trademark or trade name applications.
16. Invalidity and Severability. If any provisions of this Employment
Agreement are held invalid or unenforceable, such invalidity or unenforceability
shall not affect the other provisions of this Employment Agreement, and, to that
extent, the provisions of this Employment Agreement are intended to be and shall
be deemed severable. In particular and without limiting the foregoing sentence,
if any provision of Paragraph 9 of this Employment Agreement shall be held to be
invalid or unenforceable by reason of geographic or business scope or the
duration thereof, such invalidity or unenforceability shall attach only to such
- 10 -
<PAGE>
provisions and shall not affect or render invalid or unenforceable any other
provisions of this Employment Agreement, and any such provisions of this
Employment Agreement shall be construed as if the geographic or business scope
or the duration of such provision had been more narrowly drawn so as not to be
invalid or unenforceable.
17. Notices. Any notice required or permitted to be given
under this Employment Agreement shall be sufficient if in writing
and if sent by registered or certified mail or telegram, as
follows:
As to Employee: Oak Hill Sportswear Corporation
1411 Broadway
New York, New York 10018
Attention: Arthur L. Asch
Telecopy No.: (212) 789-8919
Confirmation No.: (212) 789-8811
As to the Company: Donnkenny Apparel, Inc.
1411 Broadway
New York, New York 10018
Attn: Richard Rubin, President
President and Chief
Executive Officer
with a copy to: Squadron, Ellenoff, Plesent,
Sheinfeld & Sorkin, LLP
551 Fifth Avenue
New York, New York 10176
Attn: Harvey Horowitz, Esq.
or to such other address as either party hereto may designate by notice given in
accordance with this Employment Agreement.
18. Assignment. A party hereto may not assign this
Employment Agreement or any rights or obligations hereunder without
- 11 -
<PAGE>
the consent of the other party hereto; provided, however, that upon the sale or
transfer of all or substantially all of the assets of the Company, or upon the
merger by the Company into, or the combination with, another corporation, this
Employment Agreement will inure to the benefit of and be binding upon the
person, firm or corporation purchasing such assets, or the corporation surviving
such merger or consolidation, as the case may be and the Company shall require
any such person, firm or corporation to expressly assume the Company's
obligations and liabilities hereunder. The provisions of this Employment
Agreement where applicable are binding upon the heirs of Employee and upon the
successors and assigns of the parties hereto.
19. Waiver of Breach. Waiver by either party of a breach of
any provision of this Employment Agreement by the other shall not
operate or be construed as a waiver of any subsequent breach by
such other party.
20. Definition of Company. As used in this Employment
Agreement the term "Company" shall also include any subsidiary or
affiliate of the Company.
21. Entire Employment Agreement. This document contains the entire
agreement of the parties as to the subject matter hereof and supersedes and
replaces all prior oral or written agreements between the parties. This
Agreement may not be changed orally, but only by an Employment Agreement or
Amendment in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
- 12 -
<PAGE>
22. Applicable Law. This Employment Agreement shall be
construed in accordance with the laws of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
DONNKENNY APPAREL, INC.
By: _____________________________
Richard Rubin, President
and Chief Executive Officer
_____________________________
Arthur L. Asch
- 13 -
<PAGE>
Annex D
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of , 1995 between Donnkenny
Apparel Inc., a Delaware corporation (the "Company"), and Michael Asch
P("Employee").
W I T N E S E T H :
WHEREAS, the Company desires to enter into this Employment
Agreement with the Employee and the Employee desires to be employed by the
Company on the terms and conditions set forth in this new Employment Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the premises
and the mutual covenants herein contained, hereby agree as follows:
1. Term of Employment. Subject to the terms and conditions hereinafter
set forth, the Company shall employ Employee and Employee shall be employed by
the Company, or of any subsidiary or affiliate of the Company as the Company
shall from time to time select, for an employment term commencing as of the date
hereof and terminating on December 31, 1996 (the "Initial Term"). Subject to
Employee's agreement, this Agreement may be renewed at the conclusion of the
Initial Term for an additional one-year term at the option of the Company giving
the Employee written notice of its election to renew for an additional one-year
term. The Initial Term or such shorter period as may be contemplated by this
<PAGE>
Employment Agreement and any renewal term during which Employee shall be
employed pursuant to this Employment Agreement are hereinafter called the "Term
of Employment."
2. Scope of Employment. During the Term of Employment, Employee shall
be employed as a Vice President of the Oak Hill division of the Company (the
"Division"). In addition, Employee shall well and faithfully render and perform
such other reasonable executive and managerial services as may be assigned to
him, from time to time, by or under the authority of the Board of Directors, the
President or the Senior Vice-President of the Company. Except for his duties as
Vice President and a Director of Oak Hill Sportswear Corporation, Employee will
devote his full time and efforts to the business and affairs of the Company, as
now or hereafter conducted, and shall be at all times subject to the direction
and control of the Board of Directors, the President or the Senior
Vice-President of the Company. Employee shall render such services to the best
of his ability and shall use his best efforts to promote the interests of the
Company. Employee will not engage in any capacity or activity which is, or may
be, contrary to the welfare, interest or benefit of the business now or
hereafter conducted by the Company.
3. Location of Employment. Employee shall render services
primarily at the Company's offices that are located in Manhattan,
New York. Notwithstanding the foregoing, Employee acknowledges and
agrees that Employee's duties hereunder from time-to-time may
include such reasonable travel outside of Manhattan, New York
- 2 -
<PAGE>
consistent with past practices of Oak Hill Sportswear Corporation ("Seller"), as
the performance of Employee's duties may require.
4. (a) Compensation. As full compensation for all services provided for
herein, the Company will pay, or cause to be paid, to Employee, and Employee
will accept an annual salary during the Term of Employment at an annual rate of
one hundred sixty five thousand ($165,000) dollars from the date hereof through
December 31, 1996 to be paid in regular installments in accordance with the
Company's usual paying practices, but not less frequently than monthly (the
"Base Salary").
Bonuses, if any, to be paid to Employee shall be discretionary.
The Base Salary and any bonus payments will be subject to such
deductions by the Company as the Company is from time to time required to make
pursuant to law, government regulations or order or by agreement with, or
consent of, Employee. Such payments may be made by check or checks of the
Company or any of its parent, subsidiaries or affiliates as the Company may,
from time to time, find proper and appropriate.
5. Expenses. Employee shall be entitled to reimbursement by the Company
for reasonable expenses actually incurred by him on its behalf, in the course of
his employment by the Company, upon the presentation by Employee, from time to
time, of an itemized account of such expenditures together with such vouchers
and other receipts as the Company may request, in accordance with Company policy
and Internal Revenue Service regulations.
- 3 -
<PAGE>
6. Vacation. Employee shall be entitled to vacations in
accordance with the Company's prevailing policy for its operating
executives.
7. Termination.
(a) Disability. If, during the Term of Employment, Employee
shall be unable, for a period of more than three (3) consecutive months or for
periods aggregating more than twenty (20) weeks in any fifty-two (52)
consecutive weeks to perform the services provided for herein as a result of
illness, incapacity or a physical or other disability of any nature, the Company
may, upon not less than thirty (30) days notice, terminate Employee's employment
hereunder. The Company shall pay to Employee, or his legal representatives,
compensation as specified in Paragraph 3 hereof to the end of the month in which
such termination occurs. Employee shall be considered unable to perform the
services provided for herein if he is unable to attend to the normal duties
required of him. Upon completion of the termination payments provided for in
this paragraph, all of the Company's obligations to pay compensation under this
Employment Agreement shall cease.
(b) Death. If Employee shall die during the Term of
Employment, this Employment Agreement shall terminate at the end of the month in
which Employee's death takes place and Employee's estate shall continue to
receive the compensation specified in Paragraph 3 hereof until the end of such
month and Employee's family's coverage under the Company's medical and
hospitalization plan will continue for a period of six (6) months thereafter,
- 4 -
<PAGE>
without prejudice to the rights of Employee (and his covered dependents) under
section 4980B of the Internal Revenue Code.
(c) For Cause. In addition to the provisions for the
cancellation and/or termination hereof hereinabove provided, the Company may, at
any time and in its sole discretion, terminate and/or cancel this Employment
Agreement and the Term of Employment for cause (as hereinafter defined) by
sending notice to the Employee of its intention to so cancel and/or terminate.
Cancellation and/or termination under this paragraph shall become effective
within forty-eight (48) hours of the date of receipt of notice under this
paragraph, without Employee having any recourse against the Company for damages.
For purposes of this Employment Agreement, "cause" shall be
defined to mean (i) fraud, dishonesty or similar malfeasance, or (ii)
substantial refusal to comply or default in complying with the Company's
reasonable directions and/or failure to comply or perform any of the material
terms and/or obligations of this Employment Agreement and such refusal, default
or failure continues for a period of more than ten (10) days after receipt by
Employee of notice from the Company setting forth in reasonable detail the
activity by the Employee which the Company deems to be cause for termination of
this Employment Agreement, or (iii) Employee's alcohol or drug abuse.
- 5 -
<PAGE>
8. Benefits.
(a) Employee shall be entitled to participate in all group
life insurance, group disability insurance, medical and hospitalization plans,
pension and profit sharing plans as are presently being offered by the Company
or which may hereafter, during the Term of Employment, be offered to its
operating executives on a company wide basis.
(b) From and after the date of this Employment Agreement the
term "compensation" as used in any pension or profit sharing plan maintained by
the Division or the Company shall include only the Base Salary (exclusive of the
Bonus) payable hereunder.
9. Disclosure. Employee will not at any time, directly or
indirectly, disclose or furnish to any other person, firm or
corporation:
(a) any confidential non-public information concerning
the methods of conducting or obtaining business, of manufacturing
or advertising products, or of obtaining customers;
(b) any confidential non-public information acquired by him
during the course of his employment by the Company, including, without limiting
the generality of the foregoing, the names of any customers or prospective
customers of, or any person, firm or corporation who or which have or shall have
traded or dealt with, the Company (whether such customers have been obtained by
Employee or otherwise); and/or
(c) any confidential non-public information relating to the
products, designs, styles, processes, discoveries, materials, ideas, creations,
inventions or properties of the Company.
- 6 -
<PAGE>
10. Covenants Not to Compete.
(a) During the Term of Employment, Employee agrees not to
engage, directly or indirectly, in any business which is competitive with the
business now or at any time during the Term of Employment conducted by the
Company (other than Employee's employment with Seller).
(b) During the Term of the Agreement and for a period of two
(2) years following the last day of Employee's employment with the Company or if
the Employee is terminated for cause, two (2) years following the scheduled
expiration of the Term of Employment, Employee agrees not to directly or
indirectly, on behalf of himself or any business in which he may, directly or
indirectly, be engaged (other than in connection with Employee's employment with
Seller), recruit, solicit, induce (or attempt to induce), or have any part in,
the diversion of any of the Company's employees or sales representatives from
their relationships with the Company or retain or employ any of the Company's
employees or sales representatives.
(c) In addition, Employee shall not at any time, during or
after the termination of this Employment Agreement, engage in any business which
uses as its name, in whole or in part, Donnkenny, Lewis Frimel, Rockingham
Sleepwear, Wendy Wilson, Flirts, Lake Sleepwear, RBK, Mickey & Co. or any other
name used by the Company during or prior to the Term of Employment.
Additionally, Employee shall not use the names Oak Hill (other than in
connection with Employee's employment with Seller), Victoria Jones and Casey &
Max.
- 7 -
<PAGE>
For the purposes of this Paragraph 9, Employee will be deemed
directly or indirectly engaged in a business if he participates in such business
as proprietor, partner, joint venturer, stockholder, director, officer, lender,
manager, employee, consultant, advisor or agent or if he controls such business.
Employee shall not for purposes of this paragraph be deemed a stockholder or
lender if he holds less than ten (10%) percent of the outstanding equity or debt
of any publicly owned corporation engaged in the same or similar business to
that of the Company, provided that Employee shall not be in a control position
with regard to such corporation.
11. Inventions. As between Employee and the Company, all products,
designs, styles, processes, discoveries, materials, ideas, creations, inventions
and properties, whether or not furnished by Employee, created, developed,
invented, or used in connection with Employee's employment hereunder or prior to
this Employment Agreement, will be the sole and absolute property of the Company
for any and all purposes whatever in perpetuity, whether or not conceived,
discovered and/or developed during regular working hours. Employee will not
have, and will not claim to have, under this Employment Agreement or otherwise,
any right, title or interest of any kind or nature whatsoever in or to any such
products, designs, styles, processes, discoveries, materials, ideas, creations,
inventions and properties.
12. Arbitration. Any controversy arising out of or relating
to this Employment Agreement, including any modification or amendment thereof,
shall be resolved by arbitration in the City of
- 8 -
<PAGE>
New York, pursuant to the rules then obtaining of the American Arbitration
Association. The parties agree that the arbitrators sitting in any controversy
shall have no power to alter or modify any express provision of this Employment
Agreement, or to make any award which by its terms effects such alteration or
modification. The parties consent to the application of the New York or Federal
Arbitration Statutes and to the jurisdiction of the Supreme Court of the State
of New York, and of the United States District Court of the Southern District of
New York, for judgment on an award and for all other purposes in connection with
said arbitration and further consent that any notice, process or notice of
motion or other application to either of said Courts or Judges thereof, or of
any notice in connection with any arbitration hereunder, may be served in or out
of the State or Southern District of New York by certified or registered mail,
return receipt requested, or by personal service, provided a reasonable time for
appearance is allowed, or in such other manner as may be permitted under the
rules of the American Arbitration Association or of either of said Courts.
Judgment upon the award rendered may be entered by any Court having
jurisdiction. Any provisional remedy which, but for this provision to arbitrate
disputes, would be available at law, shall be available to the parties hereto
pending the final award of the arbitrators.
13. Injunctive Relief. The parties hereto recognize that
irreparable damage may result to the Company and its business and
properties if Employee fails or refuses to perform his obligations
under this Employment Agreement and that the remedy at law for any
- 9 -
<PAGE>
such failure or refusal may be inadequate. Accordingly, notwithstanding the
provisions of Paragraph 11 hereof to arbitrate disputes arising hereunder, it is
understood that the Company has not waived its rights to seek any provisional
remedies (including, without limitation, injunctive relief) and damages. The
institution of any arbitration proceedings shall not bar injunctive relief, or
any other provisional remedy, pending the final award of the arbitrators.
14. Absence of Restrictions. Employee represents and
warrants that he is not a party to any agreement or contract
pursuant to which there is any restriction or limitation upon his
entering into this Employment Agreement or performing the services
called for by this Employment Agreement.
15. Further Instruments. Employee will execute and deliver all such
other further instruments and documents as may be necessary, in the opinion of
the Company, to carry out the purposes of this Employment Agreement, or to
confirm, assign or convey to the Company any products, designs, styles,
processes, discoveries, materials, ideas, creations, inventions or properties
referred to in Paragraph 10 hereof, including the execution of all patent,
design patent, copyright, trademark or trade name applications.
16. Invalidity and Severability. If any provisions of this
Employment Agreement are held invalid or unenforceable, such
invalidity or unenforceability shall not affect the other
provisions of this Employment Agreement, and, to that extent, the
provisions of this Employment Agreement are intended to be and
shall be deemed severable. In particular and without limiting the
- 10 -
<PAGE>
foregoing sentence, if any provision of Paragraph 9 of this Employment Agreement
shall be held to be invalid or unenforceable by reason of geographic or business
scope or the duration thereof, such invalidity or unenforceability shall attach
only to such provisions and shall not affect or render invalid or unenforceable
any other provisions of this Employment Agreement, and any such provisions of
this Employment Agreement shall be construed as if the geographic or business
scope or the duration of such provision had been more narrowly drawn so as not
to be invalid or unenforceable.
17. Notices. Any notice required or permitted to be given
under this Employment Agreement shall be sufficient if in writing
and if sent by registered or certified mail or telegram, as
follows:
As to Employee: Oak Hill Sportswear Corporation
1411 Broadway
New York, New York 10018
Attention: Michael A. Asch
Telecopy No.: (212) 789-8919
Confirmation No.: (212) 789-8811
As to the Company: Donnkenny Apparel, Inc.
1411 Broadway
New York, New York 10018
Attn: Richard Rubin, President
President and Chief
Executive Officer
with a copy to: Squadron, Ellenoff, Plesent,
Sheinfeld & Sorkin, LLP
551 Fifth Avenue
New York, New York 10176
Attn: Harvey Horowitz, Esq.
- 11 -
<PAGE>
or to such other address as either party hereto may designate by notice given in
accordance with this Employment Agreement.
18. Assignment. A party hereto may not assign this Employment Agreement
or any rights or obligations hereunder without the consent of the other party
hereto; provided, however, that upon the sale or transfer of all or
substantially all of the assets of the Company, or upon the merger by the
Company into, or the combination with, another corporation, this Employment
Agreement will inure to the benefit of and be binding upon the person, firm or
corporation purchasing such assets, or the corporation surviving such merger or
consolidation, as the case may be and the Company shall require any such person,
firm or corporation to expressly assume the Company's obligations and
liabilities hereunder. The provisions of this Employment Agreement where
applicable are binding upon the heirs of Employee and upon the successors and
assigns of the parties hereto.
19. Waiver of Breach. Waiver by either party of a breach of
any provision of this Employment Agreement by the other shall not
operate or be construed as a waiver of any subsequent breach by
such other party.
20. Definition of Company. As used in this Employment
Agreement the term "Company" shall also include any subsidiary or
affiliate of the Company.
21. Entire Employment Agreement. This document contains the
entire agreement of the parties as to the subject matter hereof and
supersedes and replaces all prior oral or written agreements
between the parties. This Agreement may not be changed orally, but
- 12 -
<PAGE>
only by an Employment Agreement or Amendment in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
22. Applicable Law. This Employment Agreement shall be
construed in accordance with the laws of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
DONNKENNY APPAREL, INC.
By: ____________________________
Richard Rubin, President
and Chief Executive Officer
_____________________________
Michael Asch
- 13 -
<PAGE>
Annex E
May 23, 1995
Board of Directors
Oak Hill Sportswear Corporation
1411 Broadway
New York, New York 10018
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of outstanding shares of common stock
("Stockholders") of Oak Hill Sportswear Corporation ("Oak Hill" or the
"Company") of the proposed asset sale by Oak Hill to Donnkenny Apparel, Inc.
("Asset Sale") pursuant to the Asset Purchase Agreement dated May 23, 1995
("Transaction"). The terms and conditions of the proposed Transaction are more
fully set forth in the Asset Purchase Agreement.
Janney Montgomery Scott Inc. ("JMS"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with the preparation of fairness opinions, mergers and
acquisitions, divestitures and asset purchases, rights offerings, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate, and other purposes.
In connection with our opinion, we have reviewed the Asset Purchase
Agreement, certain financial and other information of Oak Hill, including
certain internal analyses, reports, forecasts and other information. We have
held discussions with senior management of Oak Hill concerning the current
operations, financial condition and prospects for the Company assuming (I) the
Asset Sale is completed and (ii) the Asset Sale is not completed. Management has
represented that substantially all of the assets will be sold at approximately
their net book value. In addition, we have (I) held discussions with the
Chairman of Donnkenny, Mr. Richard Rubin, concerning the Asset Sale price and
continuing employment arrangements of Oak Hill management; (ii) reviewed the
price and trading history of Oak Hill common stock and compared those prices and
trading histories with those of publicly traded companies we deemed relevant;
(iii) compared the financial positions and recent operating results of Oak Hill
with those of publicly traded companies we deemed relevant; (iv) compared
certain financial terms of the Asset Sale to certain financial terms of selected
other asset purchases and business combinations we deemed relevant; (v) reviewed
the pro forma financial effect of the Asset Sale on the Company's financial
statements; and (vi) conducted such other financial studies, analyses and
investigations, and reviewed such other factors, as we deemed relevant.
<PAGE>
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. We have assumed that all necessary consents will have been received
from Oak Hill's lenders and that the Asset Sale will not be characterized as a
"fraudulent conveyance". We have not made any independent valuation or appraisal
of the assets or liabilities of the Company, nor have we been furnished with
such valuations or appraisals. We have made no assessment of the validity of the
assets or liabilities of the Company nor have we analyzed the value which might
be received by the shareholders upon complete liquidation of the Company;
management has represented that Oak Hill will continue as a public Company and
that this transaction will not be part of, or in contemplation of, a "going
private" transaction. We were not engaged to search out or recommend
alternatives to the Asset Sale.
Our opinion is necessarily based on financial, economic, market and
other conditions as they exist on, and information made available to us as of,
the date hereof. It should be understood that, although subsequent developments
may effect this opinion, we do not have any obligation to update, revise or
reaffirm this opinion except for an update in connection with the proxy to be
mailed to the Company's shareholders. Furthermore, we express no opinion as to
the price or trading range at which the Oak Hill stock will trade subsequent to
the date of our opinion.
Payment of JMS' fee is not contingent upon the conclusion reported.
It should be understood that this letter is for the information of the
Board of Directors only in connection with its consideration of the Asset Sale
and does not constitute a recommendation to any Stockholder as to how such
stockholder should vote on the Asset Sale, and may not be used for any other
purpose without our prior written consent.
Based upon and subject to the foregoing, it is our opinion, as of the
date hereof, the sale of assets pursuant to the Asset Purchase Agreement is
fair, from a financial point of view, to the Stockholders of Oak Hill Sportswear
Corporation.
Sincerely yours,
JANNEY MONTGOMERY SCOTT INC.
By: /s/ William J. Barrett
----------------------------------
William J. Barrett
Senior Vice President
<PAGE>
ANNEX F
NEW YORK BUSINESS CORPORATION LAW SECTION 623
PROCEDURE TO ENFORCE SHAREHOLDER'S
RIGHT TO RECEIVE PAYMENT FOR SHARES
(a) A shareholder intending to enforce his right under a Section of
this chapter to receive payment for his shares if the proposed corporate
action referred to therein is taken shall file with the corporation, before
the meeting of shareholders at which the action is submitted to a vote, or at
such meeting but before the vote, written objection to the action. The
objection shall include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares if the action is
taken. Such objection is not required from any shareholder to whom the
corporation did not give notice of such meeting in accordance with this
chapter or where the proposed action is authorized by written consent of
shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which
term as used in this Section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without
a meeting was obtained from the requisite shareholders, the corporation shall
give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to have elected not
to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as
to which he dissents and a demand for payment of the fair value of his
shares. Any shareholder who elects to dissent from a merger under section 905
(Merger of subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of section 913 (Share exchanges) shall file a written
notice of such election to dissent within twenty days after the giving to him
of a copy of the plan of merger or exchange or an outline of the material
features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as
to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid
the fair value of his shares and any other rights under this section. A
notice of election may be withdrawn by the shareholder at any time prior to
his acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer
<PAGE>
is made. Upon expiration of such time, withdrawal of a notice of election
shall require the written consent of the corporation. In order to be
effective, withdrawal of a notice of election must be accompanied by the
return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the
corporate action is rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have
the right to receive payment for his shares and he shall be reinstated to all
his rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have
expired or any such dividend or distribution other than in cash has been
completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within
one month thereafter the shareholder of shares represented by certificates
shall submit the certificates representing his shares to the corporation, or
to its transfer agent, which shall forthwith note conspicuously thereon that
a notice of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder
of shares represented by certificates who fails to submit his certificates
for such notation as herein specified shall, at the option of the corporation
exercised by written notice to him within forty-five days from the date of
filing of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon transfer
of a certificate bearing such notation, each new certificate issued therefor
shall bear a similar notation together with the name of the original
dissenting holder of the shares and a transferee shall acquire no rights in
the corporation except those which the original dissenting shareholder had at
the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail
to each shareholder who has filed such notice of election to pay for his
shares at a specified price which the corporation considers to be their fair
value. Such offer shall be accompanied by a statement setting forth the
aggregate number of shares with respect to which notices of election to
dissent have been received and the aggregate number of holders of such
shares. If the corporate action has been consummated, such offer shall also
be accompanied by (1) advance payment to each such shareholder who has
submitted the certificates representing his shares to the corporation, as
provided in paragraph (f), of an amount equal to eighty percent of the amount
of such offer, or (2) as to each shareholder who has not yet submitted his
certificates a statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the corporation
promptly upon submission of his certificates. If the corporate action has not
been consummated at the time of the making of the offer, such advance payment
or statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute
a waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve month period ended on the date of such balance sheet or,
if the corporation was not in existence throughout such twelve month period,
<PAGE>
for the portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet
or profit or loss statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders'
authorization for or consent to the proposed corporate action the
shareholders were furnished with a proxy or information statement, which
included financial statements, pursuant to Regulation 14A or Regulation 14C
of the United States Securities and Exchange Commission. If within thirty
days after the making of such offer, the corporation making the offer and any
shareholder agree upon the price to be paid for his shares, payment therefor
shall be made within sixty days after the making of such offer or the
consummation of the proposed corporate action, whichever is later, upon the
surrender of the certificates for any such shares represented by
certificates.
(h) The following procedure shall apply if the corporation fails to
make such offer within such period of fifteen days, or if it makes the offer
and any dissenting shareholder or shareholders fail to agree with it within
the period of thirty days thereafter upon the price to be paid for their
shares:
(i) The corporation shall, within twenty days after the expiration
of whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which the
office of the corporation is located to determine the rights of dissenting
shareholders and to fix the fair value of their shares. If, in the case of
merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this state, such proceeding shall be brought
in the county where the office of the domestic corporation, whose shares are
to be valued, was located.
(ii) If the corporation fails to institute such proceeding within
such period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(iii) All dissenting shareholders, excepting those who, as provided
in paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall have
the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and
exclusive.
(iv) The court shall determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares,
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature
of the transaction giving rise to the shareholder's right to receive payment
for shares and its effects on the corporation and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining the fair value of shares of a corporation engaging in
a similar transaction under comparable circumstances and all other relevant
factors. The court shall determine the fair value of the shares without a
jury and without referral to an appraiser or referee. Upon application by the
<PAGE>
corporation or by any shareholder who is a party to the proceeding, the court
may, in its discretion, permit pretrial disclosure, including, but not
limited to, disclosure of any expert's reports relating to the fair value of
the shares whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of Section 3101 of the civil practice law and
rules.
(v) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(vi) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the corporate
action was consummated to the date of payment. In determining the rate of
interest, the court shall consider all relevant factors, including the rate
of interest which the corporation would have had to pay to borrow money
during the pendency of the proceeding. If the court finds that the refusal of
any shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(vii) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and
fees incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred
by any or all of the dissenting shareholders who are parties to the
proceeding against the corporation if the court finds any of the following:
(A) that the fair value of the shares as determined materially exceeds the
amount which the corporation offered to pay; (B) that no offer or required
advance payment was made by the corporation; (C) that the corporation failed
to institute the special proceeding within the period specified therefor; or
(D) that the action of the corporation in complying with its obligations as
provided in this Section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by which the fair
value of the shares as determined exceeds the corporate offer.
(viii) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder the
amount found to be due him, upon surrender of the certificate for any such
shares represented by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in
this section, shall become treasury shares or be cancelled as provided in
Section 515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this
Section at a time when the corporation is insolvent or when such payment
would make it insolvent. In such event, the dissenting shareholder shall, at
his option:
(i) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
<PAGE>
(ii) Retain his status as a claimant against the corporation and,
if it is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders, and
if it is not liquidated, retain his right to be paid for his shares, which
right the corporation shall be obliged to satisfy when the restrictions of
this paragraph do not apply.
(iii) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this paragraph.
If the dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such shareholder of any other right to which he might otherwise be entitled
by virtue of share ownership, except as provided in paragraph (e), and except
that this Section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice
to be given by a corporation to a shareholder under this Section shall be
given in the manner provided in Section 605 (Notice of meetings of
shareholders).
(m) This Section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of Section 907 (Merger or consolidation of
domestic and foreign corporations). (Last amended by Ch. 117, L.'86,
eff.9-1-86.)
<PAGE>
ANNEX G
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
December 31, 1994 0-5613
-----------------------------------------------------------------
OAK HILL SPORTSWEAR CORPORATION
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2625545
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1411 Broadway, New York, New York 10018
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 789-8900
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.02
-----------------------------------------------------------------
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in the definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing price on March 9, 1995, the aggregate market
value of voting stock held by nonaffiliates of the registrant
(assuming that all the stock referred to under Item 12 hereof are
held by affiliates) was approximately $5,444,000.
As of March 9, 1995, the registrant had 2,057,576 shares of $.02
par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
-------- -----------------
Portions of definitive proxy statement for As referred to in
the 1995 Annual Meeting of Shareholders Part III - Items
to be filed pursuant to Regulation 14A 10, 11, 12 and 13.
under the Securities Exchange Act
of 1934.
Exhibit index of pages 24 - 27
1 OF 30 PAGES
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1994
PART I
Item 1. Business:
The Company designs, imports, manufactures and markets
moderately priced women's apparel through its sportswear (import and
domestic), accessories and manufacturing divisions. Its products
are marketed under various labels including Victoria Jones, Victoria
Sport, Casey & Max and Harmal. It designs its products -
principally shirts, sweaters, cotton knits, sportswear and belts -
for the "Missy", "Large Size" and "Petite" markets, generally for
retail by department and specialty stores, and by chains, wholesale
membership clubs, mail order and catalogue companies at "popular" or
moderate prices (generally $4.00 to $50.00 per item).
The women's apparel industry is subject to periodic fashion
changes. The Company primarily adopts new styles in response to the
market. With this policy of designing primarily to adopt to -
rather than to anticipate - emerging fashion trends, the Company
attempts to reduce their effects on operations.
The Company merchandises its products from its offices and
showrooms in New York City. The products are distributed nationwide
and foreign sales are not significant.
The Company competes with many other apparel companies, no one
or small group of which is dominant. There are many larger apparel
firms with far greater financial and other resources. The Company
competes on the basis of style, quality, marketing, price and
timeliness. It conducts a very limited advertising program,
primarily in cooperation with customers.
The Company's business is somewhat seasonal with the highest
level of sales from August through October. Part of the Company's
merchandise is produced to satisfy customers' orders or anticipated
orders with the balance based upon the Company's projections. The
Company's payment terms to customers are on an average 50-day credit
basis. There is a relatively short period between the receipt of
orders and their completion so that backlog is not a significant
factor in understanding the Company's operations.
Approximately 80% of the Company's 1994 sales were to leading
department and specialty stores and approximately 20% were to
chains, wholesale membership clubs and mail order and catalogue
concerns. The Company had approximately 1,100 customers during
1994. The Company does not have long-term contracts with any of its
customers.
The Company purchases raw materials used for its domestic
production from many suppliers. The Company does not have any long-
term, formal arrangements with any of its suppliers of raw
materials;
2 OF 30 PAGES
<PAGE>
however, it has experienced little difficulty in satisfying its raw
material requirements and considers its sources of supply to be
adequate. The Company imports finished garments from many
countries, primarily those located in the Far East. The Company's
imports are subject to the inherent risks attendant to purchasing
products abroad, including the availability of quota and other
requisite customs clearances, the imposition of import duties,
political and social instability, currency fluctuations,
restrictions on the transfer of funds and bilateral agreements which
limit the amount of certain categories of merchandise that may be
imported into the United States. The Company's import operations
have not been materially affected by such factors to date; however,
a substantial variation in such factors could adversely affect the
Company's import operations in the future.
Approximately 21% of the Company's net sales in 1994 were from
products manufactured in premises owned or leased by the Company
compared to approximately 30% in 1993. The balance was made to the
Company's specifications by foreign and domestic independent
contractors. Approximately 71% of the Company's net sales in 1994
were from imported products compared to approximately 59% in 1993
and the balance of the Company's net sales were from products
manufactured in the United States.
The Company's earnings for 1994 were nominal, as sales of
women's apparel at the retail level were weak throughout the year.
Improvements in the Company's sportswear divisions were offset by
difficulties in its manufacturing division, decreased sales and
earnings in its accessories division and higher interest costs.
As of December 31, 1994, the Company had approximately 425
employees.
Item 2. Properties:
The Company's executive offices and principal showrooms are in
leased premises at 1411 Broadway, New York, New York, 10018. The
Company leases additional offices and showrooms to market its
products.
The Company owns approximately 285,000 square feet of
manufacturing and warehousing facilities in Mississippi. In August,
1994 the Company ceased manufacturing in one of its 60,000 square
foot facilities. The Company leases other manufacturing and
warehousing facilities in New York City.
See notes to consolidated financial statements for lease
commitments.
Item 3. Legal proceedings:
There are no material pending legal proceedings involving the
Company.
3 OF 30 PAGES
<PAGE>
Item 4. Submission of matter to a vote of security holders:
No matter was submitted during the fourth quarter of 1994 to a
vote of the Company's shareholders.
PART II
Item 5. Market for the registrant's common
stock and related security holder
matters:
The Company's common stock, trading symbol OHSC, is traded on
The Nasdaq Stock Market and is designated as a national market
security (NMS). Through the facilities of the NASDAQ/NMS reporting
system, actual sale prices of the Company's common stock are
available. The table below sets forth the high and low prices for
the common stock.
Prices
High Low
1993:
1st quarter 4 1/4 2 3/4
2nd quarter 3 1/4 2 3/8
3rd quarter 2 3/4 2
4th quarter 5 1 1/2
1994:
1st quarter 5 3/8 3 9/16
2nd quarter 4 5/8 3 7/8
3rd quarter 4 3/4 3 3/4
4th quarter 5 1/8 4 1/8
1995:
1st quarter 4 1/8 3 1/4
(to March 9, 1995)
As of March 9, 1995, there were approximately 775 holders of
record of the Company's common stock.
The Company has not paid any cash dividends and it does not
expect to in the foreseeable future.
4 OF 30 PAGES
<PAGE>
Item 6. Selected financial data:
<TABLE>
<CAPTION>
For the years ended December 31,
1994 1993 1992 1991 1990
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Income statement:
Net sales $84,153 $83,920 $86,410 $91,194 $118,224
------- ------- ------- ------- --------
Income (loss) before
provision (benefit)
for taxes 259 205 (1,847) 739 (5,922)*
Provision (benefit)
for taxes 30 44 (500) 281 (2,350)
------- ------- ------- ------- --------
Net income (loss) $ 229 $ 161 ($ 1,347) $ 458 ($ 3,572)
======= ======= ======= ======= ========
Per share data:
Primary and fully diluted
Net income (Loss) $.11 $.08 ($.65) $.22 ($1.74)
======= ======= ======= ======= ========
*Includes a pretax restructuring charge of $3,000 ($1,800 after tax benefit
or $.87 per share).
Weighted average shares
and common stock
equivalent shares
outstanding:
Primary and fully diluted 2,067 2,058 2,058 2,058 2,058
Balance sheet:
Total assets $27,364 $25,498 $27,841 $31,742 $35,602
Long-term debt $ 1,581 $ 1,715 $ 1,896 $ 2,087 $ 2,194
</TABLE>
See notes to consolidated financial statements.
5 OF 30 PAGES
<PAGE>
Item 7. Management's discussion and
analysis of financial condition
and results of operations:
Liquidity and capital resources:
Working capital at December 31, 1994 was $9,921,000 as compared to
$9,819,000 at December 31, 1993. The increase of $102,000 was primarily due
to the net income for the year.
On August 9, 1994, the Company and BankAmerica Business Credit, Inc.
executed a Loan and Security Agreement for a line of credit through August
8, 1997 for both revolving loans and letters of credit, and as of December
30, 1994 they amended the Agreement. Pursuant to the Amended Agreement,
the Company may borrow an amount which is the sum of 80% of eligible
accounts receivable plus 55% of eligible inventory plus 50% of outstanding
letters of credit. During a 123 day period between May and October, to be
elected by the Company in each year, the Company may, in the lender's
discretion, borrow an additional 10% of eligible inventory and 10% of
outstanding letters of credit, subject to a maximum of $3,000,000. Under
the Amended Agreement, the maximum amount of revolving loans and letters of
credit is $31,000,000. The Amended Agreement includes charges for interest
on revolving loans at 1.25% above the reference rate of Bank of America,
which was 9% on March 1, 1995, fees for letter of credit transactions and
certain one-time fees paid in 1994 and other fees. The Amended Agreement
contains covenants relating to the Company's cash flow, net worth and
financial condition. The Company's obligations under the Amended Agreement
are secured by accounts receivable, inventory and other assets. At
December 31, 1994, $4,199,000 was outstanding under the Amended Loan and
Security Agreement.
The Company also executed on August 9, 1994 an Eighth Amendment to its
Credit and Security Agreement originally dated August 16, 1993, with
Republic National Bank of New York and Chemical Bank. The Amended
Agreement provides the Company with a secured term loan in the aggregate
amount of $5,000,000 payable in installments through December 31, 1995.
The Agreement includes charges for interest at 3% above the agent bank's
reference rate, which was 9% at March 1, 1995, and certain one-time fees
paid in 1994. The Amended Agreement is secured by accounts receivable,
inventory and certain other assets. At December 31, 1994, $3,000,000
remained outstanding under the Amended Agreement.
Based upon the Company's current operations and business plans,
Management believes that the Company's cash flow from operations, which
Management believes will be negative in the first part of 1995, and
borrowings under the Loan and Security Agreement will not provide it, at
certain times within its business cycle, with all of the funds necessary
for its working capital and capital expenditures. Management is exploring
various options, including modifying the business plans to reduce expenses
and curtail projected levels of sales and inventory, revising the Company's
existing borrowing arrangements (subject to the lender's approval) and
selling certain capital assets. In addition, Management is considering
raising additional capital and the sale of one or more of the Company's
divisions. While the Company can give no assurance as to which specific
actions can be effectuated, Management believes that several of these steps
can be taken in a timely manner.
Accounts receivable were $10,149,000 at December 31, 1994 as compared
to $9,520,000 at December 31, 1993, an increase of $629,000. The increase
was due to a higher level of sales in the latter part of 1994 as compared
to the comparable period in 1993. Accounts receivable balances at December
31 are lower than those throughout most of the year due to seasonal
factors.
6 OF 30 PAGES
<PAGE>
Inventories at December 31, 1994 were $11,583,000 as compared to
$10,913,000 at December 31, 1993, an increase of $670,000. The increase
was primarily due to higher levels of imported finished goods inventory in
transit to the Company as of December 31, 1994. The increase in finished
goods inventory in transit more than offset a decrease in raw materials and
domestic work-in-process.
Results of operations:
1994 compared to 1993 -
Sales for 1994 amounted to $84,153,000 as compared to $83,920,000 for
1993, an increase of $233,000. The increase was primarily due to higher
volume in the import division, offset in part by lower volume in the
domestic and accessory divisions.
Gross profit for 1994 amounted to $17,057,000 as compared to
$17,871,000 in 1993, a decrease of $814,000. The decrease was mainly
attributable to lower sales and margins in the accessory division and lower
margins in the manufacturing division, offset in part by higher sales and
margins in the import division and higher margins in the domestic division.
Selling, general and administrative expenses for 1994 were $14,948,000
compared to $16,214,000 in 1993, a decrease of 8%. The decrease was
primarily due to the Company's successful cost reduction program.
Interest expense-net amounted to $1,850,000 as compared to $1,452,000
in 1993, an increase of $398,000. The increase resulted principally from
higher average interest rates and amortization of financing expenses.
Provision for taxes for the two years ended December 31, 1994
represents the provision for state income tax. There is no provision for
federal income taxes as the Company is utilizing approximately $419,000 of
its net operating loss carryforward in 1994 to offset approximately
$142,000 of federal income taxes payable. In 1993, the Company utilized
approximately $320,000 of its net operating loss carryforward to offset
approximately $108,000 of federal income taxes payable.
1993 compared to 1992 -
Sales for 1993 amounted to $83,920,000 as compared to $86,410,000 for
1992, a decrease of 3% or $2,490,000. The decrease was primarily due to
lower volume in the import division, as planned, offset in part by higher
volume in the accessory division.
Gross profit for 1993 amounted to $17,871,000 as compared to
$18,806,000 in 1992, a decrease of $935,000. The decrease was mainly
attributable to lower margins in the domestic division and lower sales in
the import division, offset in part by higher margins and sales in the
accessory division.
Selling, general and administrative expenses for 1993 were $16,214,000
compared to $19,374,000 in 1992, a decrease of 16.3%. The decrease was
primarily due to the Company's successful cost reduction program.
Interest expense-net amounted to $1,452,000 as compared to $1,279,000
in 1992, an increase of $173,000. The increase resulted principally from
higher average interest rates, offset in part by lower short-term borrowing
requirements.
7 OF 30 PAGES
<PAGE>
Provision for taxes for the year ended December 31, 1993 represents
the provision for state income tax. There was no provision for federal
income taxes as the Company utilized approximately $320,000 of its net
operating loss carryforward to offset approximately $108,000 of federal
income taxes payable. There was a tax benefit of $500,000 for the year
ended December 31, 1992, principally from a reduction of certain tax
reserves no longer considered necessary and the reversal of deferred income
taxes.
Inflation:
Overall the effect of inflation for the apparel industry during 1994
and 1993 was nominal; therefore, the impact, if any, upon sales and
expenses for 1994 and 1993 was nominal.
8 OF 30 PAGES
<PAGE>
Item 8. Financial statements and
additional financial data
OAK HILL SPORTSWEAR CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FILED WITH THE ANNUAL REPORT
OF THE COMPANY ON FORM 10-K
Page
Report of independent accountants 10
Consolidated balance sheets at December 31, 1994 and 1993 11
Consolidated statements of operations for the years ended
December 31, 1994, 1993 and 1992 12
Consolidated statements of stockholders' equity for the years
ended December 31, 1994, 1993 and 1992 13
Consolidated statements of cash flows for the years ended
December 31, 1994, 1993 and 1992 14
Notes to consolidated financial statements 15-22
9 OF 30 PAGES
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Oak Hill Sportswear Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
of cash flows present fairly, in all material respects, the financial
position of Oak Hill Sportswear Corporation and its subsidiary at December
31, 1994 and 1993, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
March 1, 1995
10 OF 30 PAGES
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
1994 1993
Assets
Current assets:
Cash $ 332 $ 169
Accounts receivable - net 10,149 9,520
Inventories 11,583 10,913
Other current assets 755 344
------- -------
Total current assets 22,819 20,946
Property, plant and equipment - net 2,742 3,017
Goodwill - net 1,442 1,497
Other assets 361 38
------- -------
$27,364 $25,498
======= =======
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 7,199 $ 5,031
Current portion of long-term debt 154 184
Accounts payable 3,968 4,159
Accrued expenses 1,241 1,415
Accrued income taxes 336 338
------- -------
Total current liabilities 12,898 11,127
Long-term debt 1,581 1,715
Commitments
Stockholders' equity - see accompanying statement:
Preferred stock, $1.00 par value, authorized
1,000,000 shares; -0- shares issued
Common stock, $.02 par value, authorized
12,000,000 shares; 4,869,828 shares issued 97 97
Capital in excess of par value 27,363 27,363
Retained earnings 2,433 2,204
Common stock held in treasury, at cost
(2,812,252 shares) (17,008) (17,008)
------- -------
Total stockholders' equity 12,885 12,656
------- -------
$27,364 $25,498
======= =======
See notes to consolidated financial statements.
11 OF 30 PAGES
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except
per share amounts)
Years ended December 31,
1 9 9 4 1 9 9 3 1 9 9 2
Net sales $84,153 $83,920 $86,410
------- ------- ------
Costs and expenses:
Cost of sales 67,096 66,049 67,604
Selling, general and adminis-
trative expenses 14,948 16,214 19,374
------- ------- ------
82,044 82,263 86,978
Operating income (loss) 2,109 1,657 (568)
Interest expense - net 1,850 1,452 1,279
------- ------- ------
Income (loss) before provision
(benefit) for taxes 259 205 (1,847)
Provision (benefit) for taxes 30 44 (500)
------- ------- ------
Net income (loss) $ 229 $ 161 ($1,347)
======= ======= ======
Per share data:
Primary and fully diluted $.11 $.08 ($.65)
======= ======= ======
See notes to consolidated financial statements.
12 OF 30 PAGES
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Total
Common stock Capital in stock-
In excess of Retained holders'
Shares Issued treasury par value earnings equity
Balance, December
31, 1991 4,870 $97 ($17,008) $27,363 $3,390 $13,842
Net income for
the year ended
December 31, 1992 (1,347) (1,347)
----- --- ------- ------- ------ -------
Balance, December
31, 1992 4,870 97 (17,008) 27,363 2,043 12,495
Net (loss) for
the year ended
December 31, 1993 161 161
----- --- ------- ------- ------ -------
Balance, December
31, 1993 4,870 97 (17,008) 27,363 2,204 12,656
Net income for
the year ended
December 31, 1994 229 229
----- --- ------- ------- ------ -------
Balance, December
31, 1994 4,870 $97 ($17,008) $27,363 $2,433 $12,885
===== === ======= ======= ====== =======
See notes to consolidated financial statements.
13 OF 30 PAGES
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
1994 1993 1992
Cash flows from operating activities:
Net income (loss) $ 229 $ 161 ($1,347)
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Depreciation and amortization 524 551 574
------ ------ ------
753 712 ( 773)
Changes in assets and liabilities (2,400) 2,186 943
------ ------ ------
Net cash (used in) from
operating activities (1,647) 2,898 170
------ ------ ------
Cash flows (used in) investing
activities
Capital expenditures (194) (222) (125)
------ ------ ------
Net cash (used in)
investing activities (194) (222) (125)
------ ------ ------
Cash flows from (used in)
financing activities:
Net increase (reduction) in
short term borrowings 2,168 (2,519) (41)
Principal payment of long-term debt (164) (168) (126)
------ ------ ------
Net cash from (used in) financing
activities 2,004 (2,687) ( 167)
------ ------ ------
Net increase (decrease) in cash 163 (11) (122)
Cash at beginning of year 169 180 302
------ ------ ------
Cash at end of year $ 332 $ 169 $ 180
====== ====== ======
Supplemental disclosures of cash flow information:
Changes in assets and liabilities:
Accounts receivable ($ 629) ($ 987) $1,752
Inventories (670) 2,696 1,604
Other current assets (411) 293 (100)
Other assets (323) 1 74
Accounts payable and accrued expenses (365) 133 (2,281)
Accrued income taxes (2) 50 143
Deferred taxes 249)
------ ------ ------
($2,400) $2,186 $ 943
====== ====== ======
Cash paid (received) during the year for:
Interest $1,617 $1,411 $1,200
Income Taxes 32 (6) (448)
See notes to consolidated financial statements.
14 OF 30 PAGES
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES:
A. Basis of presentation:
The Company is engaged in the women's apparel business.
B. Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All intercompany balances
and transactions have been eliminated in consolidation. The
subsidiary had not commenced operations as of December 31, 1994.
C. Inventories:
Inventories are stated at the lower of cost (first-in, first-out)
or market.
D. Fixed assets, depreciation and amortization:
Depreciation is computed principally using the straight-line
method. The cost of maintenance or repairs is charged to income as
incurred; significant renewals and betterments are capitalized.
The ranges of useful lives in computing depreciation and
amortization are as follows:
Buildings 10-32 years
Machinery and equipment 3-10 years
Leasehold improvements Shorter of life of lease
or asset
E. Goodwill:
The excess cost of acquisition over net assets acquired is being
amortized by the straight-line method over a period of forty years.
F. Pension and profit-sharing plans:
The Company has defined contribution pension and profit-sharing
plans covering eligible employees. Costs for these plans are funded
as accrued and there are no prior service costs with respect to these
plans.
G. Income taxes:
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," (SFAS 109) and has applied the provisions prospectively
in 1993. The adoption of SFAS 109 had no effect on current or
previously reported results of operations. SFAS 109 requires the
recognition of deferred taxes for the expected future tax consequences
of temporary differences between tax bases and financial reporting
bases of assets and liabilities and of loss carryforwards.
15 OF 30 PAGES
<PAGE>
NOTE 1 - ACCOUNTING POLICIES CONTINUED:
H. Earnings per share:
Primary and fully diluted earnings per share for 1994 have been
computed using 2,066,928 shares and common stock equivalent shares
outstanding; 1993 and 1992 have been computed using 2,057,576 shares
outstanding each year.
I. Stockholders' equity:
The Board of Directors has been authorized to have the Company
issue preferred stock, to establish and designate series, to fix the
number of shares and the rights and preferences. The shares have not
been issued and the terms, rights and preferences have not been
established.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable are net of allowances of $778,000 and
$423,000 at December 31, 1994 and December 31, 1993, respectively.
NOTE 3 - INVENTORIES:
Inventories are summarized by major classification as follows:
December 31,
1 9 9 4 1 9 9 3
Raw materials $ 1,963,000 $ 2,624,000
Work in process 650,000 1,440,000
Finished goods 8,970,000 6,849,000
----------- -----------
$11,583,000 $10,913,000
=========== ===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment, recorded at
cost, are:
December 31,
1 9 9 4 1 9 9 3
Land and buildings $4,119,000 $4,119,000
Machinery and equipment 4,465,000 4,335,000
Leasehold improvements 756,000 793,000
---------- ----------
9,340,000 9,247,000
Less - Accumulated depre-
ciation and amortization 6,598,000 6,230,000
---------- ----------
$2,742,000 $3,017,000
NOTE 5 - GOODWILL: ========== ==========
Goodwill is recorded at cost net of accumulated amortization of
$768,000 and $713,000 at December 31, 1994 and December 31, 1993,
respectively.
16 OF 30 PAGES
<PAGE>
NOTE 6 - NOTES PAYABLE:
The Company had notes payable to lending institutions of $7,199,000
at December 31, 1994 at an average interest rate of 10.47%. These funds
were borrowed in connection with its short-term lines of credit with
BankAmerica Business Credit, Inc. and two banks.
The maximum amount borrowed was $23,248,000 in 1994, $19,581,000 in
1993 and $23,840,000 in 1992. Using month-end balances, the average
amounts borrowed in 1994, 1993 and 1992 were $11,943,000, $12,702,000
and $15,108,000, respectively, at an average interest rate of 13.44%,
9.68%, and 6.42% for the respective years.
On August 9, 1994, the Company and BankAmerica Business Credit, Inc.
executed a Loan and Security Agreement for a line of credit through
August 8, 1997 for both revolving loans and letters of credit, and as
of December 30, 1994 they executed an Amendment thereto. Pursuant to
the Amended Agreement, the Company may borrow an amount which is the sum
of 80% of eligible accounts receivable plus 55% of eligible inventory
plus 50% of outstanding letters of credit. During a 123 day period
between May and October, to be elected by the Company in each year, the
Company may, at the lender's discretion, borrow an additional 10% of
eligible inventory and 10% of outstanding letters of credit, subject to
a maximum of $3,000,000. Under the Amended Agreement, the maximum
amount of revolving loans and letters of credit is $31,000,000. The
Amended Agreement includes charges for interest on revolving loans at
1.25% above the reference rate of Bank of America, which was 9% on March
1, 1995, fees for letter of credit transactions and certain one-time
fees paid in 1994 and other fees. The Amended Agreement contains
covenants relating to the Company's cash flow, net worth and financial
condition. The Company's obligations under the Amended Agreement are
secured by accounts receivable, inventory and other assets.
The Company also executed on August 9, 1994 an Eighth Amendment to
its Credit and Security Agreement originally dated August 16, 1993, with
Republic National Bank of New York and Chemical Bank. The Amended
Agreement provides the Company with a secured term loan in the aggregate
amount of $5,000,000 payable in installments through December 31, 1995.
The Agreement includes charges for interest at 3% above the agent bank's
reference rate, which was 9% at March 1, 1995, and certain one-time fees
paid in 1994. The Amended Agreement is secured by accounts receivable,
inventory and other assets. At December 31, 1994, $3,000,000 remained
outstanding under the Amended Agreement.
Other current assets and other assets at December 31, 1994 include
$634,000 of capitalized expenses associated with the Company's financing
arrangements. During 1994, $254,000 of expenses associated with the
Company's financing arrangements were amortized.
The Company had outstanding letters of credit amounting to
$4,456,000 and $5,599,000 at December 31, 1994 and December 31, 1993,
respectively.
17 OF 30 PAGES
<PAGE>
NOTE 7 - LONG-TERM DEBT:
Details of long-term debt are as follows:
December 31,
1 9 9 4 1 9 9 3
Mortgage note payable to a bank $1,735,000 $1,899,000
Less - Installments due within one
year, included in current liabilities 154,000 184,000
---------- ----------
$1,581,000 $1,715,000
========== ==========
The terms of the currently outstanding mortgage note, which is
secured by land and buildings, provide for monthly payments based upon a
15 year amortization of principal. In July, 1992, the Company exercised
its option to renew the balance of the note for an 11 year period ending
July, 2003 with the interest at 1 1/2% over the bank's prime lending
rate through July, 1995. The interest rate for the remaining eight years
from July, 1995 to July, 2003 will be negotiated at a later date.
The aggregate amount of maturities of long-term debt, based on
stated terms, is as follows:
1995 $ 154,000
1996 170,000
1997 187,000
1998 207,000
1999 228,000
2000 - 2003 789,000
----------
$1,735,000
==========
NOTE 8 - STOCK OPTIONS:
The Company has an Incentive Stock Option Plan ("ISO Plan") which
authorizes the granting of options, for the purchase of an aggregate of
650,000 shares of the Company's common stock, to key employees and
officers of the Company. The provisions of the ISO Plan provide that
(1) the option price per share is to be not less than 100% of the fair
market value of the stock on the date of the grant and (2) options
granted shall be for a term of not more than five years and shall become
exercisable in equal installments in each year of the term of the option
on a cumulative basis, other than the first year, or to the extent that
the Board of Directors shall determine. At the Company's 1993 Annual
Meeting, shareholders approved the extension of the date until which
options may be granted under the ISO Plan from March 21, 1994 to March
21, 1999.
At December 31, 1994, the Company reserved 25,250 shares of its
common stock for purposes of the ISO Plan. At that date, there were
174,000 options outstanding at exercise prices of $3.625 - $4.68.
18 OF 30 PAGES
<PAGE>
NOTE 8 - STOCK OPTIONS CONTINUED:
Additional information concerning stock options under the ISO Plan
is summarized as follows:
Incentive
Stock Option Plan
Shares
---------------------
1994 1993
------- -------
Options outstanding at beginning of year 50,000 30,000
Options granted 124,000 50,000
Options canceled or surrendered - (30,000)
Options exercised - -
------- -------
Options outstanding at end of year 174,000 50,000
======= =======
Options exercisable at end of year 12,500 -
======= =======
Options available for future grant 25,250 149,250
======= =======
On October 11, 1994, the Board of Directors adopted a Non-Qualified
Stock Option Plan ("1994 NQO Plan") covering up to 199,250 shares of the
Company's Common Stock, par value $.02 per share. The 1994 NQO Plan is
subject to shareholder approval by December 31, 1995. If the 1994 NQO Plan is
approved by shareholders prior to December 31, 1995, all unexercised stock
options under the ISO Plan will automatically be canceled. Upon such
shareholder approval, the options granted under the 1994 NQO Plan will
automatically be reduced to the extent of any exercise of the options for the
equivalent amounts previously issued under the ISO Plan. The provisions of
the 1994 NQO Plan provide that (1) the option price per share is to be not
less than 50% of the fair market value of the stock on the date of the grant
and (2) options granted shall be for a term of not more than five years and
shall become exercisable in equal installments in each year of the term on a
cumulative basis, other than the first year, or to the extent that the Board
of Directors shall determine. No option may be granted under the 1994 NQO
Plan after October 11, 2004.
At December 31, 1994, the Company reserved 25,250 shares of its Common
Stock for the purposes of the 1994 NQO Plan. At that date, there were 174,000
options outstanding at exercise prices of $3.625 - $4.25.
19 OF 30 PAGES
<PAGE>
NOTE 8 - STOCK OPTIONS CONTINUED:
Additional information concerning stock options under the 1994 NQO
Plan is summarized as follows:
Non-Qualified
Stock Option Plan
Shares
-----------------
1994
-------
Options outstanding at beginning of year -
Options granted 174,000
Options canceled or surrendered -
Options exercised -
-------
Options outstanding at end of year 174,000
=======
Options exercisable at end of year -
=======
Options available for future grant 25,250
=======
NOTE 9 - INCOME TAXES:
Provision (benefit) for income taxes consists of the following
components:
December 31,
1994 1993 1992
Current $30,000 $44,000 ($306,000)
Deferred - - ( 194,000)
------- ------- --------
Total $30,000 $44,000 ($500,000)
======= ======= ========
The provisions for 1994 and 1993 represent state income taxes.
There is no provision for federal income taxes as the Company utilized
approximately $419,000 of its net operating loss carryforward to offset
approximately $142,000 of federal income taxes otherwise payable in
1994, and utilized approximately $320,000 of its net operating loss
carryforward to offset approximately $108,000 of federal income taxes
otherwise payable in 1993. The 1992 tax benefit results principally
from a reduction of certain tax reserves no longer considered necessary
and the reversal of deferred income taxes resulting from the loss
carryforward which arose in 1992. At December 31, 1994, the Company has
available for Federal income tax purposes a net operating loss
carryforward of approximately $1,069,000 that expires in the year 2007.
20 OF 30 PAGES
<PAGE>
NOTE 9 - INCOME TAXES CONTINUED:
A reconciliation of the statutory income tax rate and the effective
tax rates for 1994, 1993 and 1992 follows:
Liability Liability Deferred
Method Method Method
1994 1993 1992
---- ---- ----
Statutory rate 34.0% 34.0% (34.0%)
State and local taxes 7.6 14.2 1.7
Amortization and other
non-deductible expenses 21.0 23.9 2.8
Net operating loss carryforward (51.0) (50.6)
Losses on which tax benefits are
not currently recognizable, net
of reversal of previously recorded
deferred income taxes 20.8
Reversal of tax reserves (18.4)
---- ---- ----
11.6% 21.5% (27.1%)
==== ==== ====
The following summarizes the significant components of deferred tax
(liabilities) assets:
December 31, December 31,
1994 1993
------------ ------------
Depreciation ($177,000) ($187,000)
-------- --------
Gross deferred tax liabilities ( 177,000) ( 187,000)
-------- --------
Inventory 34,000 34,000
Loss carryforward 363,000 469,000
-------- --------
Gross deferred tax assets 397,000 503,000
-------- --------
Deferred tax asset valuation
allowance 220,000 316,000
-------- --------
Deferred Taxes $ - $ -
======== ========
NOTE 10 - PROFIT-SHARING AND PENSION PLANS:
The Company has non-contributory profit-sharing plans which provide
for annual contributions, at the discretion of the Board of Directors,
of between 2% and 15% of the defined compensation of eligible employees.
Profit-sharing expense was $137,000 in 1994, $188,000 in 1993 and
$222,000 in 1992.
The Company also has defined contribution (money purchase) pension
plans that cover employees who meet specified eligibility requirements.
The contributions required under the plans vary; however, the Company
principally contributes 1% of the first $20,000 and 4% above $20,000
(limited to an additional $130,000), of the defined compensation of
eligible employees. Pension expense was $180,000 in 1994, $239,000 in
1993 and $259,000 in 1992.
21 OF 30 PAGES
<PAGE>
NOTE 11 - COMMITMENTS:
The Company occupies manufacturing, office, showroom and shipping
premises under operating leases expiring at various dates. Approximate
future minimum rentals, exclusive of additional amounts for real estate
taxes, building operating expenses, etc., are as follows:
1995 $ 519,000
1996 552,000
1997 539,000
1998 541,000
1999 543,000
2000 91,000
Minimum rentals shown are net of sublease rental income in the
amount of $163,000 for 1995 and $54,000 in 1996. Rent expense for the
years ended December 31, 1994, 1993 and 1992 was $1,052,000, $1,180,000
and $1,105,000, respectively, net of sublease rental income.
NOTE 12 - ACCRUED EXPENSES:
Accrued expenses at December 31 consist of:
1 9 9 4 1 9 9 3
Salaries $ 487,000 $ 471,000
Pension and profit-sharing
plans 322,000 426,000
Other 432,000 518,000
---------- ----------
$1,241,000 $1,415,000
========== ==========
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following is a summary of quarterly financial results for the
two years ended December 31, 1994 (in thousands except per share
amounts):
1st 2nd 3rd 4th
quarter quarter quarter quarter
1994:
Net sales $18,896 $15,846 $28,651 $20,760
Gross profit 4,325 2,874 6,155 3,704
Net income (loss) 83 (1,150) 1,819 (523)
Per share data:
Net income (loss)
Primary and fully diluted $.04 ($.56) $.88 ($.25)
1993:
Net sales $17,969 $17,201 $28,080 $20,670
Gross profit 4,308 3,205 6,020 4,338
Net income (loss) (295) (1,196) 1,594 58
Per share data:
Net income (loss)
Primary and fully diluted ($.14) ($.58) $.77 $.03
22 OF 30 PAGES
<PAGE>
Item 9. Disagreements on accounting
and financial disclosure:
None.
PART III
Item 10. Directors and executive
officers of the registrant:
Incorporated by reference to information under the caption "Certain
Information Regarding Management's Nominees", and "Executive Officers"
in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A.
Item 11. Executive compensation:
Incorporated by reference to information under the captions
"Executive Compensation", "Employment Agreement", "Compensation
Committee Interlocks and Insider Participation", "Executive Committee's
Compensation Report", "Performance Graph" and "Fees Paid to Directors"
in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A.
Item 12. Security ownership of
certain beneficial
owners and management:
Incorporated by reference to information under the captions
"Principal Holders of Common Stock", "Certain Information Regarding
Management's Nominees" and "Executive Officers" in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A.
Item 13. Certain relationships and
related transactions:
Incorporated by reference to information under the captions "Fees
Paid to Directors", "Executive Compensation" and "Employment Agreement"
in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A.
23 OF 30 PAGES
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K:
Filed herewith or
incorporated by
reference to:
(a) Documents filed as part of this Form 10-K:
1. Consolidated financial statements. The
consolidated financial statements filed
as part of this Form 10-K are listed on
the index thereto, on page 9 hereof.
2. Financial statement schedule.
Report of independent accountants on
financial statement schedule.
Schedule for the three years ended
December 31, 1994, 1993 and 1992:
VIII - Valuation and Qualifying Accounts
All other schedules are omitted because
they are not required, are inapplicable
or the information is otherwise shown in
the financial statements or notes thereto.
3. Exhibits filed under Item 601 of Regulation
S-K. (Numbers assigned to the following
exhibits correlate to those used in said
Item.)
(3) Articles of Incorporation and By-Laws.
(a) Certificate of Incorporation, Exhibit 3.1 to the
as amended. Company's Form 10-K's
for its years ended
December 31, 1980 and
December 31, 1983, and
Exhibit 6 to its Form
10-Q for its quarter
ended June 30, 1988.
(b) By-laws, as amended. Exhibit 3(c) to the
Company's Form 10-K
for its year ended
December 31, 1986,
and Exhibit C-1 to
its proxy statement
dated May 13, 1987.
24 OF 30 PAGES
<PAGE>
Filed herewith or
incorporated by
reference to:
(10) Material Contracts.
(a) Relating to line of credit
with Republic National
Bank of New York and Chemical
Bank:
(1) Credit and Security Exhibit 10(a)(1) to the
Agreement dated April 16, Company's Form 10-K for
1993. its year ended December
31, 1993
(2) Letter dated August 16, 1993 Exhibit 10(a)(2) to the
amending the Credit and Company's Form 10-K for
Security Agreement. its year ended December
31, 1993.
(3) Letter dated November 2, Exhibit 10(a)(3) to the
1993 amending the Credit and Company's Form 10-K for
Security Agreement. its year ended December
31, 1993.
(4) Letter dated November 30, Exhibit 10(a)(4) to the
1993 amending the Credit and Company's Form 10-K for
Security Agreement. its year ended December
31, 1993.
(5) Letter dated as of December Exhibit 10(a)(5) to the
30, 1993 amending the Credit Company's Form 10-K for
Security Agreement. its year ended December
31, 1993.
(6) Amendment dated August 9, Exhibit 10(a)(6) to the
1994 amending the Credit Company's Form 10-Q for
and Security Agreement. its quarter ended June
30, 1994.
(b) Relating to line of credit
with BankAmerica Business
Credit, Inc.:
(1) Loan and Security Agreement Exhibit 10(a)(7) to the
dated August 9, 1994. Company's Form 10-Q for
its quarter ended June
30, 1994.
(2) Amendment dated as of Exhibit 10(a)(8) filed
December 30, 1994 to herewith.
Loan and Security
Agreement.
25 OF 30 PAGES
<PAGE>
Filed herewith or
incorporated by
reference to:
(c)(1) Employment Agreement Exhibit 10(a) to the
dated as of December 30, Company's Form 10-K
1983 between the Company for its year ended
and Arthur L. Asch, and December 31, 1983,
amendments thereto. Exhibit 10(a) to
its Form 10-K for
its year ended
December 31, 1986,
Exhibit 10(c) to the
Company's Form 10-K
for its year ended
December 31, 1990,
Exhibit 10(c) tothe
Company's Form 10-K
for its year ended
December 31, 1993.
(c)(2) Employment Agreement Exhibit 10(c)(2) filed
dated as of December herewith.
20, 1994 between the
Company and Michael A.
Asch.
(d) Profit-sharing and Pension Exhibit to Registra-
Plans, as amended. tion Statement,on
Form S-1, Registra-
tion No. 2-40221 ofOak
Hill Sportswear,
Inc., Exhibit 10(f)
to the Company's Form
10-K for its year
ended December 31,
1985, and Exhibit 10(i)
to the Company's
Form 10-K for its year
ended December 31,1989.
(e) Incentive Stock Option Plan, Exhibit 10.4 to the
as amended, with form of Company's Form 10-K
option, as amended, annexed. for its year ended
December 31, 1981,
proxy statement dated
May 10, 1984, and
exhibit thereto,
Proxy statement dated
May 10, 1985, and
proxy statement
dated May 7, 1986.
(f) Non-Qualified Stock Option Exhibit 10 (iii) to
Plan. the Company's Form 10-Q
for its quarter ended
September 30, 1994.
26 OF 30 PAGES
<PAGE>
Filed herewith or
incorporated by
reference to:
(g) Relating to Note with Deposit
Guaranty National Bank.
(1) Note to Deposit Guaranty Exhibit 10(g)(1) to the
National Bank dated Company's Form 10-K for
July 15, 1992. year ended December 31,
1992.
(2) Land Deed of Trust to Exhibit 10(g)(2) to the
Deposit Guaranty National Company's Form 10-K for
Bank dated July 15, 1992. its year ended December
31, 1992.
(24) (i) Consent of Price Exhibit 24(i) filed
Waterhouse. herewith.
(b) No report on Form 8-K was filed by the Company during the fourth
quarter of its fiscal year ending December 31, 1994.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
27 OF 30 PAGES
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
and Stockholders of
Oak Hill Sportswear Corporation
Our audits of the consolidated financial statements referred to
in our report dated March 1, 1995 appearing on page 10 of the 1994
Annual Report on this Form 10-K also included an audit of the financial
statement schedule listed in item 14(a) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
New York, New York
March 1, 1995
28 OF 30 PAGES
<PAGE>
SCHEDULE VIII
OAK HILL SPORTSWEAR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Additions
-----------------
Balance Charged Charged Balance
at be- to costs to other at end
ginning and accounts Deduc- of
of year expenses (a) tions year
Description
Reserves for allowances
and doubtful accounts
for the year ended
December 31, 1994 $423 $455 $1,454 $1,554 $778
==== ==== ==== ====== ====
Reserves for allowances
and doubtful accounts
for the year ended
December 31, 1993 $288 $291 $1,127 $1,283 $423
==== ==== ==== ====== ====
Reserves for allowances
and doubtful accounts
for the year ended
December 31, 1992 $395 $485 $875 $1,467 $288
==== ==== ==== ====== ====
(a) Offset against sales.
29 OF 30 PAGES
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) OAK HILL SPORTSWEAR CORPORATION
By: /s/ Arthur L. Asch
--------------------------------------------------------------------
Arthur L. Asch, Chairman of the Board (Principal executive officer)
By: /s/ Michael A. Asch
--------------------------------------------------------------------
Michael A. Asch, Vice President (Principal financial officer)
Date: March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Arthur L. Asch /s/ Steven Kotler
---------------------------- -------------------------------
Arthur L. Asch, Director Steven Kotler, Director
Date: March 30, 1995 Date: March 30, 1995
/s/ Wilmer J. Thomas Jr. /s/ Joseph Greenberger
---------------------------- -------------------------------
Wilmer J. Thomas Jr., Director Joseph Greenberger, Director
Date: March 30, 1995 Date: March 30, 1995
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995 Commission File Number 0-5613
--------------------- ----------
OAK HILL SPORTSWEAR CORPORATION
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-2625545
- ----------------------------------------------------------------------------
(State or other jurisdiction (I.R.S Employer
of incorporation) Identification Number)
1411 BROADWAY, NEW YORK, NEW YORK 10018
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 789-8900
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ----------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by checkmark 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
------- -------
As of May 11, 1995, the registrant had 2,057,576 shares of common stock
outstanding.
Page 1
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
INDEX
PART I - Financial Information PAGE
Unaudited financial statements:
Consolidated balance sheets -
March 31, 1995 and December 31, 1994 3
Consolidated statements of operations -
three months ended March 31, 1995 and 1994 4
Consolidated statements of cash flows -
three months ended March 31, 1995 and 1994 5
Notes to consolidated financial statements 6
Management's discussion and analysis of
financial condition and results of operations 7-8
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
The accompanying financial statements have been prepared without audit and do
not include all footnotes and disclosures required under generally accepted
accounting principles. Management believes that the results herein reflect
all adjustments which are, in the opinion of management, necessary to fairly
state the results and current financial condition of the Company for the
respective periods. It is recommended that this Report be read in
conjunction with the Company's Annual Report on Form 10-K for its year ended
December 31, 1994.
Page 2
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
1995 1994
Assets
Current assets:
Cash $ 234 $ 332
Accounts receivable - net 12,072 10,149
Inventories (Note 2) 10,810 11,583
Other current assets 646 755
------- -------
Total current assets 23,762 22,819
Property, plant and equipment - net 2,652 2,742
Goodwill - net 1,429 1,442
Other assets 311 361
------- -------
$28,154 $27,364
======= =======
Liabilities and stockholders' equity
Current liabilities:
Notes payable - banks $ 9,144 $ 7,199
Current portion of long-term debt 154 154
Accounts payable and accrued expenses 5,143 5,209
Accrued income taxes 330 336
------- -------
Total current liabilities 14,771 12,898
Long-term debt 1,546 1,581
Stockholders' equity:
Preferred stock, $1.00 par value, authorized
1,000,000 shares; -0- shares issued at
March 31, 1995 and December 31, 1994
Common stock, $.02 par value, authorized
12,000,000 shares; 4,869,828 shares issued
at March 31, 1995 and December 31, 1994 97 97
Capital in excess of par value 27,363 27,363
Retained earnings 1,385 2,433
Common stock held in treasury, at cost
(2,812,252 shares at March 31, 1995
and December 31, 1994) (17,008) (17,008)
------- -------
Total stockholders' equity 11,837 12,885
------- -------
$28,154 $27,364
======= =======
Page 3
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three months ended
March 31,
1995 1994
Net sales $16,835 $18,896
------- -------
Costs and expenses:
Cost of sales 13,953 14,571
Selling, general and administrative expenses 3,521 3,966
------- -------
17,474 18,537
------- -------
Operating income (loss) (639) 359
Interest expense - net 409 256
------- -------
Income (loss) before provision
for taxes (1,048) 103
Provision for taxes 0 20
------- -------
Net income (loss) ($ 1,048) $ 83
======= =======
Per share data:
Primary and fully diluted ($ .51) $ .04
Weighted average number of shares outstanding:
Primary and fully diluted 2,058 2,067
Page 4
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1995 1994
Cash flows from (used in) operating activities:
Net income (loss) ($1,048) $ 83
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 126 129
------ ------
(922) 212
Changes in assets and liabilities (1,063) (4,972)
------ ------
Net cash used in operating activities (1,985) (4,760)
------ ------
Cash flows used in investing activities:
Capital expenditures (23) (6)
------ ------
Cash flows from (used in) financing activities:
Net short-term borrowings 1,945 4,867
Principal payment of long-term debt (35) (45)
------ ------
Net cash provided by financing activities 1,910 4,822
------ ------
Net increase (decrease)in cash (98) 56
Cash at beginning of year 332 169
------ ------
Cash at end of period $ 234 $ 225
====== ======
Supplemental disclosures of cash flow information:
Changes in assets and liabilities:
Accounts receivable ($1,923) ($5,417)
Inventories 773 286
Other current assets 109 (144)
Other assets 50 (1)
Accounts payable and accrued expenses (66) 296
Accrued income taxes (6) 8
------ ------
($1,063) ($4,972)
====== ======
Cash paid - net during the period for:
Interest $ 300 $ 241
Income taxes 6 12
Page 5
<PAGE>
OAK HILL SPORTSWEAR CORPORATION
Notes to Consolidated Financial Statements
(unaudited)
Note 1 - Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. The subsidiary had not commenced
operations as of March 31, 1995.
Note 2 - Inventories
Inventories used in the calculation of cost of goods sold for the
Company are summarized by major classification as follows:
March 31, December 31,
1995 1994
Raw materials $ 2,280,000 $ 1,963,000
Work in process 757,000 650,000
Finished goods 7,773,000 8,970,000
----------- -----------
$10,810,000 $11,583,000
=========== ===========
Page 6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and capital resources:
Working capital at March 31, 1995 amounted to $8,991,000 compared to
$9,921,000 at December 31, 1994. The decrease of $930,000 was principally due
to the net loss for the period.
Based upon the Company's first quarter results, current operations and
business plans, Management believes that the Company's cash balance of
$234,000 at March 31, 1995, its cash flow from operations, which Management
believes will continue to be negative in the second quarter of 1995, and
borrowings under the Amended Loan and Security Agreement will not provide it,
at certain times within its business cycle, with all of the funds necessary
for its working capital and capital expenditures. Management is exploring
various options, including modifying the business plans to reduce expenses
and curtail projected levels of sales and inventory, revising the Company's
existing borrowing arrangements (subject to the lender's approval) and
selling certain capital assets. In addition, Management is considering
raising additional capital and the sale of one or more of the Company's
divisions. While the Company can give no assurance as to which specific
actions can be effectuated, Management believes that several of these steps
can be taken in a timely manner.
Accounts receivable were $12,072,000 at March 31, 1995 as compared to
$10,149,000 at December 31, 1994, an increase of $1,923,000. The increase
was primarily due to the higher level of sales in the latter part of the
first quarter of 1995 as compared to the latter part of the fourth quarter of
1994, which for seasonal reasons has a low sales level.
Inventories at March 31, 1995 were $10,810,000 as compared to $11,583,000
at December 31, 1994, a decrease of $773,000. The decrease was due to a
reduction of inventories to levels consistent with seasonal requirements.
Results of operations:
Sales for the first quarter of 1995 amounted to $16,835,000 as compared
to $18,896,000 for the first quarter of 1994, a decrease of $2,061,000. The
decrease was attributable to lower sales in both the sportswear and
accessories divisions. The decrease in sales in the sportswear division was
mainly due to a large return from a customer because of a latent
manufacturing defect.
Gross profit for the first quarter of 1995 amounted to $2,882,000 as
compared to $4,325,000 for the first quarter of 1994, a decrease of
$1,443,000. Lower sales in the sportswear and accessories divisions and
lower gross margins in each of the Company's operating divisions, including a
substantial loss incurred because of the large product return noted above,
resulted in the reduction as compared to the prior year period.
Selling, general and administrative expenses for the first quarter of
1995 were 11% lower than in the comparable period in 1994. The decrease was
principally due to the Company's cost reduction program.
Page 7
<PAGE>
Interest expense-net for the first quarter ended March 31, 1995 amounted
to $409,000 as compared to $256,000 in the comparable period in 1994. The
increase was primarily due to higher average effective interest rates and
amortization of prepaid financing expenses.
The Company had no provisions for tax or tax benefit in the first quarter
of 1995 because it incurred a loss and had net operating loss carryforwards.
The Company had a provision of $20,000 for state and local taxes in the first
quarter of 1994. No accrual for federal income taxes was made because the
Company had net operating loss carryforwards.
Page 8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Reports on Form 8-K
-------------------
No report on Form 8-K was filed during the quarter ended March 31,
1995.
Page 9
<PAGE>
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.
OAK HILL SPORTSWEAR CORPORATION
(Registrant)
Date: May 15, 1995 By: /s/ Arthur L. Asch
--------------------------------------
Arthur L. Asch, Chairman of the Board
Date: May 15, 1995 By: /s/ Michael A. Asch
--------------------------------------
Michael A. Asch, Vice President
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-K for the first quarter ended March 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 234
<SECURITIES> 0
<RECEIVABLES> 12,072
<ALLOWANCES> 0
<INVENTORY> 10,810
<CURRENT-ASSETS> 23,762
<PP&E> 2,652
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,154
<CURRENT-LIABILITIES> 14,771
<BONDS> 1,546
<COMMON> 11,837
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,154
<SALES> 16,835
<TOTAL-REVENUES> 16,835
<CGS> 13,953
<TOTAL-COSTS> 13,953
<OTHER-EXPENSES> 3,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 409
<INCOME-PRETAX> (1,048)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,048)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,048)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
