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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
September 6, 1996
DONNKENNY, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 0-21940 51-022889
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation No.)
1411 Broadway
New York, New York 10018
----------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number, including
area code: (212) 730-7770
Not Applicable
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(Former Address, if changed since last report)
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This Current Report on Form 8-K contains forward-looking statements that
involve certain risks and uncertainties. The Company's actual results could
differ materially from the results discussed in the forward-looking statements.
Item 2. Acquisition or Disposition of Assets.
On September 6, 1996, pursuant to a Stock Purchase Agreement dated as of
September 3, 1996 (the "Stock Purchase Agreement"), Donnkenny Apparel, Inc.
("DKA"), a wholly-owned subsidiary of Donnkenny, Inc. (the "Company"), acquired
all of the outstanding capital stock of Fashion Avenue Knits Inc. and related
companies (collectively, the "Acquired Companies").
The following summaries of agreements are necessarily incomplete and
selective and are qualified in their entirety by reference to the copies of the
documents filed as Exhibits to this Form 8-K.
The business of the Acquired Companies (the "Acquired Business") consists
principally of the design and manufacture of junior's, ladies' and men's
sweaters and knitwear, primarily for sale through department, specialty and
chain stores. The assets of the Acquired Companies include (i) leased showroom
facilities in New York, New York; and (ii) leased office and production
facilities located in Ridgewood, New York; and (iii) equipment,
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fixtures, furnishings and personal property used in connection with the conduct
of the Acquired Business at the leased facilities. The Company intends to
continue to use such assets in connection with the Acquired Business.
The consideration for the acquisition of the capital stock of the Acquired
Companies, to be paid to Mel Weiss, the stockholder of the Acquired Companies,
consists of (i) an $8,000,000 promissory note, due January 13, 1997, with
interest payable thereon at the rate of 6% per annum; and (ii) an aggregate of
170,213 shares of the common stock, par value $.01 per share, of the Company
(the "Stock Consideration"), valued for purposes of the acquisition at
$3,000,000. The Stock Consideration is payable in equal installments on each of
the first, second and third anniversaries of the date of the acquisition.
The purchase price was determined in arm's-length negotiations between DKA
and the seller. The purchase price was based on an estimate of the value of the
assets, projected business and goodwill of the Acquired Companies.
In connection with the acquisition, DKA entered into an employment
agreement dated as of September 3, 1996 with Mel Weiss (the "Employment
Agreement"), pursuant to which he will be employed as President of the business
unit conducting the Acquired Business. The term of employment expires in
November 1999, subject to renewal, at the option of the Company, for an
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additional two-year term. The Employment Agreement provides for an initial
annual base salary of $350,000 with annual increases. The Employment Agreement
also provides for bonus payments and stock option grants. The Employment
Agreement contains certain confidentiality and non-competition provisions.
The transactions undertaken pursuant to the Stock Purchase Agreement are to
be financed out of funds available to the Company from its own resources and an
existing Credit Agreement with The Chase Manhattan Bank and The Bank of New
York. In connection with the acquisition, the Credit Agreement was amended to
add the Acquired Companies as guarantors. In addition, the related Security
Agreement and Security Agreement and Mortgage-Trademarks were amended to grant
a security interest in favor of the lenders under the Credit Agreement in
substantially all of the assets of the Acquired Companies, subject to existing
factoring arrangements.
Item 5. Other Events.
As more fully described in Item 8, the Company is changing its fiscal year
to one ending on December 31st of each year. The Quarterly Report on Form 10-Q
for the third quarter ending September 30, 1996 will cover the transition
period.
At the same time or prior to the time that the Company files the foregoing
third quarter report, it expects to file amended
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quarterly reports for the 1995 fiscal year and the first two quarters of fiscal
1996. Such amendments, which will reflect adjustments to the timing of the
recognition of sales revenues, will not affect the previously reported results
for the year ended December 2, 1995. The Company also anticipates that,
although results for the first two quarters will be adjusted, the results for
the year ending December 31, 1996 will not be affected. Financial statements
for the three and nine month periods ending September 30, 1996 and for the year
ending December 31, 1996 will be prepared on the same basis as the amended
quarterly reports.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
(a) Financial Statements of Businesses Acquired
In accordance with Item 7(a)(4) of Form 8-K, it is
impracticable to file financial statements of the Acquired Companies at this
time. The required financial statements will be filed under cover of Form 8-K
within sixty (60) days of the date hereof.
(b) Pro Forma Financial Information
In accordance with Item 7(b)(2) of Form 8-K, it is
impracticable to file pro forma financial information at this time. The
required pro forma financial information will be filed under cover of Form 8-K
within sixty (60) days of the date hereof.
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(c) Exhibits
1. Stock Purchase Agreement dated as of September 3,
1996 between Donnkenny Apparel, Inc. and Mel Weiss.
2. Promissory Note dated as of September 3, 1996 made by
Donnkenny Apparel, Inc. to Mel Weiss.
3. Employment Agreement dated as of September 3, 1996
between Donnkenny Apparel, Inc. and Mel Weiss.
4. Escrow Agreement dated as of September 3, 1996 among
Donnkenny Apparel, Inc., Mel Weiss and Squadron, Ellenoff, Plesent & Sheinfeld,
LLP.
5. Third Amendment Agreement dated as of September 10,
1996 to the Credit Agreement dated June 5, 1995 among Donnkenny Apparel, Inc.,
Beldoch Industries Corporation, the guarantors named therein, the lenders named
in Schedule 2.01 thereto, and The Chase Manhattan Bank (formerly Chemical Bank)
as agent for the lenders.
6. Second Amendment Agreement dated as of September 10,
1996 to the Security Agreement dated June 5, 1995 among Donnkenny Apparel,
Inc., Beldoch Industries Corporation, MegaKnits, Inc. and The Chase Manhattan
Bank (formerly Chemical Bank), as agent.
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7. Second Amendment Agreement dated as of September 10,
1996 to the Security Agreement and Mortgage-Trademarks dated June 5, 1995 among
Donnkenny Apparel, Inc., Beldoch Industries Corporation, and The Chase Manhattan
Bank (formerly Chemical Bank, as agent.
8. Assignment for Security (Trademarks) dated as of
September 10, 1996 made by Fashion Avenue Knits Inc. to The Chase Manhattan
Bank, as agent.
Item 8. Change in Fiscal Year.
The Company determined on September 11, 1996 to change its fiscal
year from one ending on the first Saturday of each year on or after November 30
to a fiscal year ending on December 31st of each year. The Quarterly Report on
Form 10-Q for the period ending September 30, 1996 will cover the transition
period.
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SIGNATURE
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 hereunto duly authorized.
DONNKENNY, INC.
By: /s/Richard Rubin
----------------------
Richard Rubin
President
Date: September 20, 1996
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EXHIBIT INDEX
1. Stock Purchase Agreement dated as of September 3, 1996 between
Donnkenny Apparel, Inc. and Mel Weiss.
2. Promissory Note dated as of September 3, 1996 made by Donnkenny
Apparel, Inc. to Mel Weiss.
3. Employment Agreement dated as of September 3, 1996 between Donnkenny
Apparel, Inc. and Mel Weiss.
4. Escrow Agreement dated as of September 3, 1996 among Donnkenny
Apparel, Inc., Mel Weiss and Squadron, Ellenoff, Plesent & Sheinfeld,
LLP.
5. Third Amendment Agreement dated as of September 10, 1996 to the Credit
Agreement dated June 5, 1995 among Donnkenny Apparel, Inc., Beldoch
Industries Corporation, the guarantors named therein, the lenders
named in Schedule 2.01 thereto, and The Chase Manhattan Bank (formerly
Chemical Bank) as agent for the lenders.
6. Second Amendment Agreement dated as of September 10, 1996 to the
Security Agreement dated June 5, 1995 among Donnkenny Apparel, Inc.,
Beldoch Industries Corporation, MegaKnits, Inc. and The Chase
Manhattan Bank (formerly Chemical Bank), as agent.
7. Second Amendment Agreement dated as of September 10, 1996 to the
Security Agreement and Mortgage-Trademarks dated June 5, 1995 among
Donnkenny Apparel, Inc., Beldoch Industries Corporation, and The Chase
Manhattan Bank (formerly Chemical Bank), as agent.
8. Assignment for Security (Trademarks) dated as of September 10, 1996
made by Fashion Avenue Knits Inc. to The Chase Manhattan Bank, as
agent.
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STOCK PURCHASE AGREEMENT
BETWEEN
MEL WEISS
AND
DONNKENNY APPAREL, INC.
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AS OF SEPTEMBER 3, 1996
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of the 3rd day of September 1996 by
and between MEL WEISS ("Seller") and DONNKENNY APPAREL, INC., a Delaware
corporation ("Buyer").
WHEREAS, Seller is the beneficial and record owner of all of the
issued and outstanding shares of capital stock of Fashion Avenue Knits Inc., a
New York corporation ("Fashion"), and each of the corporations listed on
Schedule 1 hereto (Fashion and such corporations are sometimes hereinafter
referred to individually as a "Company" and collectively as the "Companies");
and
WHEREAS, Seller wishes to sell to Buyer all of such shares of capital
stock of each of the Companies, consisting of the numbers and classes of shares
listed on Schedule 1 hereto (collectively, the "Seller Shares"); and
WHEREAS, Buyer wishes to purchase the Seller Shares from Seller, upon
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
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1. Sale and Purchase of the Seller Shares.
1.1 Sale of the Seller Shares. Subject to the terms and conditions of
this Agreement, at the closing provided for in Section 2 hereof (the "Closing")
Seller shall sell, transfer, convey and assign to the Buyer all of the Seller
Shares by delivery to Buyer of certificates representing the Seller Shares,
duly endorsed in blank or with duly executed stock powers attached, in proper
form for transfer, free and clear of any Liens (as hereinafter defined).
1.2 Purchase Price. In consideration for the sale by Seller to
Purchaser of the Seller Shares, on the terms and subject to the conditions set
forth in this Agreement, Buyer agrees to pay Seller the following consideration
(the "Purchase Price"):
(a) at the Closing, a promissory note in the principal amount
of $8,000,000, due January 13, 1997, with interest thereon payable at the rate
of 6% per annum (the "Note"); and
(b) subject to Sections 1.5 and 1.6, on each of the first,
second and third anniversaries of the Closing Date, the sum of $1,000,000 (for
a total of $3,000,000) (the "Holdback Share Consideration"), payable by the
issuance and delivery to Seller of certificates representing 56,738, 56,738 and
56,737 shares of the common stock, par value $.01 per share (the "Parent Common
Stock") of Donnkenny, Inc., respectively (for a total of 170,213 shares) (the
"Parent Shares"), in accordance with Section 1.3 hereof.
1.3 Parent Common Stock. The number of shares of Parent Common Stock
required to be delivered pursuant to Section 1.2(b) hereof shall, subject to
Sections 1.5 and 1.6 hereof, be determined by dividing the Holdback Share
Consideration by the "Closing Market Price" of the Parent Common Stock, which
shall be $17 5/8ths per share. No fractional Parent Shares shall be issued
hereunder. If, at any time, Seller would otherwise be required to receive a
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fractional number of Parent Shares, then the number of Parent Shares to be
issued to Seller shall be rounded up or down to the nearest whole number of
Parent Shares.
1.4 Sale of the Parent Shares. (a) The Parent Shares may not be
transferred, sold, assigned or otherwise disposed of except as permitted under
the Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities laws, pursuant to registration thereunder or exemption
therefrom. Notwithstanding the following provisions of this Section 1.4, Buyer
shall not be required to (i) take any action otherwise required to be taken by
it pursuant to such Section or (ii) permit Seller to transfer any Parent
Shares, in each case, if Buyer is advised by its counsel that any such action
or transfer is in contravention of any applicable law, rule or regulation,
order or judgment.
(b) Seller acknowledges that each certificate representing
any of the Parent Shares shall be stamped or otherwise imprinted with a legend
substantially in the following form:
"The securities represented hereby have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and neither the securities nor any
interest therein may be offered, sold, transferred, pledged
or otherwise disposed of except pursuant to an effective
registration statement under such act or such laws or an
exemption from such registration."
(c) Subject to Section 1.4(a), Seller shall not during any
twelve-month period beginning on each of the first, second, third, fourth and
fifth anniversaries of the Closing Date, sell, assign, transfer or otherwise
dispose of or subject to any Lien (as hereinafter defined) ("Transfer") a
number of Parent Shares that, on a cumulative basis, together with (i) any
Parent Shares Transferred pursuant to Sections 1.4(d) and (e) hereof and (ii)
all such shares Transferred pursuant to this Section 1.4(c) and Sections 1.4(d)
and (e) hereof since the first anniversary of
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the date hereof, exceeds 20% of the aggregate number of Parent Shares issued
and issuable to Buyer hereunder (calculated after giving effect to any then
applicable reduction in the Holdback Share Consideration pursuant to Sections
1.5 and 1.6 hereof) multiplied by the number of complete 12-month periods since
the Closing Date (the "Cap Number"); provided, further, that the foregoing
restriction shall no longer be in effect following the third anniversary of the
Closing Date, if Buyer declines to exercise its option, pursuant to the
employment agreement between Buyer and Seller of even date herewith (the
"Employment Agreement"), to extend the terms of the Employment Agreement. By
way of example, during the twelve-month period following the second anniversary
of the Closing Date, Seller may Transfer pursuant to this Section 1.4(c) and
Sections 1.4(d) and (e) hereof a number of Parent Shares that, on a cumulative
basis, together with all such shares Transferred pursuant to this Section
1.4(c) and Sections 1.4(d) and (e) hereof since the first anniversary of the
date hereof, does not exceed 40% of the aggregate number of Parent Shares
issued and issuable to Buyer hereunder (calculated after giving effect to any
then applicable reduction in the Holdback Share Consideration pursuant to
Sections 1.5 and 1.6 hereof).
(d) If, during the twelve-month period following the first
anniversary of the Closing Date, the Parent Shares issued to Seller on the
first anniversary of the date hereof are not eligible for resale pursuant to
Rule 144(k) or otherwise under Rule 144 under the Securities Act (or any
successor rule), and Seller shall desire to sell a number of Parent Shares that
does not exceed the Cap Number (reduced by the number of Parent Shares, if any,
Transferred by Buyer during such period pursuant to Sections 1.4(c) and (e)
hereof), Buyer shall, on one occasion during such period and upon 60 days'
notice from Seller, at Buyer's option, either (i) arrange for the purchase of
such Parent Shares in a private sale to a third party, or (ii) purchase
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such Parent Shares from Buyer, in each case at a price equal to the then
Current Market Price of such Parent Shares on the date of purchase. As used
herein, the "Current Market Price" of the Parent Shares as of any date shall
mean the average of the latest sale prices of the Parent Common Stock as
reported on the principal exchange upon which the Parent Common Stock is then
trading (including the Nasdaq National Market) for the 20 trading days
immediately preceding the fifth trading day prior to such date, or in the event
that no sale has taken place on any one or more of such 20 trading days, the
average of the highest reported bid and lowest reported asked quotations on
such exchange for such day shall be used; or if the Parent Common Stock is not
then listed on an exchange or on the Nasdaq National Market, the Current Market
Price shall mean the average of the highest reported bid and lowest reported
asked prices for the Parent Common Stock as reported by Nasdaq for such 20
trading days.
(e) If, during any twelve-month period beginning on each of
the first, second, third, fourth and fifth anniversaries of the Closing Date,
the Current Market Price of the Parent Common Stock shall be less than $9.79
for at least five consecutive days, then Seller shall have the right to require
Buyer to purchase from Seller, upon 60 days' notice from Seller, a number of
Parent Shares that does not exceed the Cap Number (reduced by the number of
Parent Shares, if any, Transferred during such 12-month period pursuant to
Sections 1.4(c) and (d) hereof) at a price of $9.79 per Parent Share.
(f) If, at any time prior to the date that any of the Parent
Shares may be sold pursuant to Rule 144 (or any successor rule), Buyer shall
file a registration statement (other than on Form S-4, Form S-8 or any
successor form) registering shares of the Parent Common Stock having gross
proceeds of at least $30,000,000 with the Securities and Exchange Commission,
then Buyer shall give Seller at least ten days' prior written notice of the
filing of such
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registration statement. If requested by Seller within ten days after receipt of
any such notice, Buyer shall register pursuant to such registration statement a
number of Parent Shares requested to be registered by Seller that does not
exceed 50% of the number of shares issued and issuable to Seller hereunder,
calculated after giving effect to any then applicable reduction in the Holdback
Share Consideration, concurrently with the registration of the other securities
being registered pursuant to such Registration Statements. The expenses of such
registration shall be borne by Buyer; provided, that Seller shall pay any
discounts and commissions due any underwriters, brokers and/or dealers in
connection with the sale of any Parent Shares owned by him pursuant to such
registration statement and the fees and expenses of counsel to Seller, if any.
Notwithstanding the foregoing, if the managing underwriter of any such offering
shall advise Buyer that, in its opinion, the distribution of all or a portion
of the Parent Shares requested to be included in the registration statement
concurrently with the other securities being registered could materially
adversely affect the distribution of the Parent Shares or any such other
securities, then Seller shall register only such number of Parent Shares, if
any, as such underwriter determines would not materially adversely affect the
distribution of the Securities being registered. In connection with any such
registration, Buyer shall comply with the requirements of the Company or the
managing underwriter, if any, with respect to such registration and related
matters, including, without limitation, any "lock-up" requirements.
Notwithstanding the foregoing provisions of this Section 1.4(f), Buyer shall
not be required to effect any registration of the Parent Shares, to the extent
such registration would conflict with other registration rights granted by
Buyer.
1.5 Holdback of Parent Shares. The amount of the Holdback Share
Consideration shall be subject to adjustment pursuant to Section 1.6 hereof and
shall further be subject to
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reduction in an amount, if any, equal to the amount set off from time to time
by Buyer (the "Indemnity Holdback") against the Holdback Share Consideration in
respect of any claims by Buyer or any other party entitled to indemnification
pursuant to Sections 5.1 and 5.3 hereof (an "Indemnity Claim") and, in any such
instance, Buyer shall deliver to Seller on each of the first, second and third
anniversaries of the Closing Date a number of Parent Shares representing
one-third of the aggregate Holdback Share Consideration paid or payable
hereunder, as so adjusted and/or reduced. For purposes of determining the
number of Parent Shares subject to the Indemnity Holdback, the Parent Shares
shall be valued at the Closing Market Price. Notwithstanding the foregoing
provisions of this Section 1.5, on one occasion during the twelve-month period
following the second anniversary of the Closing Date, Seller may, upon 30 days'
notice to Buyer, require Buyer to deliver to Seller any or all of the Parent
Shares by payment to Buyer of an amount per each such Parent Share equal to the
Closing Market Price. In such case, on the third anniversary of the Closing
Date, Buyer shall pay Seller an amount in cash equal to the amount, if any, by
which the amount paid by Seller pursuant to the preceding sentence exceeds the
amount of all Indemnity Holdbacks at such date. If there are any Indemnity
Claims, then upon the later of the first, second or third anniversary of the
Closing Date, as the case may be Buyer shall deliver to Seller a number of
Parent Shares determined in accordance with Section 1.2(b) hereof, with an
aggregate Closing Market Price equal to the amount, if any, by which the
Holdback Share Consideration then due Seller exceeds the amount of all
Indemnity Holdbacks; provided that if the amount of all Indemnity Holdbacks
exceeds the amount of outstanding Indemnity Claims on the date all such
Indemnity Claims are finally resolved (as evidenced either by an agreement of
Buyer and Seller or by the entry of a final, non-appealable order by a court of
competent jurisdiction) then, within ten business days
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following such final resolution, Buyer shall deliver to Seller a number of
Parent Shares (calculated in accordance with the second sentence of this
Section 1.5), representing the amount of the additional Holdback Share
Consideration due Seller, which shall be equal to the excess of all Indemnity
Holdbacks over the final amount of the Indemnity Claims.
1.6 Post-Closing Adjustment. (a) Within 120 days following the Closing
Date, Buyer shall prepare or cause to be prepared and delivered to Seller a
statement (the "Closing Statement") calculated, to the extent applicable, in
accordance with generally accepted accounting principles consistently applied
("GAAP") of (i) the aggregate amount of open orders of the Companies; (ii) the
aggregate value of the inventory of the Companies, net of reserves for damaged,
obsolescent and excess inventory; (iii) the aggregate amount of the trade
accounts payable of the Companies; and (iv) the aggregate net amount of the
accounts receivable assigned to the Companies' factor, in each case, calculated
as of the Closing Date. The Closing Statement shall become final and binding
upon the parties unless Seller gives written notice of disagreement (a "Notice
of Disagreement") to Buyer within ten days following receipt thereof. Any such
Notice of Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted. During a period of 20 days following the aforesaid
ten-day period, Buyer and Seller shall attempt to resolve in writing any Notice
of Disagreement. If at the end of such 30-day period, Buyer and Seller have
failed to reach written agreement with respect to all of such matters, then all
such matters as specified in any Notice of Disagreement as to which such
written agreement has not been reached (the "Disputed Matters") shall be
arbitrated in New York, New York by a third party independent accounting firm
mutually acceptable to Buyer and Seller or, if the parties do not agree on an
accounting firm at the end of such 30-day period, an accounting firm selected
by the American Arbitration Association (the "Arbitrator"). Costs and
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fees of the Arbitrator shall be allocated between Seller and Buyer in the same
proportion that the aggregate amount of the disputed items so submitted to the
Arbitrator which is unsuccessfully disputed by each such party (as finally
determined by the Arbitrator) bears to the total amount of such disputed items
submitted to the Arbitrator.
(b) In the event that (i) the aggregate amount of the open
orders of the Companies, as set forth on the Closing Statement (or as finally
determined by the Arbitrator) (the "Order Amount"), is less than $9,500,000
(the "Order Floor Amount"), then the Holdback Share Consideration shall be
reduced by $.25 for each $1.00 by which the Order Floor Amount exceeds the
Order Amount; (ii) the aggregate value of the inventory of the Companies, as
set forth on the Closing Statement (or as finally determined by the Arbitrator)
(the "Inventory Amount"), is less than $5,500,000, then the Holdback Share
Consideration shall be reduced by the amount by which $5,500,000 exceeds the
Inventory Amount; (iii) the aggregate amount of the trade accounts payable, as
set forth on the Closing Statement (or as finally determined by the Arbitrator)
(the "Payables Amount") exceeds $4,500,000, then the Holdback Share
Consideration shall be reduced by an amount equal to such excess; and (iv) the
aggregate net amount of the accounts receivable assigned to the Companies'
factor, as set forth in the Closing Statement (or as finally determined by the
Arbitrator) (the "Receivables Amount"), is less than $4,210,000, then the
Holdback Share Consideration shall be reduced by the amount by which $4,210,000
exceeds the Receivables Amount; provided that any amounts otherwise due Buyer
pursuant to this Section 1.6(b) shall be reduced by an amount up to the sum of
(A) $.25 for each $1.00 (if any) by which the Order Amount exceeds the Order
Floor Amount; (B) the amount, if any, by which the Inventory Amount exceeds
$5,500,000; (C) the amount, if any, by which the Payables Amount is less than
$4,500,000; and (D) the amount, if any, by which
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the Receivables Amount exceeds $4,210,000; provided, further, that in no event
shall there be an adjustment in favor of Seller pursuant to this Section 1.6,
and the amount of the increase in the Holdback Share Consideration provided for
in the preceding proviso shall be limited to the amount of the reduction in the
Holdback Share Consideration that would be in favor of Buyer but for such
proviso.
2. Closing.
2.1 Closing. The Closing shall take place at the offices of Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176,
at 10:00 a.m. local time on September 6, 1996; provided that the Closing and
the Closing Date shall be deemed to have occurred as of September 3, 1996.
2.2 Documents to Be Delivered by Seller to Buyer. At the Closing,
Seller shall deliver to Buyer the following:
(a) the Seller Shares, other than the Lonestar Shares (as
hereinafter defined), duly endorsed or with stock powers attached, in
accordance with Section 1.1 hereof;
(b) the Employment Agreement, duly executed by Seller;
(c) the opinion of Silverberg Stonehill & Goldsmith, P.C., in
form and substance reasonably satisfactory to Buyer and its counsel;
(d) good standing certificates of each of the Companies
issued by their respective jurisdictions of incorporation and each jurisdiction
in which any Company is qualified to do business as a foreign corporation;
(e) the release contemplated by Section 6.1 hereof; and
(f) any documents or instruments required to be delivered by
Seller pursuant to Section 6.4 hereof.
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2.3 Documents to Be Delivered by Buyer to Seller. At the
Closing, Buyer shall deliver to Seller the following:
(a) the Note, in accordance with Section 1.2 hereof;
(b) the Employment Agreement, duly executed on behalf of
Seller;
(c) the opinion of Squadron, Ellenoff, Plesent & Sheinfeld,
LLP, in form and substance reasonably acceptable to Seller and his counsel; and
(d) any documents or instruments required to be delivered by
Buyer pursuant to Section 6.4 hereof.
3. Representations and Warranties of Seller. Seller hereby represents and
warrants to, and agrees with, Buyer as follows:
3.1 Organization and Authority. Each of the Companies is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and lawful
authority and all necessary Permits (as hereinafter defined) to carry on its
business as it is currently being conducted and as proposed to be conducted,
and to own, operate and lease its assets. Each of the Companies is duly
qualified or licensed to do business as a foreign corporation and is in good
standing as a foreign corporation in each jurisdiction in which the ownership,
operation or lease of its assets or the conduct of its business or location of
its properties requires qualification or licensing to do business as a foreign
corporation, except for such failures which, when taken together with all other
such failures, would not have an effect that is materially adverse to the
working capital, business, assets, properties, liabilities (whether absolute,
accrued, contingent or otherwise), results of operations, reserves, prospects
or condition (financial or otherwise) of any of the Companies (a "Material
Adverse Effect").
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3.2 Agreement Binding. This Agreement constitutes, and each document
and instrument contemplated by this Agreement to be executed by Seller when
executed and delivered in accordance with the provisions hereof shall
constitute, the valid and legally binding obligation of Seller, enforceable
against Seller in accordance with its terms.
3.3 Freedom to Contract. The execution, delivery and performance of
this Agreement by Seller and the consummation by Seller of the transactions
contemplated hereby will not: (a) violate or conflict with any provision of the
certificate of incorporation or by-laws of any Company or any amendments
thereto or restatements thereof; (b) violate any of the terms, conditions or
provisions of any law, rule, statute regulation, order, writ, injunction,
judgment or decree of any court, governmental authority or regulatory agency;
or (c) to the best of Seller's knowledge and belief, conflict with or result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, indenture, debenture, security agreement, trust agreement, lien,
mortgage, lease, agreement, license, franchise, permit, guaranty, joint venture
agreement or other agreement, instrument or obligation, oral or written, to
which Seller or any Company is a party (whether as an original party or as an
assignee or successor) or by which Seller or any Company or any of their
respective properties is bound. No governmental authorization, approval, order,
license, Permit, franchise or consent, and no registration, declaration or
filing with any court, governmental department, commission, authority, board,
bureau, agency or other instrumentality, is required in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby by Seller.
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3.4 Capitalization; Subsidiaries; Debt. (a) The authorized capital
stock of each Company is as set forth on Schedule 3.4 hereto, and the Seller
Shares represent all of the issued and outstanding shares of such capital
stock. The Seller Shares are validly issued, fully paid and nonassessable, with
no personal liability attached to the ownership thereof.
(b) As of the date hereof, no shares of Common Stock are held
in the treasury of any Company and there are no outstanding (i) securities
convertible into or exchangeable for capital stock of any Company; (ii)
options, warrants or other rights to purchase, redeem, repurchase or subscribe
to capital stock of any Company or securities convertible into or exchangeable
for capital stock of any Company; or (iii) contracts, commitments, agreements,
understandings or arrangements of any kind, including, without limitation, any
stock option plans, relating to the issuance of any capital stock of any
Company, any such convertible or exchangeable securities or any such options,
warrants or rights.
(c) None of the Companies owns, directly or indirectly, any
capital stock or other equity securities of any corporation or has any direct
or indirect ownership interest in any business (other than the Business, as
hereinafter defined) or entities, including, without limitation, any limited
liability company, partnership, or joint venture. None of the Companies is or
has engaged in or conducted at any time any business other than the business of
manufacturing, marketing, and selling women's, men's and children's sweaters
and knitwear and men's and women's cut and sewn garments (the "Business").
(d) Except as set forth on Schedule 3.4 hereto, none of the
Companies has any debt, including without limitation, any long-term or funded
debt or bank loans, other than trade payables incurred in the ordinary course
of business.
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3.5 Financial Statements. (a) The combined balance sheets of Fashion
and The Sweater Company, Inc. ("Sweater"; Sweater and Fashion are sometimes
hereinafter referred to as the "Principal Companies") as at August 31, 1995 and
the related statements of income, retained earnings and changes in financial
position for the year then ended, including the footnotes thereto, certified by
Rashba & Pokart, P.C., independent certified public accountants to the
Principal Companies, which have been delivered to Buyer (the "Audited Financial
Statements") and the combined statements of income for the Principal Companies
for the nine-month period ended May 31, 1996, have been prepared on behalf of
Seller and delivered to Buyer (the "Interim Income Statement"). The Interim
Income Statement has been prepared by the Principal Companies based on their
books and records and on an estimate of inventory. The Audited Financial
Statements have been prepared in accordance with GAAP, and fairly present the
financial condition, results of operations and cash flows of the Principal
Companies as of the dates thereof and for the periods presented; provided,
however, that any interim financial statements are and shall be subject to
normal year-end adjustments.
(b) The accounting and financial records of each of the
Companies have been prepared and maintained in accordance with sound
bookkeeping practices. Each of the Companies maintains systems of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
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3.6 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 3.6, as at the date of the Audited Financial Statements, neither of
the Principal Companies had any direct or indirect indebtedness, liability,
claim, loss, damage, deficiency, obligation or responsibility, known or
unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise, including,
without limitation, liabilities on account of taxes, other governmental charges
or lawsuits brought, liabilities in respect of employee matters (including,
without limitation, and sick pay) whether or not of a kind required by GAAP to
be set forth on a financial statement ("Liabilities"), which were not fully and
adequately reflected on the Audited Financial Statements. Except as set forth
on Schedule 3.6, none of the Companies has any Liabilities, other than (i)
Liabilities fully and adequately accrued for on the books and records of such
Company; and (ii) in the case of the Principal Companies, those incurred since
May 31, 1996 in the ordinary course of business. To the best knowledge and
belief of Seller, there are no circumstances, conditions, events or
arrangements which may hereafter give rise to any Liabilities of any of the
Companies except in the ordinary course of business.
3.7 No Material Adverse Change. Since August 31, 1995, there has been
no change or changes that result in or cause, or have a reasonable likelihood
of causing a Material Adverse Effect (a "Material Adverse Change") with respect
to either of the Principal Companies, and to the best knowledge and belief of
Seller, no Material Adverse Change is threatened with respect to any Company,
nor has there been any damage, destruction or loss materially affecting the
working capital, business, assets, properties, Liabilities, results of
operations, reserves, prospects or condition (financial or otherwise) of any
Company, whether or not covered by insurance.
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3.8 Real Estate. Schedule 5.8 hereto sets forth a list and summary
description of all real property leased or used by any Company (the
"Premises"). There are no (i) options held by any of the Companies or
contractual obligations on the part of any of the Companies to purchase or
acquire any interest in real property; or (ii) options granted by any of the
Companies or contractual obligations on the part of any of the Companies to
sell or dispose of any interest in real property. A true and complete copy of
each lease, sublease or other agreement with respect to the Premises has been
delivered by Buyer. Each such lease, sublease and other agreement is in full
force and effect and no Company has received any notice of any default
thereunder. The leasehold interests of the Companies are not subject to any
Liens (as hereinafter defined). None of the Companies owns any real property.
The Premises are used exclusively in connection with the Business.
3.9 Title to and Condition of Assets; Liens, etc. Except as set forth
on Schedule 3.9, each of the Companies has good title to all of its assets and
properties free and clear of any mortgage, pledge, security interest, title
defect or objection, lien, charge or encumbrance of any kind, including without
limitation, any lease, license or other right of occupancy, possession or use,
or any conditional sales contract or other title or interest retention
arrangement (collectively, "Liens"), except for Liens for current Taxes not yet
due (such Liens being collectively referred to herein as the "Permitted
Liens"). Except as set forth on Schedule 3.9, each of the Companies holds good
and transferable leaseholds in all of the equipment and machinery leased by it,
in each case under valid and enforceable leases. No default has been declared
with respect to any lease with respect to any item of equipment and machinery
leased by any Company, and, to the best of Seller's knowledge and belief, no
event has occurred that constitutes or with due notice or lapse of time or both
would constitute a default under any such lease. The equipment and
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machinery owned and leased by each of the Companies are sufficient and adequate
to carry on the Business as presently conducted by the Company, and all items
thereof are in good operating condition and repair, ordinary wear and tear
excepted. Schedule 3.9 hereto sets forth a true and complete listing of each of
the assets and properties owned or leased by any Company having a net book
value or annual lease cost, as the case may be, as of August 31, 1996 in excess
of $5,000. Except for inventory in transit and at contractors, all of such
assets and properties are located at the Premises. All such assets and
properties are the property of the Companies, except as set forth on Schedule
3.9. No person or entity has any rights to purchase any of the assets or
properties of any Company, or any interest therein or portion thereof,
including rights of first offer or first refusal. The assets, properties and
rights owned by the Companies comprise all of the assets, properties and rights
of every type or description, real, personal and mixed, tangible and
intangible, necessary to, or used by Sellers in, the operation of the Business
as conducted by the Companies as of May 31, 1996 and as of the date hereof.
3.10 Absence of Certain Changes. Except as set forth on Schedule 3.10
hereto, since August 31, 1995:
(a) Each of the Companies has operated its business in the
ordinary course consistent with past practice;
(b) None of the Companies has entered into any transaction,
commitment, contract or agreement, except in the ordinary course of business
consistent with past practice;
(c) There has not been any Material Adverse Change or any
event that would materially impair Seller's ability to perform its obligations
under this Agreement;
(d) None of the Companies has entered into any transaction
with (i) any director, officer or 5% shareholder of any Company or with any
person or entity which controls,
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is controlled by, or under common control with, any Company or such other
person or entity ("Affiliate"); (ii) any person or entity that (A) was an
Affiliate of any of the Companies within the past five years; (B) is or was
related by blood or marriage to any Affiliate or such former Affiliate; or (C)
is or was an Affiliate of any person described in clause (B) above; or (iii)
any corporation, the capital stock of which is owned by an Affiliate of the
Company (all such persons and entities described in clauses (ii) and/or (iii)
above being collectively referred to as "Related Parties");
(e) None of the Companies has sold, assigned, leased or
transferred any assets or properties, other than the sale of inventory in the
ordinary course of business consistent with past practice;
(f) None of the Companies has outside of the ordinary course
of business (i) incurred any severance or termination pay liability to any
employee; (ii) entered into any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
employee; or (iii) granted any increase in compensation, bonus or other
benefits payable to any employee;
(g) There has not been any damage, destruction or other
casualty loss (whether or not covered by insurance) affecting any Company or
its assets;
(h) None of the Companies has waived or released any rights
of substantial value, including cancellation of any material debt owed to, or
accounts receivable of, any Company, other than in the ordinary course of
business;
(i) None of the Companies has written down the value of any
tangible assets or written off as uncollectible any debt, notes or accounts
receivable, or made any other write-downs or write-offs except write-downs and
write-offs in the ordinary course of business in
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accordance with GAAP, as reflected in the books and records of such Company, or
made any change in its accounting methods or practices or made any change in
depreciation or amortization policies or rates adopted by it;
(j) None of the Companies has cancelled, waived or released
any material right or claim;
(k) None of the Companies has mortgaged, pledged, encumbered
or otherwise created any Lien on any Asset;
(l) None of the Companies has incurred any (i) obligation or
liability (contingent or otherwise), except for normal trade or business
obligations incurred in the ordinary course of business; or (ii) any
indebtedness for borrowed money except for borrowings from factors in the
ordinary course of business;
(m) None of the Companies has materially changed any of its
business policies, including without limitation, advertising, marketing,
pricing, purchasing, personnel, sales, returns, budgets or product acquisition
policies;
(n) None of the Companies has incurred or committed to make
any capital expenditure, except in the ordinary course of business and as
reflected on the books and records of such Company; and
(o) None of the Companies has agreed to do any of the
foregoing.
3.11 Contracts, etc. (a) Schedule 3.11 hereto contains a complete and
accurate list of all contracts, commitments, agreements or arrangements,
leases, licenses, notes, purchase orders, letters of credit, instruments,
obligations, commitments and options (whether any of the foregoing shall be
written or oral, express or implied) to which any of the Companies is a party
or pursuant to which any of its assets or properties is bound, except for
purchase and sales
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<PAGE>
orders entered into in the ordinary course of business (collectively,
"Contracts"), including, without limitation:
(i) each Contract (or group of related Contracts)
for the purchase or sale of goods or other personal, real or
intangible property, or for the furnishing or receipt of
services, involving more than $5,000 in the aggregate;
(ii) each Contract relating to any indebtedness for
borrowed money, including guarantees of or agreements to
acquire any debt obligations of others;
(iii) each Contract (or group of related Contracts)
for the lease of any real property, and for lease of any
personal property involving rental obligations in excess of
$500 per month;
(iv) each license agreement with third parties;
(v) each Contract directly or indirectly restricting
the ability of any Company to compete in any line of business
with any person or entity;
(vi) each Contract with directors, agents,
salesmen and sales representatives or involving the payment
of commissions or other consideration or discounts with
respect to the sale of any Company's products;
(vii) each Contract relating to joint ventures,
partnerships and equity or debt investments;
(viii) each Contract pursuant to which any business
or entity was purchased or acquired;
(ix) each Contract with any governmental agency;
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(x) each Contract with an advertising or public
relations agency, as well as any Contracts relating to
marketing or co-marketing or tie-ins with other products or
services;
(xi) each standard form of purchase order or sales
invoice;
(xii) each Contract containing any exclusive
arrangements which (A) are in favor of any or the Companies,
or (B) restricting any of the Companies;
(xiii) each Contract containing secrecy,
non-competition or similar arrangements between any of the
Companies and any of its current or former employees or
consultants;
(xiv) each Contract between any of the Companies and
any Affiliate or Related Party; and
(xv) each Contract with importers, customers or
other brokers, warehouse operators, designers and
manufacturers.
Seller has heretofore delivered to Buyer true and complete
copies of all written Contracts listed on Schedule 3.11, and a summary of the
material terms of each oral Contract listed on such Schedule.
(b) Except as set forth on Schedule 3.11 annexed hereto, and
subject to Section 3.3 hereof, each of the Companies has complied with and
performed all of its obligations required to be performed under all of the
Contracts, and no default has been declared under any of them; and, to the best
of Seller's knowledge and belief, no event has occurred which, with or without
the giving of notice, lapse of time or both, would constitute a default
thereunder in any material respect. None of the Companies has received written
notice canceling, terminating or repudiating or exercising any option under any
Contract and, to the
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best knowledge and belief of Seller, no other party has failed to comply with
or perform all of its obligations required to be performed under any Contract
and no event has occurred which, with or without the giving of notice, lapse of
time or both, would constitute a default by such party thereunder. In addition,
except as disclosed on Schedule 3.11, Seller has (i) no reason to believe that
the products and services called for by an unfinished contract having material
value cannot be supplied by or to any Company that is a party to such contract
in accordance with the time specifications of such Contract; and (ii) no
knowledge of any facts or circumstances which make a default by any party to
any Contract likely to occur subsequent to the date hereof.
(c) All Contracts are currently enforceable and shall be
enforceable after the Closing in accordance with their respective terms.
3.12 Employee Matters. (a) Except as set forth on Schedule 3.12(a)
hereto, none of the Companies has any: (i) "employee benefit plans" ("Benefit
Plans") within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); (ii) employment contracts (and any
related agreements); (iii) severance arrangements, (iv) bonus or other
incentive compensation arrangements; (v) fringe benefit or perquisite plans or
arrangements; (vi) deferred compensation arrangements; (vii) non-competition
arrangements; and (viii) other remunerative arrangement between any Company and
current or former employees, and Seller has provided Buyer with a copy of any
documents setting forth or otherwise related to any such matters. All benefit
plans set forth on Schedule 5.12(a) are and have been maintained in full
compliance with their terms and all requirements of applicable law.
(b) There are no collective bargaining or other agreements
between any Company and any union or other employee organizations, whether such
agreements are with any
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Company or with any independent contractor or management company providing
employees to any Company.
(c) None of the Companies nor any member of the Company Group
has, at any time contributed to, or had an obligation to contribute to, any
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
which is subject to the requirements of Section 412 of the Code. As used in the
preceding sentence, "Company Group" includes any person who is, or was at the
relevant time, a member of the same "controlled group of corporations" as any
Company (within the meaning of Section 414(b) of the Code), or under "common
control" with any Company (within the meaning of Section 414(c) of the Code).
None of the Companies has ever maintained or contributed to a multiemployer
pension plan, as defined in Section 3(37) of ERISA, is liable for any
withdrawal or partial withdrawal liability with respect to any multiemployer or
pension plan and none of the Companies or Buyer will become liable therefor as
a result of the transactions contemplated by this Agreement.
(d) (i) Each of the Companies is in compliance in all
material respects with all applicable laws, rules and regulations relating to
the employment practices, terms and conditions of employment and wages and
hours, including, without limitation, any laws, rules and regulations relating
to the employment of illegal aliens or minors; (ii) there are no controversies
pending or, to the best of the Seller's knowledge and belief, threatened,
between any Company and any of its employees, prospective employees, former
employees or retirees, except as set forth on Schedule 3.12(d) hereto; (iii) no
unfair labor practice complaints have been filed against any Company or with
the National Labor Relations Board (the "NLRB"), and none of the Companies has
received any notice or communication reflecting an intention or a threat to
file any such complaint; (iv) there is no labor strike, dispute, slow-down or
stoppage
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<PAGE>
pending or threatened against any of the Companies; (v) no representation
petition is pending or threatened with the NLRB against any of the Companies;
(vi) each of the Companies has paid in full to all of its employees all wages,
salaries, commissions, bonuses, benefits and other compensation due to such
employees, including those arising under any policy, practice, agreement,
program, statute or other law; and (vii) none of the Companies has closed any
facility, effectuated any layoffs of employees or implemented any early
retirement, separation or window program within its past three fiscal years,
nor has any Company planned or announced any such action or program for the
future.
(e) Schedule 3.12(e) hereto contains a correct and complete
list of (i) the names, job titles, current annual salary rates and bonus
received or anticipated to be received in the 12-month period prior to, or
following, the Closing Date of all of the employees of any of the Companies
(the "Employees"); (ii) the names and amounts, if any, paid, accrued or to be
paid to the Employees under any bonus, incentive or similar plans on and after
January 1, 1996; and (iii) all vacation and sick pay accrued or anticipated to
be accrued in respect of obligations of any Company to the Employees arising
during calendar year 1996 and for any period thereafter. Except for the Benefit
Plans, no Company has, by reason of past practices with respect to any
Employees, established any rights on the part of any Employees to additional
compensation with respect to any period after the Closing Date. Except as
disclosed on Schedule 3.12(e) hereto, upon termination of the employment of any
of the Employees, none of the Companies will incur any liability with respect
to any of the Employees for severance pay or any other payments. To the best
knowledge and belief of Seller, no Key Employee or group of employees has any
plans to terminate employment with any Company. As used herein, the term "Key
Employee" shall mean any employee that received in 1995, or will receive in
1996,
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remuneration in excess of $50,000 from any of the Companies. Each of the
Companies is in compliance with the requirements of the Worker Adjustment and
Retraining Notification Act of 1988, as amended.
3.13 Litigation. Except as set forth in Schedule 3.13 hereto, there is
no action, suit, inquiry, litigation, proceeding or investigation by or before
any referee, mediator or arbitrator, or any court or governmental or other
regulatory or administrative agency or commission, pending or, to the best of
Seller's knowledge and belief, threatened, against any Company or relating to
the assets of any Company or its business or any of its assets or properties
nor, to the best of the Seller's knowledge and belief, are there any facts
which would provide a basis for any such action, suit, inquiry, litigation,
proceeding or investigation, which, in each case if adversely determined, could
have a Material Adverse Effect or which in any manner challenges or seeks
injunctive or other non-monetary relief or seeks to prevent, enjoin, alter or
delay any transaction contemplated hereby. None of the Companies is subject to
any judgment, order or decree entered in any lawsuit or proceeding which could
have a Material Adverse Effect.
3.14 Permits. Each of the Companies has all necessary permits,
licenses, franchises, approvals, consents, authorizations or orders of, and has
made all required filings with, or notifications to, all governmental
authorities, whether federal, state, local or foreign, or any other person
(collectively "Permits"), including, without limitation, in connection with the
Business as presently conducted or proposed to be conducted, the occupancy and
use of the Premises and any other facilities at which the Business is
conducted. Each such Permit is in full force and effect and none of the
Companies has received notice that revocation is being considered with respect
to any such Permit.
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3.15 Compliance with Law. None of the Companies is in violation of any
applicable federal, state, local or foreign law, rule, regulation or ordinance,
or any judgment, writ, decree, injunction, order or any other requirement of
any court, administrative agency, bureau, board, commission, office, authority,
department or other governmental or arbitral or other dispute resolution body
or agency, and no notice has been received by any Company alleging any such
violation.
3.16 Intellectual Property. Schedule 3.16 hereto lists or describes:
(a) all United States and foreign copyright and patent registrations or pending
applications and lists; (b) all United States and foreign trademarks, service
marks, imprints, logos, trade dress, corporate, trade, assumed and other names,
including those at common law and all registrations or applications to register
the foregoing; and (c) all know-how, processes or trade secrets susceptible of
legal protection, which (i) are owned by any Company; (ii) any person or entity
has granted any Company the right to use (and all licenses, franchises and
permits with respect thereto); or (iii) any Company has granted to any person
or entity the right to use (and all licenses, franchises and permits with
respect thereto) (collectively, the "Intellectual Property"). Except as set
forth on Schedule 3.16 hereto, each of the Companies owns or, in the case of
any Intellectual Property described in clause (ii) above, possesses adequate,
enforceable and assignable licenses or other rights to use all of the
Intellectual Property, free and clear of all Liens other than Permitted Liens,
without any conflict with the rights of others. Except as set forth on Schedule
3.16, all registrations for the Intellectual Property are valid and subsisting
and in full force and effect. There are no existing or, to the best of the
Seller's knowledge and belief, threatened, claims of any third party for
infringement of the copyrights, patents, trademarks or trade secrets or other
Intellectual Property of others by any Company, or unfair
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competition based on the use by, or challenging the ownership of or the right
to use by, any Company of any of the Intellectual Property; none of the
Intellectual Property has been abandoned by any Company or is subject to any
outstanding order, decree, judgment, stipulation, injunction, written
restriction or agreement restricting the scope or use thereof; and, to the best
of the Seller's knowledge and belief, there are no infringing or diluting uses
of the Intellectual Property.
3.17 Tax Matters. (a) For purposes of this Agreement, "Tax(es)" shall
mean all taxes, assessments and other charges, including any interest,
penalties, additions to tax or additional amounts that may become payable in
respect thereof, imposed by any foreign, federal, state, local or other
government or taxing authority, which taxes shall include, without limitation,
all income taxes, payroll and employee withholding taxes, unemployment
insurance, social security, sales and use taxes, excise taxes, franchise taxes,
gross receipts taxes, occupation taxes, real and personal property taxes, stamp
taxes, transfer taxes, workers' compensation and other obligations of the same
or of a similar nature.
(b) Each Company has timely filed with the appropriate taxing
authorities all returns (including, without limitation, information returns and
other information) in respect of Taxes required to be filed through the date
hereof. The returns and other information filed are complete and accurate in
all respects. None of the Companies has requested any extension of time within
which to file returns (including, without limitation, information returns) in
respect of any Taxes. Seller has delivered to the Purchaser complete and
accurate copies of each Company's federal, state and local tax returns for the
fiscal years ending August 31, 1992, 1993, 1994 and 1995.
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(c) All Taxes for which any Company is or may be liable, in
respect of periods beginning before the Closing Date, have been timely paid, or
an adequate reserve (in conformity with generally accepted accounting
principles) has been established therefor, as set forth in the Interim
Financial Statements of the Principal Companies at the date thereof and on the
books and records of each of the Companies on the date hereof, and none of the
Companies has any liability for Taxes in excess of the amounts so paid or
reserves so established. There are no Taxes for which any Company is or may
become liable that will apply in a period or a portion thereof beginning on or
after the Closing Date and that are attributable to income earned or activities
of each Company occurring before the Closing Date.
(d) No deficiencies for Taxes, have been claimed, proposed or
assessed by any taxing or other governmental authority against any Company.
There are no pending or, to the best knowledge and belief of Seller, threatened
audits, investigations or claims for or relating to any liability in respect of
Taxes, and there are no matters under discussion with any taxing or
governmental authorities with respect to Taxes that in the reasonable judgement
of any Company, or its counsel, is likely to result in additional liability for
Taxes. There have been no audits of federal, state and local returns for Taxes
by any taxing or governmental authorities and none of the Companies has been
notified that any taxing or governmental authority intends to audit a return
for any period. No extension of a statute of limitations relating to Taxes is
in effect with respect to any Company. Except for a power of attorney in favor
of Mahoney, Cohen, Rashba & Pokart, no power of attorney has been executed by
any Company with respect to any matters relating to Tax which is currently in
force.
(e) There are no Liens for Taxes (other than for current
Taxes not yet due and payable) on any Company's assets.
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(f) None of the assets of any Company is property that is
required to be treated as being owned by any other person pursuant to the
so-called safe harbor lease provisions of former Section 168(f)(8) of the Code.
(g) None of the Company's assets directly or indirectly
secures any debt the interest on which is tax-exempt under Section 103(a) of
the Code.
(h) None of the Company's assets is "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(i) The transaction contemplated herein is not subject to the
tax withholding provisions of Section 3406 of the Code, or of Subchapter A of
Chapter 3 of the Code or of any other provision of law.
(j) All elections with respect to Taxes affecting the Company
as of the date hereof are set forth on Schedule 3.16. The Company has not
consented at any time under Section 341(f)(1) of the Code, to have the
provisions of Section 341(f)(2) of the Code apply to any disposition of the
Company's assets. The Company has not agreed to make, nor is required to make,
any adjustments under Section 481(a) of the Code by reason of a change in the
accounting method or otherwise.
(k) There are no tax sharing agreements or similar
arrangements with respect to or involving any Company.
(l) None of the Companies is a party to any joint venture,
partnership or other arrangement or contract which is treated as a partnership
for federal income tax purposes.
(m) Lonestar Sportswear Co., Inc. ("Lonestar") has properly
elected to be, continues to be and has been since its date of incorporation, a
corporation subject to Code Sections 1361 et seq., commonly referred to as a
sub-chapter S corporation, and since that date
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has always qualified and continues to qualify as a "small business corporation"
as defined in Code Section 1361(b)(1) and under any corresponding provisions of
applicable state, local or foreign law. Since Lonestar's date of incorporation,
all past and current stockholders of Lonestar have reported on their personal
income tax returns and have timely paid all of the income taxes with respect to
all of the net taxable income of Lonestar that has been allocated to them in
proportion to their stock holdings in Lonestar. Lonestar's election under Code
Section 1362 has not been terminated.
3.18 Plant and Equipment. The Premises and the fixtures, furnishings
and equipment therein are structurally sound with no material defects, are in
good operating condition and repair and are adequate and suitable for the uses
to which they are being put. No condition exists with respect to the Premises
or any fixtures, furnishings and equipment therein which would prevent, or
require repair or modification thereof as a prerequisite to, any Company's
continued use of the Premises or any such other property in the Business except
with respect to ordinary wear and tear and scheduled maintenance and repair
that are not in the aggregate material in nature or in cost. Neither the
Premises, nor the use thereof by any Company, nor any of the fixtures,
furnishings and equipment therein or otherwise used or owned by any Company or
the operation or maintenance thereof, violates any restrictive covenant or
encroaches on any property owned by others in any manner which, if enforced,
would have a Material Adverse Effect. The Premises do not violate any
provisions of any applicable building code, fire, health or safety regulations,
or other governmental ordinances, orders or regulations. The zoning
classification of the Premises is such that the Premises may be used as
currently used in the Business. Each of the Companies has complied with all
applicable laws, ordinances, regulations, statutes, rules and restrictions
relating to the Premises, or any part thereof. Neither
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the whole nor any portion of the Premises nor any other assets of any Company
are subject to any governmental decree or order to be sold or are being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor has any such condemnation,
expropriation or taking been proposed.
3.19 Brokers. Except for Sales and Design Corp. of America, whose
compensation will be paid by Seller, subject to Section 4.4 hereof, neither
Seller nor any of the Companies has, directly or indirectly, employed or
utilized the services of any investment banker, broker, finder, consultant or
other intermediary in connection with this Agreement or the transactions
contemplated hereby.
3.20 Insurance. Each of the Companies maintains insurance coverage and
performance bonds on its properties and assets and with respect to its
employees and operations, covering risks which are customarily insured against
by businesses similar to the Business. Schedule 5.20 hereto contains a correct
and complete description of all such performance bonds, policies or binders of
insurance held by or on behalf of any Company, or providing coverage for any of
its properties or assets (in each case specifying the insurer, the amount of
coverage, the type of insurance, the risks insured, the expiration date, and
the policy number). Except as set forth on Schedule 3.20 hereto, to the best of
the Seller's knowledge and belief, no state of fact exists and no event has
occurred which reasonably might form the basis of any claim against any Company
or relating to the Business which might substantially increase the insurance
premiums payable under or result in the cancellation or nonrenewal of any of
the policies or binders listed on Schedule 3.20 hereto.
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3.21 Advertising, etc. To the best of the Seller's knowledge and
belief, neither the advertising nor the promotional material used at any time
by any Company contained or contains any material untrue or misleading
statements or claims.
3.22 Transactions with Affiliates, etc. Except as described in
Schedule 3.22 hereto, none of the Companies or any of their Affiliates or
Related Persons owns, directly or indirectly, or has an interest, either of
record or beneficially, in any business, corporate or otherwise, which is a
party to any agreement, business arrangement or course of dealing with any
Company, or any property or asset which is the subject of any agreement,
business arrangement or course of dealing with any Company. Except as described
in Schedule 3.22, no Company has any Liability to any Affiliate or Related
Party and no Affiliate or Related Party has any Liability to any Company.
3.23 Restrictions. Neither Seller nor any Affiliate of any Company is
a party to any agreement, commitment or arrangement which would, following the
Closing, directly or indirectly, restrict any Company from carrying on the
Business or any aspect thereof anywhere in the world.
3.24 Full Disclosure. All documents and other papers delivered by or
on behalf of Seller or any Company in connection with this Agreement and the
transactions contemplated hereby are authentic and, in all material respects,
true and complete; and all contracts and other agreements or instruments
included thereunder are valid, subsisting and binding on the parties thereto in
accordance with their terms. The information furnished by or on behalf of
Seller or any Company to Buyer in connection with this Agreement and the
transactions contemplated hereby does not contain any untrue statement of a
material fact and does not omit to state any material fact necessary to make
the statements made therein not false or misleading. There is
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no fact which Seller has not disclosed to Buyer in writing which has, or so far
as Seller can now foresee, could have, a Material Adverse Effect or which would
materially impair the ability of Seller to perform its obligations under this
Agreement.
3.25 Prohibited Payments. None of the Companies, nor any of the
officers, directors, employees, agents or Affiliates of any Company, has,
directly or indirectly, (a) offered, paid or given, or agreed to pay or to
give, to any person or entity, including any governmental official, employee,
or agent or solicited, received or agreed to receive from any such person or
entity, directly or indirectly, any money or anything of value (however
characterized) for the purpose of or with the intent of obtaining or
maintaining business or otherwise affecting, or in any manner relating to, the
business, assets, properties, liabilities, reserves, condition (financial or
otherwise), operations or prospects of any Company; or (b) established or
maintained any unrecorded fund or asset for any purpose or made any false entry
on the books and records of any Company for any reason, made or agreed to make,
a reimbursement of any political gift or contribution made by any other person,
to any candidate for federal, state, local or foreign office, which is in
violation of any or law, or any rule, regulation or ordinance thereunder of any
federal, state local or foreign jurisdiction or not properly and correctly
recorded or disclosed on the Financial Statements, if applicable, or on the
books and records of the Companies.
3.26 Environment, Health, and Safety. (a) Each of the Companies and
their respective predecessors and Affiliates has complied with all laws
(including rules and regulations thereunder) of federal, state, local, and
foreign governments (and all agencies thereof) concerning the environment,
public health and safety, and employee health and safety, and no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand, or
notice has
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been filed or commenced against any of them alleging any failure to comply with
any such law or regulation.
(b) None of the Companies has any Liability (and there is no
basis related to the past or present operations, properties, or facilities of
any of the Companies and their respective predecessors and Affiliates for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against any of the Companies giving rise to any
Liability) under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the
Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the
Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the
Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know Act
of 1986 (each as amended), or any other law (or rule or regulation thereunder)
of any federal, state, local, or foreign government (or agency thereof),
concerning release or threatened release of hazardous substances, public health
and safety, or pollution or protection of the environment.
(c) None of the Companies has any Liability (and none of the
Companies, their respective predecessors or Affiliates has handled or disposed
of any substance, arranged for the disposal of any substance, or owned or
operated any property or facility in any manner that could form the basis for
any present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant to any
statute) against any Company giving rise to any Liability) for damage to any
site, location, or body of water (surface or subsurface) or for illness or
personal injury.
(d) None of the Companies has any Liability (and there is no
basis for any present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or
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demand against any Company giving rise to any Liability) under the Occupational
Safety and Health Act, as amended, or any other law (or rule or regulation
thereunder) of any federal, state, local, or foreign government (or agency
thereof) concerning employee health and safety.
(e) Each Company has obtained and been in compliance with all
of the terms and conditions of all Permits and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all federal, state, local, and foreign laws
(including rules, regulations, codes, plans, judgments, orders, decrees,
stipulations, injunctions, and charges thereunder) relating to public health
and safety, worker health and safety, and pollution or protection of the
environment, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes.
(f) All properties and equipment used in the business of any
Company have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2 trans-dichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances, within the meaning of Section 302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
(g) No pollutant, contaminant, or chemical, industrial,
hazardous, or toxic material or waste ever has been buried, stored, spilled,
leaked, discharged, emitted, or released on any real property that any Company
owns or ever has owned or that any Company leases or ever has leased.
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3.27 Accounts Receivable, etc. The accounts receivable, and amounts
due from factors, of each Company, all of which are appropriately reflected in
each Company's books and records, including the Financial Statements, as
appropriate, arose in the ordinary course of business, are (i) good, current
and collectible at the aggregate recorded amounts thereof, within the period
and to the extent described in Schedule 3.27 hereto; and (ii) not subject to
any counterclaims or setoffs. Schedule 3.27 hereto accurately sets forth the
aging of each Company's accounts receivable as of August 31, 1996.
3.28 Suppliers and Customers. (a) Schedule 3.28(a) hereto sets forth a
list of the twenty largest customers and the twenty largest suppliers of the
Companies by dollar volume of revenues for the fiscal years ended August 31,
1995 and 1996. Since August 31, 1995, there has not been any material adverse
change in the business relationship of any Company with respect to any such
customer or supplier.
(b) Schedule 3.28(b) hereto sets forth a true and complete
list of all suppliers and customers of the Companies. Except as set forth on
Schedule 3.28(a), no single supplier or customer is of material importance to
any Company. The relationships of each of the Companies with its suppliers and
customers are good commercial working relationships and no such supplier or
customer has cancelled or otherwise terminated, or threatened in writing to
cancel or otherwise terminate, its relationship with any Company or has during
the last 12 months decreased materially, or threatened to decrease or limit
materially, its services, supplies or materials to any Company or its usage of
any Company's services or products, as the case may be. None of the Companies
has any notice that any such supplier or customer intends to cancel or
otherwise modify its relationship with any Company or to decrease materially or
limit its services, supplies or materials to any Company or its usage of the
services or products of any
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Company, and the consummation of the transactions contemplated hereby will not,
to the best knowledge and belief of Seller, adversely affect the relationship
of any Company with any such supplier or customer.
3.29 Open Orders. Schedule 3.29 hereto sets forth all open orders for
the sale of merchandise. Following shipment and invoicing of goods subject to
such orders, Buyer will have the legal, valid, binding and enforceable right to
collect from its customers the aggregate amount invoiced pursuant to such
orders. There is no merchandise in the hands of any customers of any Company
under an understanding that such merchandise would be returnable.
3.30 Bank Accounts; Deposits. (a) Schedule 3.30(a) sets forth the
names and locations of all banks or other financial institutions in which the
Company has accounts or safe deposit boxes, the numbers and descriptions of
such accounts or safe deposit boxes and the names of all persons authorized to
draw thereon or to have access thereto.
(b) Schedule 3.30(b) hereto sets forth a true, correct and
complete list of all advance payments, security deposits, letters of credit,
prepaid expense items and credits of any Company as of August 31, 1996, except
for those that do not exceed $5,000 individually or $10,000 in the aggregate,
and there have been no changes to such items between such date and the Closing
Date, other than in the ordinary course of business. Schedule 3.30(b) hereto
also sets forth the name, telephone number and address of a responsible person
at each vendor or supplier which is the beneficiary of any such bond or letter
of credit.
3.31 Investment. The acquisition of the Parent Shares by Seller is
being made for investment purposes only and not with a view toward resale or
distribution thereof.
3.32 No Dividends, etc. Except as set forth on Schedule 3.32 hereto,
since August 31, 1995, none of the Companies has made any dividend or
distribution, bonus payment or payment
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outside of the ordinary course of business to, or for the benefit of, Seller or
any other Affiliate or Related Party.
4. Representations and Warranties of Buyer. Buyer represents and
warrants to, and covenants and agrees with, Seller as follows:
4.1 Organization and Authority. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the full corporate power and authority to enter into and to perform
this Agreement. Buyer is an indirect, wholly-owned subsidiary of Donnkenny,
Inc. and is the principal operating subsidiary of Donnkenny, Inc.
4.2 Authorization of Agreement. The execution, delivery and
performance of this Agreement by Buyer and the consummation by Buyer of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action by or on behalf of Buyer, and no other corporate, stockholder
or other proceedings by or on behalf of Buyer is necessary to authorize the
execution, delivery or performance of this Agreement or the performance of the
transactions contemplated hereby. This Agreement constitutes, and each document
and instrument contemplated by this Agreement to be executed by Buyer, when
executed and delivered in accordance with the provisions hereof shall be, the
valid and legally binding obligations of Buyer, enforceable against Buyer in
accordance with its terms.
4.3 Freedom to Contract. The execution, delivery and performance of
this Agreement by Buyer and the consummation by Buyer of the transactions
contemplated hereby will not: (a) violate or conflict with any provision of the
certificate of incorporation or by-laws of Buyer or any amendments thereto or
restatements thereof; (b) to the best of Buyer's knowledge and belief, violate
any of the terms, conditions or provisions of any law, rule, statute
regulation,
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order, writ, injunction, judgment or decree of any court, governmental
authority or regulatory agency; or (c) conflict with or result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, indenture, debenture, security agreement, trust agreement, lien,
mortgage, lease, agreement, license, franchise, permit, guaranty, joint venture
agreement or other agreement, instrument or obligation, oral or written, to
which Buyer is a party (whether as an original party or as an assignee or
successor) or by which Buyer or any of its properties is bound. No governmental
authorization, approval, order, license, permit, franchise or consent, and no
registration, declaration or filing with any court, governmental department,
commission, authority, board, bureau, agency or other instrumentality, is
required in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by
Buyer.
4.4 Brokers. Buyer has not, directly or indirectly, employed or
utilized the services of any investment banker, broker, finder, consultant or
other intermediary in connection with this Agreement or the transactions
contemplated hereby for which Seller will incur any liability. Buyer will pay
$100,000 of the compensation due Sales and Design Corp. of America.
4.5 Parent Shares. The Parent Shares have been duly and validly
authorized, and when issued to Seller in accordance with the terms hereof,
shall be fully paid and nonassessable, with no liability attaching to the
ownership thereof, and free from any Liens of every kind and nature whatsoever,
other than any Liens created by Seller.
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5. Indemnification.
5.1 Indemnification by Seller.
Seller shall indemnify and hold Buyer and its Affiliates,
directors, officers, employees, agents, consultants, representatives,
shareholders, successors and permitted assigns hereunder harmless against and
in respect of any and all damages, losses, claims, actions, suits, proceedings,
demands, assessments, judgments, penalties, liabilities, costs and expenses
(including all fines, interest, legal fees and expenses and amounts paid in
settlement) (collectively, "Losses"), that are sustained or incurred by any of
them and arise from or relate to any of the following (each of which shall be a
separate and distinct indemnity obligation): (i) any actual or alleged
misrepresentation or breach of any warranty of Seller set forth herein; and
(ii) the non-fulfillment of any covenant or agreement to be performed on the
part of Seller hereunder; provided that no claim for indemnification shall be
made under this Section 5.1 and Section 5.3 hereof until the aggregate amount
of claims for indemnification under this Section 5.1 and/or Section 5.3 hereof
exceeds $50,000; thereafter all claims in excess of such $50,000 may be
asserted.
5.2 Indemnification by Buyer. Buyer shall indemnify and hold Seller
and its Affiliates, heirs, devisees, personal representatives and permitted
assigns hereunder harmless against and in respect of any and all Losses that
are sustained or incurred by them and arise from or relate to any of the
following (each of which shall be a separate and distinct indemnity
obligation): (i) any actual or alleged misrepresentation or breach of any
warranty of Buyer herein; and (ii) the nonfulfillment of any covenant or
agreement to be performed on the part of Buyer hereunder.
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5.3 Tax Indemnification and Other Tax Matters. (a) Seller shall
indemnify and hold harmless Buyer and each other party required to be
indemnified pursuant to Section 5.1 hereof from and against any and all Taxes
(i) with respect to all periods ending on or prior to the Closing Date; and
(ii) with respect to any period beginning before the Closing Date and ending
after the Closing Date, but only with respect to the portion of such period up
to and including the Closing Date (such portion shall be referred to herein as
the "Pre-Closing Partial Period" and the portion of such period after the
Closing Date shall be referred to herein as the "Post-Closing Partial Period").
Notwithstanding the foregoing, Seller shall not be required to indemnify the
Purchaser for Taxes to the extent of the reserves set forth on the books and
records of the Companies are of August 31, 1996.
(b) Any Taxes for a period including a Pre-Closing Partial
Period and a Post- Closing Partial Period shall be apportioned between such
Pre-Closing Partial Period and such Post-Closing Partial Period, based, in the
case of real and personal property Taxes, on a per diem basis and, in the case
of other Taxes, on the actual activities, taxable income or taxable loss of the
Company during such Pre-Closing Partial Period and Post-Closing Partial Period.
(c) Each Company shall prepare and file all returns in
respect of Taxes, for periods ending prior to or on the Closing Date (if the
return is not filed before the Closing Date). Promptly after Buyer acquires
actual knowledge of an amount of any Taxes payable by any Company with respect
to any period ending on or before the Closing Date or a Pre-Closing Partial
Period (except to the extent accrued on the books and records of the Companies
prior to the Closing Date), Buyer shall give notice thereof to Seller. Seller
shall pay the amount of such Taxes to Buyer within 30 days after the receipt of
such notice. Seller and Buyer agree to give prompt notice to each other of any
proposed adjustment to Taxes for periods ending on or prior to the Closing Date
or any Pre-Closing Partial Period.
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5.4 Survival; Period of Indemnity. The representations, warranties,
covenants and agreements of the parties contained in this Agreement, including
the indemnification obligations, shall survive for a period of three years
following the Closing; provided that the representations, warranties, covenants
and agreements relating to Tax matters (including, without limitation, the
provisions of Section 5.3) shall survive for ninety (90) days following the
expiration of relevant statute of limitations with respect to any claims that
could be asserted by any taxing authority. If any claim for indemnification has
been asserted but not fully determined at a time when such indemnification
would otherwise be time-barred, the period for indemnification in respect of
such claim shall be extended until it is finally determined.
5.5 Notice to the Indemnitor. Promptly after the assertion of any
claim by a third party or occurrence of any event which may give rise to a
claim for indemnification from an indemnitor (the "Indemnitor") under this
Section, an indemnified party (the "Indemnified Party") shall notify the
Indemnitor in writing of such claim and, with respect to claims by third
parties, advise the Indemnitor whether the Indemnified Party intends to contest
same.
5.6 Rights of Parties to Settle or Defend. If the Indemnified Party
determines not to contest such claim, the Indemnitor shall have the right, at
its own expense, to contest and defend against such claim. If the Indemnified
Party determines to contest such claim, the Indemnitor shall have the right to
be represented, at its own expense by its own counsel and accountants, their
participation to be subject to the reasonable direction of the Indemnified
Party. In either case, the Indemnified Party shall make available to the
Indemnitor and its attorneys and accountants, at all reasonable times during
normal business hours, all books, records, and other documents in its
possession relating to such claim. The party contesting any such claim shall be
furnished all reasonable assistance in connection therewith by the other party.
If the
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Indemnitor fails to undertake the defense of or settle or pay any third party
claim within ten days after the Indemnified Party has given written notice to
the Indemnitor advising that the Indemnified Party does not intend to contest
such claim, or if the Indemnitor, after having given such notification to the
Indemnified Party, fails forthwith to defend, settle or pay such claim, then
the Indemnified Party may take any and all necessary action to dispose of such
claim including, without limitation, the settlement or full payment thereof
upon such terms as it shall deem appropriate, in its sole discretion, subject
to the following with respect to any proposed settlement thereof.
5.7 Settlement Proposals. (a) In the event the Indemnified Party
desires to settle any such third-party claim (whether or not contested by the
Indemnitor), the Indemnified Party shall advise the Indemnitor in writing of
the amount it proposes to pay in settlement thereof (the "Proposed
Settlement"). If such Proposed Settlement is unsatisfactory to the Indemnitor,
it shall have the right, at its expense, to contest such claim by giving
written notice of such election to the Indemnified Party within ten days after
the Indemnitor's receipt of the advice of the Proposed Settlement. If the
Indemnitor does not deliver such written notice within ten days after receipt
of such advice, the Indemnified Party may offer the Proposed Settlement to the
third party making such claim. If the Proposed Settlement is not accepted by
the party making such claim, any new Proposed Settlement figure which the
Indemnified Party may wish to present to the party making such claim shall
first be presented to the Indemnitor who shall have the right, subject to the
conditions hereinabove set forth in this Section, to contest such claim. In all
such events, the Indemnitor shall indemnify the Indemnified Party and hold it
harmless against and from any and all costs of defense, payment of settlement,
including reasonable attorneys' fees and expenses, incurred in connection
therewith.
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(b) The Indemnitor may settle any third-party claim only if
it has agreed to contest the claim in accordance with Section 5.7(a) above. If
any Indemnitor desires to settle any third-party claim, the Indemnitor shall
not, without the Indemnified Party's prior written consent, (i) settle or
compromise such proceeding, claim or demand, or consent to the entry of any
judgment which does not include as an unconditional term thereof the delivery
by the claimant or plaintiff to the Indemnified Party of a written release from
all liability in respect of such proceeding, claim or demand; or (ii) settle or
compromise any such proceeding, claim or demand, in any manner that may
adversely affect the Indemnified Party other than as a result of money damages
or other money payments which are fully indemnified against by the Indemnitor.
5.8 Reimbursement. At the time that the Indemnified Party shall suffer
a loss because of a breach of warranty, representation or covenant by the
Indemnitor or at the time the amount of any liability on the part of the
Indemnitor under this Section is determined (which in the case of payments to
third persons shall be the earlier of (i) the date of such payments or (ii) the
date that a court of competent jurisdiction shall enter a final judgment, order
or decree (after exhaustion of appeal rights establishing such liability), the
Indemnitor shall forthwith, upon notice from the Indemnified Party, pay to the
Indemnified Party the amount of the indemnity claim; provided, that if Buyer
(or any other party required to be indemnified pursuant to Section 5.1 or 5.3)
is the Indemnified Party, the Buyer may, in its sole discretion and without
limitation as to its other rights under this Agreement, elect to offset any
such amount against the amount, if any, of the then unpaid Holdback Share
Consideration. If any amount due pursuant to the preceding sentence is not paid
forthwith, the Indemnified Party may, at its option, take legal action against
the Indemnitor for reimbursement in the amount of its
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indemnity claim. For purposes hereof the indemnity claim shall include the
amounts so paid (or determined to be owing) by the Indemnified Party together
with costs and reasonable attorney's fees and interest on the foregoing items
at the rate of 6% per annum from the date the indemnity claim is due from the
Indemnified Party to the Indemnitor, as hereinabove provided, until the
indemnity claim shall be paid.
5.9 Characterization as Price Adjustment. The parties agree that any
payment made under this Section 10 shall be treated by such parties as an
adjustment to the Purchase Price.
5.10 Expenses; Transfer Taxes. Seller and Buyer shall, except as
otherwise specifically provided herein, bear their respective expenses incurred
in connection with the preparation, execution and performance of this Agreement
and the transactions contemplated hereby, including, without limitation, all
fees and expenses of agents, representatives, counsel and accountants. All
sales, transfer or other similar Taxes or charges incurred in connection with
the purchase and sale of the Seller Shares shall be borne by Seller.
6. Miscellaneous.
6.1 Release by Seller. Effective immediately after the Closing, Seller
fully and unconditionally releases and discharges all claims and causes of
action which he or his heirs, devisees, personal representatives, or assigns
ever had, now have, or hereafter may have against Buyer and any Company arising
out of any facts or circumstances existing prior to the Closing, and, when
acting as such, their respective officers, directors, employees, counsel,
agents, and stockholders, in each case past, present, or as they may exist at
any time after the date of this Agreement, and each person, if any, who
controls, controlled, or will control any of them within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act, except
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claims and causes of action arising out of, based upon, or in connection with
this Agreement or the Employment Agreement.
6.2 Affiliate Obligations. From and after the Closing, Seller shall
use his best efforts to obtain the release or discharge prior to January 13,
1997, at no cost to Buyer or the Companies, of any and all Liabilities of any
Company to any Affiliates or Related Parties (collectively, "Affiliate
Liabilities"). If any Affiliate Liabilities have not been so released or
discharged on or prior to January 13, 1997, the principal amount of the Note
shall be reduced by, and Buyer shall deposit in an escrow account to be
maintained by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, pursuant to an
Escrow Agreement of even date herewith, an amount of funds equal to the
aggregate amount of such Affiliate Liabilities. Interest in respect of any such
escrowed principal amount shall be payable in accordance with such Escrow
Agreement. For purposes of such escrow, any unliquidated or contingent
Affiliate Liabilities shall be deemed to be in an amount equal to the maximum
amount of such Affiliate Liabilities upon such liquidation or the happening of
any such contingency. Such escrowed funds shall be applied to pay or discharge
any and all such Affiliate Liabilities, and any such funds deposited in escrow
in respect of any Affiliate Liability shall be released to Seller from time to
time upon the release of such Affiliate Liability in accordance with the terms
of the Escrow Agreement. In addition, Seller shall use its best efforts on
behalf of Fashion as promptly as practicable following the Closing Date, to buy
out the partners to the partnership related to the menswear operations of
Fashion or to sell the assets owned by the partnership to such other partners
upon terms that are commercially reasonable to Fashion.
6.3 Lonestar Shares. Buyer and Seller agree that all of the shares of
stock of Lonestar, duly endorsed for transfer or with stock powers attached
(collectively, the "Lonestar Shares")
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shall be held in escrow by Seller from the Closing Date until January 13, 1997.
If, on such date, Buyer is satisfied that each of the following conditions have
been met as to Lonestar: (i) each of the representations and warranties
contained herein as to Lonestar is true and correct in all material respects as
of the date hereof and as of such date; (ii) there is no action, suit, inquiry,
litigation, proceeding or investigation by or before any referee, mediator or
arbitrator, or any court or governmental or other regulatory or administrative
agency or commission, pending or threatened against or in respect of Lonestar;
(iii) the shares of capital stock of Lonestar shall be wholly owned by Weiss or
his spouse; and (iv) there has been no Material Adverse Charge with respect to
Lonestar since the Closing Date, then the Lonestar Shares shall be released
from escrow to Buyer upon such date. If Buyer determines in good faith that
such conditions have been met and so notifies Seller, then the Lonestar Shares
shall not be transferred to Buyer, the principal amount of the Note shall be
reduced by an amount (the "Lonestar Reduction") equal to the lesser of (A)
$500,000 and (B) the cost to the Companies of acquiring, constructing,
equipping and furnishing facilities substantially comparable to Lonestar's
current facilities. No interest shall be payable to Seller in respect of the
Lonestar Reduction. From and after the Closing Date, Seller shall use its best
efforts to satisfy the conditions set forth in the second sentence of this
Section 6.3.
6.4 Further Assurances.
(a) From and after the Closing, Seller and Buyer agree to
execute and deliver such further documents and instruments and to do such other
acts and things as Buyer or Seller, as the case may be, may reasonably request
in order to effectuate the transactions contemplated by this Agreement. Subject
to Section 5, in the event any party shall be involved in litigation,
threatened litigation or government inquiries with respect to a matter
involving (i) any
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<PAGE>
transaction contemplated under this Agreement; or (ii) any fact, situation,
circumstance, activity, practice, plan, occurrence, event, incident, action,
failure to act or transaction involving any Company, including, without
limitation, any Tax audit, the other parties shall also make available to such
party, at reasonable times and subject to the reasonable requirements of its or
his own business, such of its or his information as may be relevant to such
matter; provided the party requesting such information shall reimburse the
providing party for its or his reasonable costs for employee time incurred in
connection therewith if more than one business day is required. Following the
Closing, the parties will cooperate with each other and their respective
counsel in connection with Tax audits and in the defense of any legal
proceedings, and each party shall provide such testimony and access to its
books and records to the party involved in any such audit or proceedings as may
be necessary in connection with the contest or defense, consistent with the
other provisions for defense of claims provided in Section 10, to the extent
such cooperation does not cause unreasonable expense, unless such expense is
borne by the requesting party.
(b) Buyer intends to engage Mahoney, Cohen, Rashba & Pokart
to audit the financial statements of the Companies as of the Closing Date.
Seller shall cooperate with Buyer, as may be necessary or appropriate, in
connection with such audit.
6.5 Notices of Certain Events. Following the Closing, the Seller shall
promptly notify Buyer of:
(a) any notice or other communication of which Seller has
knowledge from any person alleging that the consent of such person is or may be
required in connection with the transactions contemplated by this Agreement;
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<PAGE>
(b) any notice or other communication of which Seller has
knowledge from any governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement;
(c) any actions, suits, charges, complaints, claims,
investigations or proceedings commenced or, to the Seller's best knowledge and
belief, threatened against, relating to, involving or otherwise affecting, any
Company, its properties or assets which, if pending on the date of this
Agreement, would have been required to be disclosed pursuant to Section 3
hereof or which relates to the consummation of the transactions contemplated by
this Agreement;
(d) any Material Adverse Change or any event that would
materially impair Seller's ability to perform its obligations under this
Agreement;
(e) any notice of termination, voiding or reduction of any
insurance policy, of any Company, or any written notice regarding any material
insurance claim; or
(f) any information concerning any event subsequent to the
date of this Agreement which is necessary to supplement the information
contained in or made a part of the representatives and warranties contained
herein, including the Schedules hereto, or delivered by Seller or any Company
pursuant to any of the covenants contained herein, it being understood and
agreed that the delivery of such information shall not in any manner constitute
a modification of the representations, warranties and covenants originally made
hereunder.
6.6 Consent to Jurisdiction and Service of Process. Any legal action,
suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby may be instituted in any state or federal
court location in New York County, State of New York, and each party agrees not
to assert, by way of motion, as a defense, or otherwise, in any such
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<PAGE>
action, suit or proceeding, any claim that it is not subject personally to the
jurisdiction of such courts, that its property is exempt or immune from
attachment or execution, that the action, suit or proceeding is brought in an
inconvenient forum, that the venue of the action, suit or proceeding is
improper or that this Agreement or the subject matter hereof may not be
enforced in or by such court, and hereby waives any offsets or counterclaims in
any such action, suit or proceeding. Each party further irrevocably submits to
the jurisdiction of any such court in any such action, suit or proceeding. Any
and all service of process and any other notice in any such action, suit or
proceeding shall be effective against any party if given personally or by
registered or certified mail, return receipt requested, or by any other means
of mail that requires a signed receipt, postage prepaid, mailed to such party
as herein provided, or by personal service on such party with a copy of such
process mailed to such party by first class mail or registered or certified
mail, return receipt requested, postage prepaid. Nothing herein contained shall
be deemed to affect the right of any party to serve process in any manner
permitted by law or to commence legal proceedings or otherwise proceed against
any other party in any jurisdiction other than New York.
6.7 Entire Agreement. This Agreement (together with the Schedules and
Exhibits hereto) contains, and is intended as, a complete statement of all of
the terms of the arrangements between the parties with respect to the matters
provided for, and supersedes any previous agreements and understandings between
the parties with respect to those matters.
6.8 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with the laws of the State of New York, without
regard to its principles of conflicts of law.
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<PAGE>
6.9 Headings. The section headings of this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
6.10 Notices. All notices and other communications under this
Agreement shall be in writing and shall be either delivered personally, mailed
by certified mail, return receipt requested, sent by recognized overnight
delivery service or, to the extent receipt is confirmed, by telecopy, telefax,
or other electronic transmission service to the parties at the following
addresses (or to such other address as a party may have specified by notice
given to the other party pursuant to this provision). Notice shall be deemed
given upon receipt.:
If to Seller, to:
Mel Weiss
c/o Fashion Avenue Knits, Inc.
1710 Flushing Avenue
Ridgewood, New York 11385
Telecopy No.: (718) 456-9001
Confirmation No.: (718) 456-9000
with a copy to:
Silverberg Stonehill & Goldsmith, P.C.
11 West 40th Street
New York, New York 10018
Attention: Sheldon Silverberg, Esq.
Telecopy No.: (212) 391-4556
Confirmation No.: (212) 730-1900
If to Buyer, to:
Donnkenny Apparel, Inc.
1411 Broadway
New York, New York 10018
Attention: Richard Rubin
Telecopy No.: (212) 768-3974
Confirmation No.: (212) 730-7770
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<PAGE>
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Telecopy No.: (212) 697-6686
Confirmation No.: (212) 661-6500
6.11 Separability. If at any time any of the covenants or the
provisions contained herein shall be deemed invalid or unenforceable by the
laws of the jurisdiction wherein it is to be enforced or for any reason, such
covenants or provisions in such jurisdiction shall be considered divisible as
to such portion and such covenants or provisions shall become and be
immediately amended and reformed to include only such covenants or provisions
as are enforceable by the court or other body having jurisdiction of this
Agreement in such jurisdiction and the parties agree that such covenants or
provisions, as so amended and reformed, shall be valid and binding in such
jurisdiction as though the invalid or unenforceable portion had not been
included herein.
6.12 Amendment; Waiver. No provision of this Agreement may be amended
or modified except by an instrument or instruments in writing signed by the
parties hereto. Any party may waive compliance by another with any of the
provisions of this Agreement. No waiver of any provision hereof shall be
construed as a waiver of any other provision. Any waiver must be in writing.
6.13 Publicity. Seller and its Affiliates shall not issue any press
release or public announcement of any kind concerning the transactions
contemplated by this Agreement without the prior written consent Buyer.
6.14 Assignment and Binding Effect. None of the parties hereto may
assign any of its or his rights or delegate any of its or his duties under this
Agreement without the prior
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<PAGE>
written consent of the others; provided, that Buyer may assign any of its
rights or delegate any of its duties (other than those relating to the issuance
and registration of the Parent Shares) to any entity controlled by Buyer or to
Donnkenny, Inc. All of the terms and provisions of this Agreement shall be
binding on, and shall inure to the benefit of, the respective successors and
permitted assigns of the parties.
6.15 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective successors and assigns and they shall not
be construed as conferring and are not intended to confer any rights on any
other persons.
6.16 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and each party thereto
may become a party hereto by executing a counterpart hereof. This Agreement and
any counterpart so executed shall be deemed to be one and the same instrument.
6.17 Interpretation. Article titles, headings to sections and any
table of contents are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation hereof. The
Schedules and Exhibits referred to herein shall be construed with and as an
integral part of this Agreement to the same extent as if they were set forth
verbatim herein. The specification of any dollar amount in the representations
and warranties contained in this Agreement or the inclusion of any specific
item in any Schedule hereto is not intended to imply that such amounts or
higher or lower amounts, or the items so included or other items, are or are
not material, and no party hereto shall use the fact of the setting of such
amounts or the inclusion of any such item in any dispute or controversy between
the parties as to whether any obligation, item or matter not described herein
or included in a
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<PAGE>
Schedule is or is not material for purposes hereof. All references to the
"knowledge" of any party shall mean actual knowledge following due inquiry and
investigation. As used herein, "include", "includes" and "including" are deemed
to be followed by "without limitation" whether or not they are in fact followed
by such words or words of like import; "writing", "written" and comparable
terms refer to printing, typing, lithography and other means of reproducing
words in a visible form; references to a person are also to its successors and
assigns; except as the context may otherwise require, "hereof", "herein",
"hereunder" and comparable terms refer to the entirety hereof and not to any
particular article, section or other subdivision hereof or attachment hereto;
references to any gender include the other; except as the context may otherwise
require, the singular includes the plural and vice versa; references to any
agreement or other document are to such agreement or document as amended and
supplemented from time to time; references to "Article", "Section" or another
subdivision or to an "Exhibit" or "Schedule" are to an article, section or
subdivision hereof or an "Exhibit" or "Schedule" hereto; and references to
"generally accepted accounting principles" shall mean generally accepted
accounting principles in the United States. Information disclosed in any
Schedule to this Agreement shall be deemed disclosed in any other Schedule in
which such information is required to be disclosed.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
/s/ Mel Weiss
-------------------------------
Mel Weiss
DONNKENNY APPAREL, INC.
By: /s/ Richard Rubin
----------------------------
Name: Richard Rubin
Title: President and Chief Executive Officer
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PROMISSORY NOTE
$8,000,000.00 As of September 3, 1996
FOR VALUE RECEIVED, DONNKENNY APPAREL, INC., a Delaware corporation
with an address at 1411 Broadway, New York, New York 10018 ("Maker"), hereby
promises to pay to the order of Mel Weiss ("Holder"), on January 13, 1996 (the
"Maturity Date"), at such place as Holder may direct, in lawful money of the
United States, the principal amount of EIGHT MILLION DOLLARS ($8,000,000.00),
which principal amount shall be subject to reduction in accordance with
paragraph 1 below, with interest payable on such principal amount at the rate
of six percent (6%) per annum.
This Note is being issued pursuant to the Stock Purchase Agreement of
even date between Maker and Holder. Capitalized Terms used herein but not
defined herein shall have the respective meanings set forth in the Stock
Purchase Agreement.
1. The principal amount of this Note shall be reduced on the Maturity
date in the amount, if any (the "Reduction Amount"), equal to the sum of (i)
any and all Affiliate Liabilities that have not been released or discharged at
no cost to Maker or the Companies on or prior to such date; and (ii) the
Lonestar Reduction, if the Lonestar Shares have not been purchased by Maker on
or prior to such date. No interest shall be payable on the Reduction Amount.
Additionally the principal amount of this Note shall be reduced by the amount
listed on the books of the Companies which are the subject of the Stock
Purchase Agreement as owing to Holder or his family as of August 31, 1996 and
which are not paid prior to the Maturity Date, with such reduction taking
effect when determined.
2. In the event this Note is not timely paid in full, or in the event
the Maker shall become insolvent or become unable to pay its debts as they
mature, or shall file, or have filed against it, a petition in bankruptcy, then
the outstanding balance then due hereunder (including principal and accrued
interest) shall accelerate and become immediately due and payable, and shall
thereafter accrue interest at the rate of twelve (12%) percent per annum,
payable on demand.
3. Maker waives presentment, demand for payment, protest,
notice of protest, notice of dishonor and all other notices under
this Note.
4. This Note may not be assigned by Maker or Holder.
<PAGE>
5. This Note shall be governed by the laws of the State of New York,
without regard to its principles of conflicts of laws. This Note supersedes all
prior agreements and understandings between the parties with respect to the
subject matter hereof. This Note may not be changed or terminated orally. No
modification, termination or attempted waiver of any of the provisions of this
Note shall be valid unless in a writing signed by the party against whom the
same is sought to be enforced. In the event of a conflict between the terms of
this Note and the terms of the Stock Purchase Agreement, the terms of the Stock
Purchase Agreement shall govern.
[The balance of this page has been intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note as of the date
written above.
DONNKENNY APPAREL, INC.
By: /s/ Richard Rubin
----------------------------------
Name: Richard Rubin
Title: President and Chief Executive
Officer
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EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of September 3, 1996 between
Donnkenny Apparel Inc., a Delaware corporation (the "Company"), and Mel Weiss
("Employee").
W I T N E S E T H :
WHEREAS, pursuant to a Stock Purchase Agreement of even date herewith
(the "Stock Purchase Agreement"), Employee is selling to the Company all of the
outstanding shares of capital stock (the "Seller Shares") of Fashion Avenue
Knits, Inc. ("Fashion"), The Sweater Company, Inc., Lonestar Sportswear Co.,
Inc. and Sitazi, Ltd. (Fashion and such other corporations (and any other
subsidiaries or affiliates thereof sold to the Company) are collectively
referred to herein as the "Fashion Companies"); and
WHEREAS, Employee is currently employed by Fashion and has confidential
knowledge of the business and affairs of the Fashion Companies; and
WHEREAS, pursuant to the terms of the Stock Purchase Agreement, the
execution and delivery of this Employment Agreement by Employee is a condition
precedent to the obligation of the Company to acquire the Seller Shares; and
WHEREAS, the Company desires to enter into this Employment Agreement
with Employee, and Employee desires to be employed by the Company on the terms
and conditions set forth in this 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
<PAGE>
Company, or any subsidiary or affiliate of the Company as the Company shall
from time to time select in accordance with Paragraph 2 hereof, for an
employment term commencing as of September 3, 1996 and terminating at the end
of the Company's fiscal year in November 1999 (the "Initial Term"); provided
that, the Company may elect, by notice to Employee at least ninety (90) days
prior to the expiration of the Initial Term, to extend this Agreement for an
additional two-year term terminating at the end of the Company's fiscal year in
November 2001 (the "Renewal Term"). The Initial Term (and the Renewal Term, if
applicable) or such shorter period as may be contemplated by this Employment
Agreement during which Employee shall be employed pursuant to this Employment
Agreement is hereinafter called the "Term of Employment."
2. Scope of Employment. During the Term of Employment, Employee shall
be employed as the President of Fashion or any subsidiary, affiliate or
division of the Company that is a direct or indirect successor to the business
of the Fashion Companies. In addition, Employee shall well and faithfully
render and perform such other reasonable executive and managerial services
commensurate with his position as may be assigned to him, from time to time, by
or under the sole authority of the Board of Directors and Richard Rubin or his
successor as the President of the Company. Employee will devote his full
working time and efforts to the business and affairs of the Company, as now or
hereafter conducted, and shall be at all times subject solely to the direction
and control of the Board of Directors and Richard Rubin or his successor as the
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
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<PAGE>
Company. Notwithstanding the foregoing, Employee may continue the business of
American Fashion Design as currently conducted; provided that Employee does not
devote any significant time to such activities and that such activities do not
conflict with or impede the performance by Employee of his obligations
hereunder. Employee may also attend six Board meetings of Cyberform in each
calendar year.
3. Location of Employment. Employee shall render his services
primarily within the greater New York City metropolitan area. Notwithstanding
the foregoing, Employee acknowledges and agrees that Employee's duties
hereunder from time to time may include domestic and foreign travel outside
such New York City area as the performance of Employee's duties may require of
a nature as to locations consistent with past practice, but such travel will be
at the Company's expense in accordance with the Company's travel policy.
4. Compensation.
(a) As compensation for all services provided for herein, the
Company will pay, or cause to be paid, to Employee, and Employee will accept, a
salary (the "Salary") during the Term of Employment to be paid in regular
installments in accordance with the Company's usual paying practices, but not
less frequently than monthly, as follows: (i) commencing on the date hereof,
the Salary shall be at the rate of $350,000 per annum; (ii) commencing on
September 1, 1997, the Salary shall be at the rate of $400,000 per annum; (iii)
commencing on September 1, 1998, the Salary shall be at the rate of $450,000
per annum; and (iv) commencing on September 1, 1999, the Salary shall be at the
rate of $500,000 per annum.
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<PAGE>
(b) If for the fiscal year of the Company ending in November
1997 and for each fiscal year thereafter during the Term of Employment, Gross
Profits (as hereinafter defined) equal or exceed the Target Number (as
hereinafter defined), then Employee shall be entitled to a bonus in an amount
equal to Employee's Salary per annum (as in effect prior to September 1 during
such fiscal year), plus an amount equal to 20% of Gross Profits in excess of
the Target Number (the "Bonus"). The Company shall determine the amount of
Gross Profits and any Bonus due Employee, notify Employee of such
determinations, and pay any Bonus within 120 days following the close of any
fiscal year of the Company. If Employee terminates his employment with the
Company or if his employment is terminated by the Company for cause (as
hereinafter defined), no Bonus shall be due or payable to Employee for the
balance of the Term of Employment. If this Employment Agreement is terminated
by reason of death or disability, the Company shall pay to Employee the Bonus
for the fiscal year during which such termination occurs, as determined herein,
prorated by multiplying the Gross Profits for such fiscal year by a fraction,
the numerator of which is the number of days of actual employment pursuant to
this Employment Agreement and the denominator of which is 365, and thereafter
Employee shall not be entitled to receive any Bonus with respect to any
subsequent periods.
(c) The "Target Number" shall be $11,000,000 for the fiscal
year of the Company ending in November 1997, $11,500,000 for the fiscal year of
the Company ending in November 1998, and $12,000,000 for each subsequent year
during the Term of Employment. "Gross Profits" shall mean the net sales minus
cost of sales from the operations of the Fashion Companies for a respective
full fiscal year of the Company, as
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<PAGE>
determined by the Company's internal accounting department in accordance with
the Company's accounting practice on a Company-wide basis.
(d) In addition to the Salary and the Bonus described above,
Employee may be eligible to receive merit or other discretionary bonuses, in
the sole discretion of the Board of Directors of the Company.
(e) The Salary, the Bonus and any other bonuses 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.
(f) (i) In each year during the Term of Employment, at or
about the date of the Annual Meeting of the Company's parent, Donnkenny, Inc.
(the "Parent Company"), which has historically been held in April of each year,
and at the same time as stock options are granted on a Company-wide basis,
Employee shall be granted options to purchase not less than 10,000 shares of
the Common Stock of the Parent Company pursuant to the Parent Company's
Employee Stock Option Plan, as such plan may exist from time to time; provided
that no such grant shall be made at a time when Employee is not an employee of
the Company.
(ii) In addition, Employee shall be granted, within 15 days
following the date hereof, options to purchase 50,000 shares of Common Stock of
the Parent Company, at $17.625 per share. Thirty percent of such shares shall
vest on the last day of the Initial Term and, 35% of such shares shall vest on
the last day of each of the first and second years
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<PAGE>
of the Renewal Term; provided that no shares shall vest on any date on which
Employee is no longer employed by the Company. Vested shares may be exercised
during the Term of Employment and within ninety (90) days following the end of
Employee's employment.
5. Expenses.
(a) Employee shall be entitled to reimbursement by the
Company for all reasonable legitimate business expenses actually incurred by
him on its behalf in the course of his employment by the Company and which have
been submitted in accordance with the rules and regulations promulgated under
the Internal Revenue Code of 1986, as amended, 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.
(b) In addition to the above, the Company shall provide
Employee with two cars and a driver and all expenses related to such cars and
life insurance coverage, all on a basis substantially equivalent to those
provided to Employee by the Fashion Companies.
6. Vacation. Employee shall be entitled to vacations in
accordance with the Company's prevailing policy for its senior 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 the Salary to Employee, or his
legal
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<PAGE>
representatives, 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, Employee's estate shall continue to
receive the Salary 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.
(c) For Cause. In addition to the provisions for the
cancellation and/or termination hereof hereinabove provided, the Company may,
at any time, 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, (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, if 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
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<PAGE>
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 hospitalization plans,
and 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
Fashion or the Company shall include only the Salary payable hereunder.
9. Key-Man Life Insurance . Employee agrees to fully cooperate with
the Company in the Company's obtaining key-man life and stroke or disability
insurance under which the Company shall be the beneficiary. Such cooperation
shall include, but not be limited to, Employee's submitting to insurance health
examinations.
10. Disclosure. Employee will not at any time, directly or
indirectly, disclose or furnish to any other person, firm or corporation:
(a) any information concerning the methods of conducting
or obtaining business, of manufacturing or advertising products, or of obtaining
customers;
(b) any confidential 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
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<PAGE>
(c) any confidential information relating to the products,
designs, styles, processes, discoveries, materials, ideas, creations,
inventions or properties of the Company.
11. Covenants Not to Compete or Solicit. In consideration of the
Company's covenants contained herein and in the Stock Purchase Agreement,
including, in particular, the Company's covenant to pay the Purchase Price (as
defined in the Stock Purchase Agreement), Employee agrees that Employee shall
not, in the United States, directly or indirectly:
(i) during the Term of Employment and for a period of two (2)
years following termination of the Term of Employment, engage or
participate in (whether as employee, lender, investor, shareholder,
consultant or partner or in any other manner or capacity), or lend his
name (or any part or variant thereof) to any business which is, or as
a result of Employee's engagement or participation would become,
competitive with any aspect of the business conducted by the Company
during the Term of Employment;
(ii) during the Term of Employment and for a period of two
(2) years following termination of the Term of Employment, solicit or
otherwise deal in competition with the Company with respect to any
customers doing business with the Company; or
(iii) during the Term of Employment and for a period of three
(3) years following termination of the Term of Employment, employ,
hire, solicit, be associated with or otherwise interfere with or
endeavor to entice away any officer, director, employee or agent of
the Company.
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<PAGE>
Notwithstanding the foregoing, Employee may engage in the activities
described in Paragraph 2 above and the foregoing shall not prohibit Employee
from owning less than 5% of a public company engaged in an activity that would
otherwise be prohibited by this Agreement; provided that such ownership is
solely a passive investment.
Employee shall not at any time, during or after the termination of
this Agreement, engage in any business which uses as its name, in whole or in
part, any name used by the Company or any of its subsidiaries during the Term
of Employment.
12. 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.
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, it is understood that the Company has not waived its rights to
seek any provisional remedies (including, without limitation, injunctive
relief) and damages.
- 10 -
<PAGE>
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 12 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 11 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. All notices and other communications under this Agreement
shall be in writing and shall be either delivered personally, mailed by
certified mail, return receipt
- 11 -
<PAGE>
requested, sent by recognized overnight delivery service or, to the extent
receipt is confirmed, by telecopy, telefax, or other electronic transmission
service to the parties at the following addresses (or to such other address as
a party may have specified by notice given to the other party pursuant to this
provision). Notice shall be deemed given upon receipt.
As to Employee: Mel Weiss
c/o Fashion Avenue Knits
1710 Flushing Avenue
Ridgewood, New York 11385
with a copy to: Silverberg, Stonehill & Goldsmith, P.C.
111 West 40th Street
New York, New York 10018
As to the Company: Donnkenny Apparel, Inc.
1411 Broadway
New York, New York 10018
Attn: Richard Rubin,
President and Chief
Executive Officer
with a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
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. The provisions of this Employment Agreement
- 12 -
<PAGE>
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. Entire Employment Agreement. This instrument 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 instrument in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
21. Applicable Law. This Employment Agreement shall be construed in
accordance with the laws of the State of New York, without regard to its
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
DONNKENNY APPAREL, INC.
By: /s/ Richard Rubin
--------------------------------------------
Richard Rubin, President
and Chief Executive Officer
/s/ Mel Weiss
--------------------------------------------
Mel Weiss
- 13 -
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of September 3, 1996, among Mel
Weiss ("Weiss"), Donnkenny Apparel, Inc., a Delaware corporation ("Donnkenny"),
and Squadron, Ellenoff, Plesent & Sheinfeld, LLP, a New York limited liability
partnership ("Escrow Agent"). This Agreement is being entered into by the
parties pursuant to Section 6.02 of the Stock Purchase Agreement of even date
herewith between Weiss and Donnkenny (the "Stock Purchase Agreement").
1. Escrow
1.1 Appointment and Acknowledgment of Escrow Agent
Weiss and Donnkenny hereby appoint Escrow Agent, and Escrow
Agent hereby agrees to serve, as the Escrow Agent pursuant to the terms of this
Agreement. Donnkenny shall deposit into escrow with Escrow Agent on or before
January 13, 1997 cash in an amount if any, determined in accordance with
Section 6.2 of the Stock Purchase Agreement (the "Escrowed Funds"). If no funds
are to be paid to the Escrow Agent pursuant to said Stock Purchase Agreement by
said date, this Agreement shall thereupon terminate.
1.2 Operation of Escrow
The Escrow Agent shall hold the Escrowed Funds in escrow
pursuant to this Agreement (the "Escrow") in an interest bearing account
approved by Weiss. The Escrow Agent shall (i) release the Escrowed Funds from
the Escrow and (ii) pay such funds to Weiss or
<PAGE>
Donnkenny, as the case may be, from time to time, in whole or in part, within
twenty (20) business days following receipt of a notice from Donnkenny (a
"Payment Notice") that:
(i) a specified amount of the Escrowed Funds that is equal
to the amount placed in the Escrow in respect of any Affiliate Liability (as
defined in the Stock Purchase Agreement) is to be released from the Escrow and
paid to Weiss following the release of such Affiliate Liability; and
(ii) a specified amount of the Escrowed Funds that is equal
to an amount paid or to be paid in respect of any Affiliate Liability is to be
released from the Escrow and paid to Donnkenny to be applied to the payment of
such Affiliate Liability or the reimbursement of Donnkenny for the payment of
such Affiliate Liability.
All payments hereunder shall be made by check payable in
United States Dollars. Interest earned on the Escrow shall be paid to the
parties in proportion to the portion of the Escrowed Funds paid to the parties.
Any Payment Notice shall be furnished to Weiss on or prior to the date of the
furnishing of such Payment Notice to the Escrow Agent. If the Escrow Agent has
not received notice from Weiss or his counsel (a "Dispute Notice") that he
objects to any payment described in any Payment Notice within 15 days following
the Escrow Agent's receipt of such Payment Notice, then the Escrow Agent shall
make the payments described in the Payment Notice. If the Escrow Agent receives
a Dispute Notice within such 15-day period, then any payments that are
disputed, as described in such Dispute Notice, shall not be made by the Escrow
Agent, unless and until the Escrow Agent receives joint instructions from Weiss
and Donnkenny with respect to such payment or until such payment is ordered by
a court pursuant to Section 1.3(b) hereof.
- 2 -
<PAGE>
1.3 Further Provisions Relating to the Escrow
(a) Escrow Agent shall have no duties or responsibilities
except those expressly set forth herein. The Escrow Agent may disregard and
shall not be required to refer to, or examine, any notice, instruction,
instrument or document except as specifically provided herein. The Escrow Agent
may rely upon, and shall be protected in acting or refraining from acting upon,
any written notice furnished to it hereunder and believed by it to be genuine.
Escrow Agent shall not be liable for any mistake of fact or of law or any error
of judgment, or for any act or any omission, except as a result of Escrow
Agent's own willful misconduct or gross negligence.
(b) Weiss and Donnkenny authorize Escrow Agent, if Escrow
Agent is uncertain as to its rights or duties hereunder or is threatened with
litigation or is sued, (i) to refrain from taking any action until it shall be
directed otherwise in a joint written instruction by Weiss and Donnkenny or by
an order of a court of competent jurisdiction, and (ii) to interplead all
interested parties or to initiate any other proceedings with like effect in any
court of competent jurisdiction and to deposit the Escrowed Funds with the
clerk of that court.
(c) Escrow Agent's responsibilities and liabilities hereunder
will terminate upon payment by Escrow Agent of all the Escrowed Funds under
this Agreement.
2. Resignation of the Escrow Agent
The Escrow Agent may resign at any time by giving thirty (30)
days' notice of such resignation to the other parties. Thereafter, the Escrow
Agent shall have no further obligation hereunder except to hold the Escrowed
Funds as depositary. In such event, the Escrow Agent shall not take any action
until the Parties have jointly appointed a successor
- 3 -
<PAGE>
Escrow Agent. On receipt of notice signed by or on behalf of Weiss and
Donnkenny, the Escrow Agent shall promptly turn over the Escrowed Funds to the
successor Escrow Agent. The Escrow Agent shall thereafter have no further
obligations hereunder.
3. Indemnity
Each of Weiss and Donnkenny hereby jointly and severally
agree to indemnify and hold harmless the Escrow Agent from and against any and
all losses, expenses (including, without limitation, reasonable fees and
disbursements of counsel, including fees and disbursements of Escrow Agent in
its capacity as legal counsel to the Escrow Agent), assessments, liabilities,
claims, damages, actions, or other charges incurred by or assessed against it
for anything done or omitted by it in the performance of its duties hereunder,
except as a result of its own willful misconduct or gross negligence. The
agreements contained in this Section 3 shall survive any termination of this
Escrow Agreement or the Escrow Agent's duties hereunder.
4. Miscellaneous
4.1 Modification; Conflicts
This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersedes all existing
agreements among them concerning such subject matter and may be modified only
by a written instrument duly executed by each party.
4.2 Notices
All notices and other communications under this Agreement
shall be in writing and shall be either delivered personally, mailed by
certified mail, return receipt requested, sent by recognized overnight delivery
service or, to the extent receipt is confirmed, by telecopy,
- 4 -
<PAGE>
telefax, or other electronic transmission service to the parties at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision). Notice shall be
deemed given upon receipt.
If to Weiss, to:
Mel Weiss
c/o Fashion Avenue Knits, Inc.
1710 Flushing Avenue
Ridgewood, New York 11385
Telecopy No.: (718) 456-9001
Confirmation No.: (718) 456-9000
with a copy to:
Silverberg Stonehill & Goldsmith, P.C.
11 West 40th Street
New York, New York 10018
Attention: Sheldon Silverberg, Esq.
Telecopy No.: (212) 391-4556
Confirmation No.: (212) 730-1900
If to Donnkenny, to:
Donnkenny Apparel, Inc.
1411 Broadway
New York, New York 10018
Attention: Richard Rubin
Telecopy No.: (212) 768-3974
Confirmation No.: (212) 730-7770
with a copy to
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Telecopy No.: (212) 697-6686
Confirmation No.: (212) 661-6500
- 5 -
<PAGE>
If to Escrow Agent, to
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Telecopy No.: (212) 697-6686
Confirmation No.: (212) 661-6500
4.3 Counterparts; Governing Law
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to its principles of conflicts of laws.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
/s/ Mel Weiss
----------------------------------
Mel Weiss
DONNKENNY APPAREL, INC.
By: /s/ Richard Rubin
-----------------------------
Name: Richard Rubin
Title: President and Chief Executive
Officer
SQUADRON ELLENOFF PLESENT &
SHEINFELD, LLP
By: /s/ Harvey Horowitz
-----------------------------
Name: Harvey Horowitz
Title: Partner
- 7 -
Exhibit 5
THIRD AMENDMENT AGREEMENT
-------------------------
THIRD AMENDMENT AGREEMENT, dated as of September 10, 1996, to the
Credit Agreement, dated as of June 5, 1995 (as the same has been heretofore,
and 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 ("DKA"), and Beldoch Industries Corporation, a
Delaware corporation (collectively with DKA, the "Borrowers"), the Guarantors
named therein and signatories thereto, the lenders named in Schedules 2.01(a)
and (b) to the Credit Agreement (collectively, the "Lenders"), and The Chase
Manhattan Bank (formerly known as 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, DKA desires to acquire all of the outstanding capital stock
of Fashion Avenue Knits Inc., a New York corporation ("Fashion"), The Sweater
Company, Inc., a New York corporation ("Sweater Company"), Sitazi, Ltd., a New
York corporation ("Sitazi"), and Lonestar Sportswear Co., Inc., a New York
corporation ("Lonestar"), pursuant to the Stock Purchase Agreement dated as of
September 3, 1996 among DKA and Mel Weiss (the "Stock Purchase Agreement"); and
WHEREAS, the Borrowers have requested, and the Lenders and Agent have
agreed to, certain amendments in and waivers to 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 Each of Fashion and Sweater Company (collectively, the "New
Guarantors") shall be added to the Credit Agreement as a "Guarantor" as such
term is defined in the Credit Agreement. Each of the New Guarantors, by its
execution and delivery of this Amendment Agreement (this "Agreement"), agrees
to be bound by all of the terms and provisions of the Credit Agreement
applicable to Guarantors.
1.2 Schedule 4.01 to the Credit Agreement is hereby amended and
restated in its entirety to read as Schedule 4.01 annexed hereto.
1.3 Schedule 4.15 to the Credit Agreement is hereby amended and
restated in its entirety to read as Schedule 4.15 annexed hereto.
1.4. Schedule 7.01(f) to the Credit Agreement is hereby amended by
adding the information set forth on the supplement to Schedule 7.01 annexed
hereto.
<PAGE>
1.5 Schedule 7.03 to the Credit Agreement is hereby amended and
restated in its entirety to read as Schedule 7.03 annexed hereto.
1.6 Section 7.04 of the Credit Agreement is hereby amended by deleting
the period at the end thereof and adding the following:
", except as set forth on Schedule 7.04 annexed hereto."
1.7 A new Schedule 7.04, which reads as Schedule 7.04 annexed hereto,
is hereby added to and made a part of the Credit Agreement.
1.8 Section 7.05 of the Credit Agreement is hereby amended by deleting
the period at the end thereof and adding the following:
", except as set forth on Schedule 7.05 annexed hereto."
1.9 A new Schedule 7.05, which reads as Schedule 7.05 annexed hereto,
is hereby added to and made a part of the Credit Agreement.
1.10 Section 7.06 of the Credit Agreement is hereby amended as
follows:
(a) by amending and restating clause (f) thereof in its entirety to
read as follows:
"(f) loans and advances to Affiliates (other than the Parent and
other than the subsidiaries listed on Schedule 7.06 annexed
hereto) arising in the ordinary course of business not to exceed
$500,000 in the aggregate at any one time outstanding;";
and
(b) by (i) deleting the word "and" at the end of clause (h) thereof,
(ii) deleting the period at the end of clause (i) thereof and adding a
semicolon followed by the word "and", and (iii) adding a new clause (j) thereof
which reads as follows:
"(j) as set forth on Schedule 7.06 annexed hereto."
1.11 A new Schedule 7.06, which reads as Schedule 7.06 annexed hereto,
is hereby added to and made a part of the Credit Agreement.
1.12 Section 7.14 of the Credit Agreement is hereby amended by (a)
deleting the word "or" on the seventh line immediately before clause (iii)
thereof, (b) deleting the period at the end thereof and adding a comma and the
word "or", and (c) adding a new clause (iv) thereof which reads as follows:
2
<PAGE>
"(iv) as set forth on Schedule 7.14 annexed hereto."
1.13 A new Schedule 7.14, which reads as Schedule 7.14 annexed hereto,
is hereby added to and made a part of the Credit Agreement.
SECTION 2. WAIVER
Notwithstanding Section 6.12 of the Credit Agreement, neither Fashion
nor Sweater Company must pledge, pursuant to the Security Agreement, its
finished inventory and wrapping, packing and shipping materials; provided,
however, that upon the respective terminations of the Factoring Agreement dated
May 18, 1987 between Fashion and Rosenthal & Rosenthal, Inc. and the Factoring
Agreement dated May 12, 1994 between Sweater Company and Rosenthal & Rosenthal,
Inc., each of Fashion and Sweater Company, respectively, shall pledge its
finished inventory and wrapping, packing and shipping materials which are
financed through the issuance of Letters of Credit pursuant to the Security
Agreement.
SECTION 3. CONDITIONS PRECEDENT
Upon the execution and delivery of counterparts of this Agreement by
the parties listed below and, except as specifically provided below, the
fulfillment of the following conditions, this Agreement shall be deemed to have
become effective as of the date hereof:
3.1 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 (except
that for the period through September 20, 1996, only the representations and
warranties set forth in Section 4.3 shall be applicable to the New Guarantors
and thereafter all representations and warranties shall be applicable subject
to such modifications as may be proposed by the Borrowers and agreed to by the
Lenders.).
3.2 No unwaived event shall have occurred and be continuing which
constitutes a Default or an Event of Default.
3.3 No later than October 10, 1996, the Agent and the Lenders shall
have received the favorable written opinion of counsel for each of the New
Guarantors, addressed to the Lenders and satisfactory to the Agent.
3.4 The Agent shall have received (i) a copy of the certificate or
articles of incorporation or constitutive documents of each of the New
Guarantors, certified as of a recent date by the Secretary of State or other
appropriate official of the state of its organization, and a certificate as to
the good standing of each from such Secretary of State or other official, in
each case dated as of a recent date; (ii) a certificate of the Secretary of
each of the New Guarantors certifying as to such person's By-laws, authorizing
resolutions
3
<PAGE>
adopted by such person's Board of Directors, no further amendments to such
person's certificate or articles of incorporation or constitutive documents,
and the incumbency and specimen signature of each of such person's officers
executing this Agreement; (iii) a certificate of another of such person's
officers as to incumbency and signature of its Secretary; and (iv) such other
documents as the Agent or any Lender may reasonably request.
3.5 The fees described in Section 4.8 hereof shall have been paid in
full to the persons entitled thereto in immediately available funds.
SECTION 4. MISCELLANEOUS
4.1 DKA hereby agrees that, if and when its acquisition of all of the
outstanding capital stock of each of Sitazi and Lonestar is confirmed or
consummated pursuant to the Stock Purchase Agreement, it shall cause each of
Sitazi and Lonestar, concurrently therewith, to enter into a Guarantee in form
and substance satisfactory to the Agent and to execute the Security Documents,
as applicable, as a Grantor, and to pledge each of Sitazi's and Lonestar's
accounts receivable and all other assets pursuant to the Security Agreement.
4.2 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, after giving effect to the amendments set forth
in this Agreement, shall be true and correct on the date hereof with the same
force and effect as if made on such date.
4.3 Each of the Borrowers jointly and severally represents and
warrants as of the date hereof as follows:
(a) each of the Borrowers and the New Guarantors has the power, and
has taken all necessary corporate action to authorize it, to execute, deliver
and carry out the terms and provisions of this Agreement; and
(b) this Agreement has been duly executed and delivered and
constitutes the legal, valid and binding obligation of each of the Borrowers
and the New Guarantors, and is enforceable in accordance with its terms.
4.4 The term "Agreement", "hereof", "herein" and similar terms as used
in the Credit Agreement, and references to the Credit Agreement in the other
documents executed and delivered in connection therewith, shall mean and refer
to, from and after the effective date of this Agreement as determined in
accordance with Section 3 hereof, the Credit Agreement as amended by this
Agreement.
4.5 Except as herein expressly amended, the Credit Agreement and the
other documents executed and delivered in connection therewith are each
ratified and
4
<PAGE>
confirmed in all respects and shall remain in full force and effect in
accordance with their respective terms.
4.6 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.
4.7 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.
4.8 The Borrowers shall pay to the Agent for the account of the
Lenders a fee of $50,000, to be distributed to the Lenders in proportion to
their Commitments, with respect to this Agreement.
4.9 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.
5
<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.
DONNKENNY APPAREL, INC.
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
BELDOCH INDUSTRIES CORPORATION
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
FASHION AVENUE KNITS INC.
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
THE SWEATER COMPANY, INC.
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
6
<PAGE>
THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank)
By: /s/ Jay Linde
-----------------------------------
Name: Jay Linde
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Joanne M. Collett
-----------------------------------
Name: Joanne M. Collett
Title: Vice President
7
Exhibit 6
SECOND AMENDMENT AGREEMENT
--------------------------
SECOND AMENDMENT AGREEMENT, dated as of September 10, 1996, to the
Security Agreement, dated as of June 5, 1995 (as the same has been heretofore,
and may be further, amended, supplemented or modified from time to time in
accordance with its terms, the "Security Agreement"), between Donnkenny
Apparel, Inc., a Delaware corporation ("DKA"), Beldoch Industries Corporation,
a Delaware corporation (collectively with DKA, the "Borrowers"), MegaKnits,
Inc., a New York corporation, and The Chase Manhattan Bank (formerly known as
Chemical Bank) as agent (in such capacity, the "Agent") for the lenders (the
"Lenders") named in Schedules 2.01(a) and (b) of the Credit Agreement dated as
of June 5, 1995 (as amended, modified or supplemented from time to time in
accordance with its terms, the "Credit Agreement") among the Borrowers, the
guarantors named therein and signatory thereto, the Lenders and the Agent.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings attributed thereto in the Security Agreement or the Credit Agreement.
WHEREAS, DKA desires to acquire all of the outstanding capital stock
of Fashion Avenue Knits Inc., a New York corporation ("Fashion") and The
Sweater Company, Inc., a New York corporation ("Sweater Company"), pursuant to
the Stock Purchase Agreement dated as of September 3, 1996 among DKA and Mel
Weiss; and
WHEREAS, the parties hereto desire to amend certain provisions of the
Security 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 SECURITY AGREEMENT
1.1 Each of Fashion and Sweater Company shall be added to the Security
Agreement as a "Grantor" as such term is defined in the Security Agreement.
Each of Fashion and Sweater Company, by its execution and delivery of this
Amendment Agreement (this "Agreement"), agrees to be bound by all of the terms
and provisions of the Security Agreement.
1.2 Section 1(b) of the Security Agreement is hereby amended and
restated in its entirety as follows:
"(b) "Collateral" shall mean all (i) Accounts Receivable, (ii)
Documents, (iii) Equipment, (iv) General Intangibles, (v)
Inventory, (vi) Factor Payments and (vii) Proceeds."
<PAGE>
1.3 Section 1(f) of the Security Agreement is hereby amended by
deleting the period at the end thereof and adding the following:
"; provided, however, that "Inventory" shall not include (i)
Fashion's finished goods and wrapping, packaging and shipping
materials so long as Fashion is a party to the Factoring Agreement
with Rosenthal & Rosenthal, Inc. (the "Factor") dated May 18,
1987, as amended as of May 3, 1996 (the "Fashion Factoring
Agreement"), or (ii) Sweater Company's finished goods and
wrapping, packaging and shipping materials so long as Sweater
Company is a party to the Factoring Agreement with the Factor
dated May 12, 1994, as amended as of May 3, 1996 (the "Sweater
Company Factoring Agreement")."
1.4 Section 1 of the Security Agreement is hereby amended by adding a
new clause (h) which reads as follows:
"(h) "Factor Payments" shall mean any and all sums which the
Factor is obligated to or may pay from time to time to (i) Fashion
pursuant to the Fashion Factoring Agreement and (ii) Sweater
Company pursuant to the Sweater Company Factoring Agreement."
1.5 Schedule I to the Security Agreement is hereby amended by adding
the information set forth on Schedule I annexed hereto.
SECTION 2. MISCELLANEOUS
2.1 Each of the Grantors reaffirms and restates, and each of Fashion
and Sweater Company makes, the representations and warranties set forth in the
Security Agreement, and all such representations and warranties, after giving
effect to the amendments set forth herein, shall be true and correct on the
date hereof with the same force and effect as if made on such date.
2.2 Except as herein expressly amended, the Security 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.
2.3 From and after the date hereof, (a) all references in the Security
Agreement to "this Agreement", "hereof", "herein", or similar terms and (b) all
references to the Security Agreement in each agreement, instrument and other
documents executed or delivered in connection with the Security Agreement,
shall mean and refer to the Security Agreement, as amended by this Agreement.
2
<PAGE>
2.4 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.
2.5 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.
3
<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.
DONNKENNY APPAREL, INC.
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
BELDOCH INDUSTRIES CORPORATION
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
MEGAKNITS, INC.
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
FASHION AVENUE KNITS INC.
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
4
<PAGE>
THE SWEATER COMPANY, INC.
By: /s/ Richard Rubin
-----------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
THE CHASE MANHATTAN BANK (formerly known
as Chemical Bank
By: /s/ Jay Linde
-----------------------------------
Name: Jay Linde
Title: Vice President
5
Exhibit 7
SECOND AMENDMENT AGREEMENT
--------------------------
SECOND AMENDMENT AGREEMENT, dated as of September 10, 1996, to the
Security Agreement and Mortgage - Trademarks, dated as of June 5, 1995 (as the
same has been heretofore, and may be further, amended, supplemented or modified
from time to time in accordance with its terms, the "Trademark Security
Agreement"), between Donnkenny Apparel, Inc., a Delaware corporation ("DKA"),
and Beldoch Industries Corporation, a Delaware corporation (collectively with
DKA, the "Borrowers"), and The Chase Manhattan Bank (formerly known as Chemical
Bank) as agent (in such capacity, the "Agent") for the lenders (the "Lenders")
named in Schedules 2.01(a) and (b) of the Credit Agreement dated as of June 5,
1995 (as amended, modified or supplemented from time to time in accordance with
its terms, the "Credit Agreement") among the Borrowers, the guarantors named
therein and signatory thereto, the Lenders and the Agent. Capitalized terms
used herein but not otherwise defined herein shall have the meanings attributed
thereto in the Trademark Security Agreement or the Credit Agreement.
WHEREAS, DKA desires to acquire all of the outstanding capital stock
of Fashion Avenue Knits Inc., a New York corporation ("Fashion"), and certain
other corporations pursuant to the Stock Purchase Agreement dated as of
September 3, 1996 among DKA and Mel Weiss; and
WHEREAS, the parties hereto desire to amend certain provisions of the
Trademark Security 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 TRADEMARK SECURITY AGREEMENT
1.1 Fashion shall be added to the Trademark Security Agreement as a
"Debtor" as such term is defined in the Trademark Security Agreement. Fashion,
by its execution and delivery of this Amendment Agreement (this "Agreement"),
agrees to be bound by all of the terms and provisions of the Trademark Security
Agreement.
1.2 Schedule A to the Trademark Security Agreement is hereby
supplemented by adding the Trademarks set forth on Schedule A annexed hereto.
SECTION 2. MISCELLANEOUS
2.1 Each of the Debtors reaffirms and restates, and Fashion makes, the
representations and warranties set forth in the Trademark Security Agreement,
and all such representations and warranties, after giving effect to the
amendments set forth herein, shall
<PAGE>
be true and correct on the date hereof with the same force and effect as if
made on such date.
2.2 Except as herein expressly amended, the Trademark Security
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.
2.3 From and after the date hereof, (a) all references in the
Trademark Security Agreement to "this Agreement", "hereof", "herein", or
similar terms and (b) all references to the Trademark Security Agreement in
each agreement, instrument and other documents executed or delivered in
connection with the Trademark Security Agreement, shall mean and refer to the
Trademark Security Agreement, as amended by this Agreement.
2.4 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.
2.5 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.
2
<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.
DONNKENNY APPAREL, INC.
By: /s/ Richard Rubin
------------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
BELDOCH INDUSTRIES CORPORATION
By: /s/ Richard Rubin
------------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
FASHION AVENUE KNITS INC.
By: /s/ Richard Rubin
------------------------------------
Name: Richard Rubin
Title: Chief Executive Officer
THE CHASE MANHATTAN BANK (formerly known
as Chemical Bank
By: /s/ Jay Linde
------------------------------------
Name: Jay Linde
Title: Vice President
3
<PAGE>
REGISTERED U.S. TRADEMARKS OF FASHION AVENUE KNITS INC.
-------------------------------------------------------
Trademark Reg. Date Reg. No.
--------- --------- --------
IT'S OUR TIME 3-9-93 1,756,986
Exhibit 8
ASSIGNMENT FOR SECURITY
-----------------------
(TRADEMARKS)
----------
WHEREAS, Fashion Avenue Knits Inc., a New York corporation (herein
referred to as "Assignor"), owns the trademarks and trademark applications
listed on the annexed Schedule 1-A, which trademarks are registered in, and
which trademark applications have been filed with, the United States Patent and
Trademark Office (the "Trademarks");
WHEREAS, Assignor is obligated to THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), a New York banking corporation, as agent (referred to
herein as the "Assignee") for the lenders (the "Lenders") named in Schedules
2.01(a) and (b) of the Credit Agreement dated as of June 5, 1995, among
Donnkenny Apparel, Inc., a Delaware corporation, Beldoch Industries
Corporation, a Delaware corporation, the Assignor, the other Loan Parties named
therein and signatory thereto, the Lenders and the Assignee (as amended,
modified or supplemented from time to time in accordance with its terms, the
"Credit Agreement"), and Assignor has entered into a Security Agreement and
Mortgage-Trademarks dated as of June 5, 1995, as amended by a letter agreement
dated as of July 24, 1995 and a Second Amendment Agreement dated as of the date
hereof (the "Agreement"), in favor of Assign ee; and
WHEREAS, pursuant to the Agreement, Assignor has assigned to Assignee
and granted to Assignee a security interest in, and mortgage on, all right,
title and interest of Assignor in and to the Trademarks, together with the
goodwill of the business symbolized by the Trademarks and registrations
thereof, and all proceeds thereof, including, without limitation, any and all
causes of action which may exist by reason of infringement thereof (the
"Collateral"), to secure the payment, performance and observance of the
Obligations, as defined in the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, Assignor does hereby further assign unto Assignee and
grant to Assignee a security interest in, and mortgage on, the Collateral to
secure the prompt payment, performance and observance of the Obligations.
Assignor does hereby further acknowledge and affirm that the rights
and remedies of Assignee with respect to the assignment of, security interest
in and mortgage on the Collateral made and granted hereby are more fully set
forth in the Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
Assignee's address is 111 West 40th Street, 10th Floor, New York, New
York 10018.
1
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of the 10th day of
September, 1996.
FASHION AVENUE KNITS INC.
By /s/ Richard Rubin
Name: Richard Rubin
Title: President and Chief Executive Officer
2
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this day of September, 1996, before me personally appeared
, to me known, who, being by me duly sworn, did
depose and say that he resides at
and that he is of Fashion Avenue Knits Inc.,
the New York corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was affixed pursuant to
authority of the Board of Directors of said corporation, and that he signed his
name thereto pursuant to such authority.
--------------------------
Notary Public
3
<PAGE>
SCHEDULE 1-A TO ASSIGNMENT FOR SECURITY
---------------------------------------
TRADEMARKS
----------
Trademark Reg. Date Reg. No.
--------- --------- --------
IT'S OUR TIME 3-9-93 1,756,986
