<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 1, 1996
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- -------
Commission file number 0-21940
--------
Donnkenny, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0228891
------------------------------- ---------------
(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 Broadway, New York, NY 10018
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 730-7770
-------------
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Common Stock $0.01 par value 13,996,640
- ---------------------------- -----------------------------
(Class) (Outstanding at June 1, 1996)
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(FORM 10-Q)
PART I -- FINANCIAL INFORMATION Page
Consolidated financial statements:
Balance sheet as of June 1, 1996 and December 2, 1995 I-1
Statements of income for the three months ended
June 1, 1996 and June 3, 1995 II-1
Statements of cash flows for the six months ended
June 1, 1996 and June 3, 1995 III-1
Notes to consolidated financial statements IV-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations V-1-2
PART II -- OTHER INFORMATION VI-1
Signatures VI-2
Exhibit Index VII-1
Exhibit 10.33
Exhibit 10.34
Exhibit 27
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
June 1, 1996 and December 2, 1995
<TABLE>
<CAPTION>
June 1, December 2,
1996 1995
------- -----------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 1,298 $ 2,688
Accounts receivable - net of allowances of
$2,902 and $3,166 in 1996 and 1995, respectively 49,400 58,783
Recoverable income taxes 200 5,596
Inventories (Note 2) 46,863 43,072
Prepaid expenses and other current assets 1,934 1,464
-------- --------
TOTAL CURRENT ASSETS 99,695 111,603
Property, plant and equipment, net 12,216 12,670
Intangible assets 36,660 37,374
-------- --------
$148,571 $161,647
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Current portion of long-term debt $ 6,095 $ 7,092
Accounts payable 12,466 13,178
Accrued expenses and other current liabilities 5,939 13,439
-------- --------
TOTAL CURRENT LIABILITIES 24,500 33,709
Long-term debt, net of current portion 45,463 55,519
Deferred income taxes 4,461 4,059
STOCKHOLDERS' EQUITY:
Preferred stock $.01 par value. Authorized 500
shares; issued none
Common stock, $.01 par value. Authorized 20,000 shares;
issued and outstanding 13,997 and 13,968
shares in 1996 and 1995, respectively 70 70
Additional paid-in capital 46,066 45,813
Retained earnings 28,011 22,477
-------- --------
Total stockholder's equity 74,147 68,360
$148,571 $161,647
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-1
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, Except Share and Per Share Data)
For the three months and the six months ended
June 1, 1996 and June 3, 1995
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/1/96 6/3/95 6/1/96 6/3/95
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $54,996 $40,145 $107,190 $79,257
Cost of sales 39,523 28,473 76,840 56,199
----------- ----------- ----------- -----------
Gross profit 15,473 11,672 30,350 23,058
Selling, general and administrative expenses 9,126 7,244 18,068 14,191
Amortization of goodwill
and other related acquisition costs 368 175 728 375
----------- ----------- ----------- -----------
Operating income 5,979 4,253 11,554 8,492
Interest expense 1,108 568 2,221 1,239
----------- ----------- ----------- -----------
Income before income taxes 4,871 3,685 9,333 7,253
Income taxes 1,992 1,510 3,799 2,972
----------- ----------- ----------- -----------
Net income $ 2,879 $ 2,175 $ 5,534 $ 4,281
=========== =========== =========== ===========
Income per common share $.20 $0.16 $0.39 $0.31
=========== =========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding 14,249,097 13,734,224 14,198,272 13,695,562
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
II-1
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
For the six months ended
June 1, 1996 and June 3, 1995
<TABLE>
<CAPTION>
June 1, June 3,
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,534 $4,281
Adjustments to reconcile net income
to net cash provided by operating activities:
Increase in deferred income taxes 402 250
Depreciation and amortization of fixed assets 848 547
Amortization of intangibles 728 369
Accretion of debt discount - 6
Provision for losses on accounts receivable (264) 306
Changes in assets and liabilities:
Decrease in accounts receivable 9,647 9,623
Decrease in recoverable income taxes 5,396 1,310
Increase in inventories (3,791) (10,693)
Increase in prepaid expenses and
other current assets (470) (2)
Increase in other assets - (107)
Decrease in accounts payable (712) (7,413)
(Decrease) increase in accrued expenses and other
current liabilities (7,514) 899
-------- --------
Net cash provided by (used in) operating activities 9,804 (624)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITY:
Purchase of fixed assets (394) (412)
-------- --------
Net cash used in investing activity (394) (412)
CASH FLOWS FROM FINANCING ACTIVITIES: -------- --------
Repayment of long-term debt (3,553) (42)
Net (decrease) increase in revolving loan balance (7,500) 625
Exercise of stock options 253 -
-------- --------
Net cash (used in) provided by financing activities (10,800) 583
-------- --------
NET DECREASE IN CASH (1,390) (453)
-------- --------
CASH, at beginning of year 2,688 1,606
-------- --------
CASH, at end of six months $1,298 $1,153
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
III-1
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands Except Per Share Data)
(Information as of June 1, 1996 and for the six months ended June 1, 1996 and
June 3, 1995)
NOTE 1 -- BASIS OF FINANCIAL STATEMENTS
The financial data are subject to year-end audit and do not purport to
be a complete presentation in as much as all disclosures required under
generally accepted accounting principles are not included. Reference is made to
the Annual Report on Form 10K for the fiscal year ended December 2, 1995.
The results of operations for the quarters are not necessarily
indicative of those for the full year.
In the opinion of management, the accompanying unaudited financial
statements are presented on a basis consistent with the audited statements and
all adjustments, consisting only of normal recurring adjustments, which are
necessary to present fairly the financial position and the results of operations
for the periods indicated have been reflected.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
June 1, December 2,
1996 1995
------- -----------
Raw materials $11,131 $11,071
Work-in-process 5,600 4,783
Finished goods 30,132 27,218
------- --------
$46,863 $43,072
======= ========
NOTE 3 -- ACQUISITIONS
In June 1995, the Company completed its acquisition of Beldoch
Industries Corporation ("Beldoch"). In July 1995, the Company completed the
purchase of certain assets of the Sportswear Division of Oak Hill Sportswear
Corporation ("Oak Hill").
IV-1
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 1, 1996 AND JUNE 3, 1995
------------------------------------------------------------
Net sales increased by $27.9 million, or 35.2% from $79.3 million in the
first half of fiscal 1995 to $107.2 million in the first half of fiscal 1996.
Net sales increased in the Company's sportswear category led by sales from Oak
Hill Sportswear and Beldoch Industries acquired during the third quarter of
fiscal 1995. Sales of licensed products increased in the Mickey & Co. division,
while sales declines were experienced in the sales of intimate apparel and Lewis
Frimel products.
Gross profit for the first half of fiscal 1996 was $30.4 million or
28.3% of net sales compared to $23.1 million or 29.1% of net sales during the
first half of fiscal 1995. The percentage decline was primarily attributable to
the lower gross margin percentages attributable to the sales of Beldoch and Oak
Hill products.
Selling, general and administrative expenses increased from $14.2
million in the first half of fiscal 1995 to $18.1 million in the first half of
fiscal 1996. As a percentage of sales, these expenses declined from 17.9% in the
first half of fiscal 1995 to 16.9% in the first half of fiscal 1996. The decline
in SG&A expenses as a percentage of sales was due primarily to the fact that
design and sales expenses increased at a lower rate than the percentage of
increase of sales.
The amortization of goodwill and other related acquisition costs was $.7
million during the first half of fiscal 1996 compared to $.4 million during the
first half of fiscal 1995 as additional goodwill and intangible assets are being
amortized due to the Beldoch and Oak Hill acquisitions.
Interest expense increased from $1.2 million during the first half of
fiscal 1995 to $2.2 million during the first half of fiscal 1996. The increase
was the net result of higher average borrowings under the Company's credit
facility required to finance the third quarter of fiscal 1995 acquisitions of
Beldoch Industries and Oak Hill Sportswear and to finance additional working
capital needs.
The Company provided for taxes at an effective rate of 40.7% for the
first half of fiscal 1996 and 41.0% for the first half of fiscal 1995.
COMPARISON OF QUARTERS ENDED JUNE 1, 1996 AND JUNE 3, 1995
-----------------------------------------------------------
Net sales increased by $14.9 million, or 37.2% from $40.1 million in the
second quarter of fiscal 1995 to $55.0 million in the second quarter of fiscal
1996. Net sales increased in the Company's sportswear category led by sales from
Oak Hill Sportswear and Beldoch Industries acquired during the third quarter of
fiscal 1995. Sales of licensed products increased in the Mickey and Co.
division, while sales declines were experienced in sales of intimate apparel and
Lewis Frimel products.
Gross profit for the second quarter of fiscal 1996 was $15.5 million,
28.2% of net sales compared to $11.7 million or 29.2% of net sales during the
second quarter of fiscal 1995. The decline was primarily attributable to the
lower gross margin percentages attributable to the sales of Beldoch and Oak Hill
products.
V-1
<PAGE>
Selling, general and administrative expenses increased from $7.2 million
in the second quarter of fiscal 1995 to $9.1 million in the second quarter of
fiscal 1996. As a percentage of sales, these expenses declined from 18.0% in the
second quarter of fiscal 1995 to 16.5% in the second quarter of fiscal 1996. The
decline in SG&A expenses as a percentage of sales was due primarily to the fact
that design and sales expenses increased at a lower rate than the percentage of
increase of sales.
The amortization of goodwill and other related acquisition costs was $.4
million during the second quarter of fiscal 1996 compared to $.2 million during
the second quarter of fiscal 1995 as additional goodwill and intangible assets
are being amortized due to the Beldoch and Oak Hill acquisitions.
Interest expense increased from $.6 million during the second quarter of
fiscal 1995 to $1.1 million during the second quarter of fiscal 1996. The
increase was the net result of higher average borrowings under the Company's
credit facility required to finance the third quarter of fiscal 1995
acquisitions of Beldoch Industries and Oak Hill Sportswear and to finance
additional working capital needs.
The Company provided for taxes at an effective rate of 40.9% for the
second quarter of fiscal 1996 and 41.0% for the second quarter of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity requirements arise from the funding of working
capital needs, primarily inventory and accounts receivable, and the interest and
principal payments related to certain indebtedness. The Company's borrowing
requirements for working capital fluctuates throughout the year.
Capital expenditures were $.4 million for the first half fiscal 1996
compared to $.4 million in the first half fiscal 1995. The Company may spend up
to $3.0 million annually on capital expenditures in accordance with the Chemical
Bank Revolving Credit Agreement described below. The Company has no material
capital expenditure commitments.
Donnkenny Apparel, Inc. and Beldoch Industries Corporation (both wholly-
owned subsidiaries of the Company) as borrowers, the Company and the Company's
other two subsidiaries as guarantors and Chemical Bank, Bank of New York and
Chase Manhattan Bank as lenders are parties to a credit facility entered into in
June 1995 in an initial maximum aggregate principal amount of $85 million which
was increased to $100 million in May 1996 to provide the Company with the
ability to open additional letters of credit (such credit facility as amended to
date, the "Chemical Bank Credit Facility"). The Chemical Bank Credit Facility is
comprised of a $75 million revolving credit facility and a $25 million term loan
facility. The Chemical Bank Credit Facility requires compliance with certain
financial performance tests on a quarterly basis that the Company expects to be
able to meet. As of June 24, 1996, $17.3 million was available under the
revolving credit facility provided under the Chemical Bank Credit Facility.
During the first half of fiscal 1996, the Company's operating activities
generated cash principally as the result of increases in net income and
decreases in accounts receivable and recoverable income taxes, offset by
increases in inventory and decreases in accrued expenses, while decreases in
accounts payable led to a use in cash from operating activities during the first
half of fiscal 1995. The Company believes that amounts available under the
revolving credit facility provided under the Chemical Bank Credit Facility will
be sufficient to offset any negative operating cash flows and capital
expenditures and will provide the Company with sufficient cash for its needs for
the foreseeable future.
V-2
<PAGE>
PART II. OTHER INFORMATION
Items 1 - 3. Not applicable
Item 4. Submission of matters to vote of security holders.
The Company's annual meeting of stockholders was held on April 19, 1996. The
following directors were elected:
Name For Withholding Authority
- ---- --- ---------------------
Harvey Appelle 11,322,253 0
James Crystal 11,322,253 0
Sidney Eagle 11,320,853 1,400,000
Harvey Horowitz 11,320,853 1,400,000
Richard Rubin 11,320,851 1,402,000
The appointment of KPMG Peat Marwick as independent auditors for the fiscal year
ended November 30, 1996 was ratified with 11,387,751 shares voting in favor,
4,350 shares against and 7,529 shares abstaining.
The adoption of the Donnkenny, Inc. Restricted Stock Plan was approved with
5,066,854 shares voting in favor, 2,861,984 shares against, 57,583 abstaining
and 5,987,419 broker non-votes.
Item 5. Not applicable
Item 6. Exhibits and reports on form 8-K.
(a) The following documents are filed as part of this report:
---------------------------------------------------------
1. First Amendment Agreement dated as of April 12, 1996 to the Credit
Agreement dated as of June 5, 1995 among Donnkenny Apparel, Inc., Beldoch
Industries Corporation, the Guarantors Named therein, the Lenders Named therein
and Chemical Bank as agent.
2. Second Amendment Agreement dated as of May 13, 1996 to the Credit
Agreement dated as of June 5, 1995 among Donnkenny Apparel, Inc., Beldoch
Industries Corporation, the Guarantors Named therein, the Lenders Named therein
and Chemical Bank as agent.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed by Company during the quarter ended
June 1, 1996.
VI-1
<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.
Donnkenny, Inc.
---------------------------
Registrant
Date: July 10, 1996 /s/ Richard Rubin
------------- ---------------------------
Richard Rubin
Chairman of the Board,
President and Chief
Executive Officer
Date: July 10, 1996 /s/ Edward T. Creevy
------------- ---------------------------
Edward T. Creevy
Vice President -- Finance
and Chief Financial Officer,
(Principal Financial Officer)
VI-2
<PAGE>
EXHIBIT INDEX
Exhibit Description of Sequentially
No. Exhibit Numbered Page
- ------- ---------------- --------------
10.33 First Amendment Agreement dated as of
April 12, 1996 to the Credit Agreement
dated as of June 5, 1995 among Donnkenny
Apparel, Inc., Beldoch Industries Corporation
the Guarantors Named therein, the Lenders
Named therein and Chemical Bank as Agent.
10.34 Second Amendment Agreement dated as of
May 13, 1996 to the Credit Agreement
dated as of June 5, 1995 among Donnkenny
Apparel, Inc., Beldoch Industries Corporation
the Guarantors Named therein, the Lenders
Named therein and Chemical Bank as Agent.
27 Article 5 Financial Data Schedule
VII-1
<PAGE>
FIRST AMENDMENT AGREEMENT
FIRST AMENDMENT AGREEMENT, dated as of April 12, 1996 to the Credit
Agreement, dated as of June 5, 1995 (as the same may be further amended,
supplemented or modified from time to time in accordance with its terms, the
"Credit Agreement"), among Donnkenny Apparel, Inc., a Delaware corporation and
Beldoch Industries Corporation, a Delaware corporation (collectively, the
"Borrowers"), the Guarantors named therein and signatures thereto, the lenders
named in Schedules 2.01(a) and (b) of the Credit Agreement (collectively, the
"Lenders"), and Chemical Bank as agent for the Lenders (in such capacity, the
"Agent"). Capitalized terms used herein but not otherwise defined herein shall
have the meanings attributed thereto in the Credit Agreement.
WHEREAS, the Borrowers have requested, and the Lenders and Agent have
agreed to, certain amendments in the Credit Agreement.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and subject to the fulfillment of the
conditions set forth below, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Sections 7.08 and 7.12 of the Credit Agreement are each hereby
amended by removing the period at the end thereof and adding the following:
"; provided, however, that in calculating such Ratio there shall be excluded the
restructuring charge (not exceeding $8,678,000) taken in the fiscal quarter
ended December 2, 1995."
1.2 Section 7.09 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"SECTION 7.09. Leverage Ratio. Permit the Leverage Ratio of
the Parent andd its subsidiaries on a Consolidated basis at the end
of any fiscal quarter to be greater than: 3.00:1.00 during the
1996 Fiscal Year; 2.75:1.00 during the 1997 Fiscal Year; and
2.50:1.00 during the 1998 Fiscal Year and thereafter."
SECTION 2. CONDITIONS PRECEDENT
Upon the execution and delivery of counterparts of this Amendment
Agreement (the "Agreement") by the parties listed below and the fulfillment of
the following conditions, this Agreement shall be deemed to have become
effective as of the date hereof:
<PAGE>
2.1 All representations and warranties contained in this Agreement, the
Credit Agreement or otherwise made in writing to the Agent or any Lender in
connection herewith shall be true and correct in all material respects.
2.2 No unwaived event shall have occurred and be continuing which
constitutes a Default or an Event of Default.
SECTION 3. MISCELLANEOUS
3.1 Each of the Borrowers reaffirms and restates the representations
and warranties set forth in the Credit Agreement, as applicable, and all such
representations and warranties shall be true and correct on the date hereof with
the same force and effect as if made on such date.
3.2 Except as herein expressly amended, the Credit Agreement and the
other documents executed and delivered in connection therewith are each ratified
and confirmed in all respects and shall remain in full force and effect in
accordance with their respective terms.
3.3 Except as specifically set forth herein, nothing herein contained
shall constitute a waiver or be deemed to be a waiver, of any existing Defaults
or Events of Default, and the Lenders and Agent reserve all rights and remedies
granted to them by the Credit Agreement, the other documents executed and
delivered in connection therewith, by law and otherwise.
3.4 This Agreement may be executed by the parties hereto individually
or in combination, in one or more counterparts, each of which shall be an
original and all of which shall constitute one and the same agreement. A
facsimile signature page shall constitute an original for the purposes hereof.
3.5 THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
DONKENNY APPAREL, INC.
By: /s/ Edward T. Creevy
---------------------
Name:
Title: VP
BELDOCH INDUSTRIES CORPORATION
By: /s/ Edward T. Creevy
---------------------
Name:
Title: VP
CHEMICAL BANK, as Agent
and Lender
By: /s/ Jay T. Linde
---------------------
Name:
Title: VP
THE BANK OF NEW YORK
By: /s/ Ronald R. Reedy
---------------------
Name:
Title: VP
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Elisabeth Burgess
---------------------
Name:
Title: VP
<PAGE>
SECOND AMENDMENT AGREEMENT
--------------------------
SECOND AMENDMENT AGREEMENT, dated as of May 13, 1996, to the Credit
Agreement, dated as of June 5, 1995 (as the same may be further amended,
supplemented or modified from time to time in accordance with its terms, the
"Credit Agreement"), among Donnkenny Apparel, Inc., A Delaware corporation and
Beldoch Industries Corporation, a Delaware corporation (collectively, the
"Borrowers"), the Guarantors named therein and signatures thereto, the lenders
named in Schedules 2.01(a) and (b) of the Credit Agrement (collectively, the
"Lenders"), and Chemical Bank as agent for the Lenders (in such capacity, the
"Agent"). Capitalized terms used herein but not otherwise defined herein shall
have the meanings attributed thereto in the Credit Agreement.
WHEREAS, the Borrowers have requested, and the Lenders and Agent have
agreed to, certain amendments in the Credit Agreement.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and subject to the fulfillment of the
conditions set forth below, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 The Preamble to the Credit Agreement is amended by deleting the
first sentence thereof and substituting the following:
"The Borrowers have applied to the Lenders for Loans and Letters
of Credit (such terms and all other capitalized terms used in this
paragraph having the respective meanings ascribed to such terms above or
hereinafter) up to an aggregate principal amount of $100,000,000 in the
form of (a) a Term Loan to the Borrowers in an aggregate principal
amount not in excess of $25,000,000 outstanding and (b) Revolving Credit
Loans and Letters of Credit to or for the benefit of the Borrowers at
any time and from time to time prior to the Revolving Credit Termination
Date in an aggregate principal amount not in excess of $75,000,000 at
any time outstanding."
1.2 The defined terms "Availability" and "Required Lenders" contained
in Section 1.01 of the Credit Agreement and amended in full to read as follows:
" 'Availability' shall mean at any time (i) the lesser at such
time of (x) the Total Revolving Credit Commitment less the Letter of
Credit Usage, (y) the Borrowing Base and (z) $60,000,000, minus (ii) the
unpaid principal balance of, and past due interest and fees on the
Revolving Credit Loans.
<PAGE>
'Required Lenders' shall mean any two of the Lenders (Chemical
Bank and The Chase Manhattan Bank, N.A. being deemed as one Lender so
long as they are controlled by one parent) having 51% of the Total
Commitment."
1.3 Subparagraph (b) of Section 2.01 of the Credit Agreement is amended
in full to read as follows:
"(b) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each Lender, severally
and not jointly, agrees to make Revolving Credit Loans to, and through
the Agent open Letters of Credit for the benefit of, the Borrowers, at
any time and from time to time from the date hereof to the Revolving
Credit Termination Date, in an aggregate principal amount at any time
outstanding not to exceed the amount of such Lender's Revolving Credit
Commitment set forth opposite its name in Schedule 2.01(b) annexed
hereto, as such Revolving Credit Commitment may be reduced from time to
time in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the aggregate principal amount of
Revolving Credit Loans outstanding at any time to the Borrowers shall
not exceed the lesser of (A) the Total Revolving Credit Commitment (as
such amount may be reduced pursuant to Section 2.07 hereof) minus the
Letter of Credit Usage at such time, (B) an amount equal to the sum of
(i) up to eighty-five percent (85%) of the Net Amount of Receivables,
plus (ii) solely during the two fiscal months ending on the Saturdays
closest to the last calendar day of each June and July $7,000,000 (this
clause (B) referred to herein as the "Borrowing Base") and
(C) $60,000,000 (as such amount may be reduced pursuant to
Section 2.07 hereof). The Borrowing Base will be computed monthly and a
compliance certificate from a Responsible Officer of the Borrowers
presenting its computation will be delivered to the Agent in accordance
with Section 6.05 hereof."
1.4 The second sentence of Section 2.04 of the Credit Agreement is
amended in full to read as follows:
"All Revolving Credit Loans made by a Lender to the Borrowers
shall be evidenced by a single Revolving Credit Note, duly executed on
behalf of the Borrowers, dated the Closing Date, in substantially the
form of Exhibit B annexed hereto, delivered and payable to such Lender
in a principal amount equal to such Lender's sublimit for Revolving
Credit Loans as set forth on Schedule 2.01(b) annexed hereto."
1.5 Section 2.07(a) of the Credit Agreement is amended by adding
thereto the following sentence at the end thereof:
<PAGE>
"Any reduction in the Total Revolving Credit Commitment to
below $60,000,000 shall cause a concurrent reduction in the aggregate
sublimit for Revolving Credit Loans ratably among the Lenders in
accordance with the amount of their Revolving Credit Commitments."
SECTION 2. CONDITIONS PRECEDENT
Upon the execution and delivery of conunterparts of this Amendment
Agreement (the "Agreement") by the parties listed below and the fulfillment of
the following conditions, this Agreement shall be deemed to have become
effective as of the date hereof:
2.1 All representations and warranties contained in this Agreement, the
Credit Agreement or otherwise made in writing to the Agent or any Lender in
connection herewith shall be true and correct in all material respects.
2.2 No unwaived event shall have occurred and be continuing which
constitutes a Default or an Event of Default.
2.3 The Agent shall have received for ratable distribution to each of
the Lenders an amendment fee of $35,000.
SECTION 3. MISCELLANEOUS
3.1 Each of the Borrowers reaffirms and restates the representations
and warranties set forth in the Credit Agreement, as applicable, and all such
representations and warranties shall be true and correct on the date hereof with
the same force and effect as if made on such date.
3.2 Except as herein expressly amended, the Credit Agreement and the
other documents executed and delivered in connection therewith are each ratified
and confirmed in all respects and shall remain in full force and effect in
accordance with their respective terms.
3.3 Except as specifically set forth herein, nothing herein contained
shall constitute a waiver or be deemed to be a waiver, of any existing Defaults
or Events of Default, and the Lenders and Agent reserve all rights and remedies
granted to them by the Credit Agreement, the other documents executed and
delivered in connection therewith, by law and otherwise.
3.4 This Agreement may be executed by the parties hereto individually
or in combination, in one or more counterparts, each of which shall be an
original and all of which shall constitute one and the same agreement. A
facsimile signature page shall constitute an original for the purposes hereof.
<PAGE>
3.5 THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
DONNKENNY APPAREL, INC.
By: /s/ Edward T. Creevy
---------------------
Name:
Title:
BELDDOCH INDUSTRIES CORPORATION
By: /s/ Edward T. Creevy
---------------------
Name:
Title: VP
CHEMICAL BANK, as Agent
and Lender
By: /s/ Jay T. Linde
---------------------
Name:
Title: VP
THE BANK OF NEW YORK
By: /s/ Russell Burr
---------------------
Name:
Title: SVP
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Joseph F. Abruzzo
---------------------
Name:
Title: VP
<PAGE>
SCHEDULE 2.01(b)
Revolving Credit Commitments
----------------------------
Approximate
Revolving Percentage of
Credit Total Revolving
Lender Commitment Credit Commitment
------ ------------ -----------------
Chemical Bank $30,882,300 41.1764%
111 West 40th Street
10th Floor
New York, New York 10018
Attn: Jay T. Linde
The Bank of New York $22,058,850 29.4118%
530 Fifth Avenue
3rd Floor
New York, NY 10036
Attn: Ronald Pagota
The Chase Manhattan Bank, N.A. $22,058,850 29.4118%
111 West 40th Street
10th Floor
New York, NY 10018
Attn: Joseph F. Abruzzo
Sublimit for Revolving Credit Loans
-----------------------------------
Approximate
Lender Sublimit Percentage
- ------ -------- ----------
Chemical Bank $24,705,840.00 41.1764%
The Bank of $17,647,080.00 29.4118%
New York
The Chase Manhattan $17,647,080.00 29.4118%
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Donnkenny, Inc. Financial Data Schedule
Article 5 of Regulation S-X
This schedule contains summary financial information extracted from the
Donnkenny, Inc. Second Quarter Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> JUN-1-1996
<CASH> 1,298,000
<SECURITIES> 0
<RECEIVABLES> 52,302,000
<ALLOWANCES> 2,902,000
<INVENTORY> 46,863,000
<CURRENT-ASSETS> 99,695,000
<PP&E> 23,924,000
<DEPRECIATION> 11,708,000
<TOTAL-ASSETS> 148,571,000
<CURRENT-LIABILITIES> 24,500,000
<BONDS> 0
<COMMON> 70,000
0
0
<OTHER-SE> 46,066,000
<TOTAL-LIABILITY-AND-EQUITY> 148,571,000
<SALES> 107,190,000
<TOTAL-REVENUES> 0
<CGS> 76,840,000
<TOTAL-COSTS> 76,840,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,221,000
<INCOME-PRETAX> 9,333,000
<INCOME-TAX> 3,799,000
<INCOME-CONTINUING> 9,333,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,534,000
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
