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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of Earliest Event Reported): January 24, 1997
DONNKENNY, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation)
0-21940 51-0228891
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(Commission File Number) (I.R.S. Employer Identification No.)
1411 BROADWAY, NEW YORK, NEW YORK 10018
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(Address of Principal Executive Offices) (Zip Code)
(212) 730-7770
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
On January 24, 1997, Donnkenny Apparel, Inc., a wholly-owned
subsidiary of Donnkenny, Inc. (the "Registrant"), entered into a Rescission
Agreement with Mel Weiss, pursuant to which the sale by Mel Weiss (the
"Seller") of all of the outstanding capital stock of Fashion Avenue Knits,
Inc. and certain related entities (the "Fashion Avenue Entities") was
rescinded. In connection with such rescission, Donnkenny Apparel, Inc.,
("Donnkenny Apparel") agreed to waive the repayment of approximately $400,000
of inter-company loans made by Donnkenny Apparel to the Fashion Avenue
Entities and to pay the Seller $50,000 as reimbursement for legal and other
fees and expenses. In addition, the Registrant issued to Seller 25,000 shares
of its Common Stock and a Warrant to purchase 75,000 shares of its Common
Stock, which is exercisable until July 23, 2004 and which has an exercise
price equal to $5.00 per share.
On January 31, 1997, the Registrant concluded arrangements with its
senior lenders to extend the term of the parties' previously-announced waiver
agreement from February 27, 1997 until April 30, 1997. The new arrangements,
which continue a waiver of certain defaults under the Registrant's Credit
Agreement, also increase the Registrant's credit availability to $70 million
and continues a term loan of $17.5 million.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
99.1 Seventh Amendment, Waiver and Release Agreement, dated as of January
31, 1997, to the Credit Agreement, dated as of June 5, 1995, among
Donnkenny Apparel, Inc., Beldoch Industries Corporation, the
Guarantors named therein, the lenders named therein and The Chase
Manhattan Bank (formerly known as Chemical Bank) as agent for the
Lenders.
99.2 Third Amendment Agreement, dated as of January 31, 1997, to the
Security Agreement, dated as of June 5, 1995, between Donnkenny
Apparel, Inc., Beldoch Industries Corporation, MegaKnits, Inc.,
Fashion Avenue Knits Inc., The Sweater Company, Inc. and The Chase
Manhattan Bank (formerly known as Chemical Bank) as agent for the
lenders named in the Credit Agreement of even date therewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DONNKENNY, INC.
(Registrant)
DATE: February 20, 1997 By: /s/ Harvey Horowitz
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Name: Harvey Horowitz
Title: Vice President
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EXHIBIT INDEX
Exhibit No. Description Page No.
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99.1 Seventh Amendment, Waiver and Release Agreement,
dated as of January 31, 1997, to the Credit
Agreement, dated as of June 5, 1995, among
Donnkenny Apparel, Inc., Beldoch Industries
Corporation, the Guarantors named therein, the
lenders named therein and The Chase Manhattan
Bank (formerly known as Chemical Bank) as agent
for the Lenders.
99.2 Third Amendment Agreement, dated as of January 31,
1997, to the Security Agreement, dated as of June 5,
1995, between Donnkenny Apparel, Inc., Beldoch
Industries Corporation, MegaKnits, Inc., Fashion
Avenue Knits Inc., The Sweater Company, Inc. and
The Chase Manhattan Bank (formerly known as Chemical
Bank) as agent for the lenders named in the
Credit Agreement of even date therewith.
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Exhibit 99.1
SEVENTH AMENDMENT, WAIVER AND RELEASE AGREEMENT
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SEVENTH AMENDMENT, WAIVER AND RELEASE AGREEMENT, dated as of January
31, 1997, to the Credit Agreement, dated as of June 5, 1995 (as the same has
heretofore or may be hereafter amended, supplemented or modified from time to
time in accordance with its terms, the "Credit Agreement"), among Donnkenny
Apparel, Inc., a Delaware corporation, and Beldoch Industries Corporation, a
Delaware corporation (collectively, the "Borrowers"), the Guarantors named
therein and signatories thereto, the lenders named in Schedules 2.01(a) and
(b) of 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, Borrowers have informed the Agent of the existence of
certain Events of Default under the Credit Agreement; and
WHEREAS, Lenders have agreed to waive such Events of Default for a
limited period subject to Borrowers' agreement to modify the Credit Agreement
in certain respects.
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. WAIVERS AND RELEASES UNDER CREDIT AGREEMENT
1.1 The Lenders hereby waive, solely for the period through April 30,
1997 ("Waiver Period") the Defaults or Events of Default as described in the
letter from the Borrowers to the Lenders dated as of November 20, 1996, a copy
of which is annexed to the Fifth Amendment and Waiver Agreement dated as of
November 20, 1996, and waive solely for the period ending with the delivery of
the December 31, 1996 audited financial statements the provisions of Section
7.09 of the Credit Agreement with respect to the Leverage Ratio for the fiscal
quarter period ended September 30, 1996.
1.2 The Lenders hereby waive the applicable provisions of the Credit
Agreement and Security Documents to permit DKA to consummate the rescission
agreement dated as of January 24, 1997 between DKA and Mel Weiss and, in that
connection, the Lenders hereby release each of Fashion Avenue Knits Inc. and
The Sweater Company, Inc. as a Guarantor under the Credit Agreement and as a
Grantor under each of the Security Documents to which each is a party.
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1.3 Except for the specific waivers set forth in Section 1.1 and then
only for the Waiver Period or other period specified therein and the specific
waivers and releases set forth in Section 1.2, nothing herein shall be deemed
to be a waiver or release of any covenant or agreement contained in the Credit
Agreement and Security Documents, and the Borrowers hereby agree that all of
the covenants and agreements contained in the Credit Agreement are ratified
and confirmed in all respects.
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT
2.1 The reference in the preamble to the Credit Agreement to
Revolving Credit Loans and Letters of Credit not in excess of "$75,000,000"
shall be amended to read "$70,000,000."
2.2 The defined terms "Debt Sublimit," "Letter of Credit Usage," "Net
Amount of Receivables" and "Waiver Period" contained in Section 1.01 of the
Credit Agreement are amended to read as follows:
"'Debt Sublimit' shall mean $45,000,000 for the period January
31, 1997 and thereafter.
'Letter of Credit Usage' shall mean at any time, (i) the
aggregate undrawn amount of all outstanding Letters of Credit
(including any steamship guaranties) at such time, together with
letters of credit issued by Chemical Bank on behalf of Beldoch
Industries Corporation outstanding on the Closing Date and
indemnities, if any, issued by the Agent to a financial institution
which has opened letters of credit relating to the assets being
acquired pursuant to the Asset Purchase Agreement plus (ii) the
unreimbursed drawings at such time under all such Letters of Credit;
provided, however, that during the Waiver Period the Letter of
Credit Usage shall not exceed $25,000,000 at any one time
outstanding and Letters of Credit may only be opened to support
international purchases.
'Net Amount of Receivables' shall mean and include at any time,
without duplication, the gross amount of accounts receivable arising
in the ordinary course of business from the sale of goods or the
rendering of services at such time which are eligible (as hereafter
described) less (i) sales, excise or similar taxes, (ii) returns,
discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed and (iii)
reserves, all computed in accordance with GAAP. For purposes hereof
with respect to accounts receivable, eligibility shall be determined
by the Agent in its sole discretion, but in no event shall a
receivable be deemed eligible unless the payment due on the
receivable is not more than 60 days past the invoice date, the
receivable does not arise out of a
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bill and hold, consignment or progress billing arrangement or is not
subject to any setoff, contras, net-out contract, offset, deduction,
dispute, credit or counterclaim, or the customer is not a government
entity, Affiliate of the Borrowers or foreign entity.
'Waiver Period' shall mean the period from January 31, 1997 to
April 30, 1997 with respect to existing Events of Default as waived
for such period pursuant to Seventh Amendment, Waiver and Release
Agreement dated as of January 31, 1997, as the same may be extended
with the consent of the Required Lenders."
2.3 Subparagraph (b) of Section 2.01 of the Credit Agreement is
amended in its entirety to read as follows:
"(b) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each Lender,
severally and not jointly, agrees to make Revolving Credit Loans to,
and through the Agent open Letters of Credit for the benefit of, the
Borrowers, at any time and from time to time from the date hereof to
the Revolving Credit Termination Date, in an aggregate principal
amount at any time outstanding not to exceed the amount of such
Lender's Revolving Credit Commitment set forth opposite its name in
Schedule 2.01(b) annexed hereto, as such Revolving Credit Commitment
may be reduced from time to time in accordance with the provisions
of this Agreement. Notwithstanding the foregoing, the aggregate
principal amount of Revolving Credit Loans outstanding at any time
to the Borrowers shall not exceed the lesser of (A) the Total
Revolving Credit Commitment (as such amount may be reduced pursuant
to Section 2.07 hereof) minus the Letter of Credit Usage at such
time, (B) an amount equal to the sum of (i) up to eighty-five
percent (85%) of the eligible Net Amount of Receivables, plus (ii)
$9,000,000 (this clause (B) referred to herein as the "Borrowing
Base") and (C) the Debt Sublimit. The Borrowing Base will be
computed daily and a compliance certificate from a Responsible
Officer of the Borrowers presenting its computation will be
delivered to the Agent in accordance with Section 6.05 hereof."
2.4 Subsection (d) of Section 2.05 of the Credit Agreement is amended
in its entirety to read as follows:
"(d) Notwithstanding subsections (a) and (b) hereof, during the
Waiver Period, the Borrower shall not request Eurodollar Loans and
each Prime Rate Loan which is a Term Loan or Revolving Credit Loan,
shall bear interest at a rate per annum equal to the Prime Rate plus
1%."
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2.5 Section 2.06 of the Credit Agreement is amended by adding thereto
a new subsection (c) to read as follows:
"(c) The Borrowers shall pay to the Agent for its own account a
collateral monitoring fee in the amount of $4,500 per month payable
on the first Business Day of each month."
2.6 Section 6.05(i) of the Credit Agreement is amended in its
entirety to read as follows:
"The Borrowers shall deliver or cause to be delivered to the
Agent the following information, documents or instruments no later
than the dates indicated without the benefit of any grace period
provided for in subparagraph (d) of Article VIII hereof:
By February 10, 1997, monthly projected balance sheets, profit
and loss statements and cash flows for the 1997 Fiscal Year, and
showing projected Indebtedness, including, without limitation,
Letters of Credit, outstanding.
By February 4, 1997, amendments to the Security Agreements,
together with appropriate UCC-1 amendments, in form and substance
satisfactory to the Agent, such that the Agent for the ratable
benefit of the Lenders and itself have perfected security interests
in all Grantors' receivables whether domestic or foreign and in all
imported inventory whether or not financed by Letters of Credit.
By March 31, 1997, the audited (without qualification) restated
financial statements for the 1994 and 1995 Fiscal Years.
By April 15, 1997, real property mortgages, title policies and
opinions of counsel, in form and substance satisfactory to the
Agent, covering all real property owned by any of the Grantors.
Weekly, no later than the second Business Day of each week, an
aging schedule of Receivables and a certificate executed by the
Financial Officer of the Borrowers calculating the Borrowing Base
and demonstrating compliance with the Availability requirement.
In addition to the foregoing, such other information
(including, without limitation, tax returns) regarding the
operations, business affairs and financial condition of the Parent
and its subsidiaries as the Agent or any Lender may reasonably
request.
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2.7 Section 7.07 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"SECTION 7.07. Capital Expenditures. Permit the aggregate
amount of payments made for capital expenditures, including
Capitalized Lease Obligations and Indebtedness secured by Liens
permitted under Section 7.01(e) hereof, in any Fiscal Year to exceed
$2,000,000 for the Parent and its subsidiaries on a Consolidated
basis."
SECTION 3. CONDITIONS PRECEDENT
Upon the execution and delivery of counterparts of this Amendment,
Waiver and Release Agreement (the "Agreement") by the parties listed below and
the fulfillment of the following conditions, this Agreement shall be deemed to
have become effective as of the date hereof:
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
after giving effect to the waivers under this Agreement.
3.2 No unwaived event shall have occurred and be continuing which
constitutes a Default or an Event of Default.
3.3 The Agent shall have received an amendment fee for the ratable
benefit of the Lenders in the amount of $150,000 (of which $75,000 shall be
credited toward any amendment fee in connection with any further extension of
the Waiver Period, any such extension and the amount of such fee to be in the
sole discretion of the Lenders).
3.4 The Agent shall have received an indemnity agreement executed by
Rosenthal & Rosenthal, Inc. in form and substance satisfactory to it with
respect to outstanding Letters of Credit opened for Fashion Avenue Knits Inc.
or The Sweater Company, Inc.
SECTION 4. MISCELLANEOUS
4.1 Each of the Borrowers reaffirms and restates the representations
and warranties set forth in the Credit Agreement, as applicable, and all such
representations and warranties shall be true and correct on the date hereof
with the same force and effect as if made on such date after giving effect to
the waivers under this Agreement.
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4.2 Except as herein expressly amended, the Credit Agreement and the
other documents executed and delivered in connection therewith are each
ratified and confirmed in all respects and shall remain in full force and
effect in accordance with their respective terms.
4.3 Except as specifically set forth herein, nothing herein contained
shall constitute a waiver or be deemed to be a waiver, of any existing
Defaults or Events of Default, and the Lenders and Agent reserve all rights
and remedies granted to them by the Credit Agreement, the other documents
executed and delivered in connection therewith, by law and otherwise.
4.4 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.
4.5 During the Waiver Period, Borrowers, in addition to paying the
reasonable fees and expenses of counsel to the Agent, shall also pay the
reasonable fees and expenses of counsel retained by any of the Lenders.
4.6 THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
DONNKENNY APPAREL, INC.
By:
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Name:
Title:
BELDOCH INDUSTRIES CORPORATION
By:
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Name:
Title:
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CHRISTIANSBURG GARMENT
COMPANY INCORPORATED
By:
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Name:
Title:
MEGAKNITS, INC.
By:
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Name:
Title:
THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank),
as Agent and Lender
By:
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Name:
Title:
THE BANK OF NEW YORK
By:
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Name:
Title:
FLEET BANK, N.A.
By:
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Name:
Title:
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EXHIBIT 99.2
THIRD AMENDMENT AGREEMENT
THIRD AMENDMENT AGREEMENT, dated as of January 31, 1997, 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, Fashion Avenue Knits Inc., a New York
corporation ("Fashion"), The Sweater Company, Inc., a New York corporation
("Sweater Company") 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 dispose of Fashion and Sweater Company
pursuant to the Rescission Agreement dated as of January 24, 1997 between DKA
and Mel Weiss; and
WHEREAS, the parties hereto desire to amend certain provisions of the
Security Agreement to reflect said Rescission Agreement and to provide for
additional collateral.
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 deleted from the
Security Agreement as a "Grantor" as such term is defined in the Security
Agreement and shall no longer be bound by the terms and provisions of the
Security Agreement.
1.2 Section 1(a) of the Security Agreement is hereby amended by
deleting from the sixth and seventh lines thereof the phrase "located in the
United States, Canada, Mexico and Puerto Rico."
1.3 Section 1(b) of the Security Agreement is hereby amended and
restated in its entirety as follows:
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"(b) "Collateral" shall mean all (i) Accounts Receivable,
(ii) Documents, (iii) Equipment, (iv) General Intangibles,
(v) Inventory and (vi) Proceeds."
1.4 Section 1(f) of the Security Agreement is hereby amended by
deleting the proviso at the end thereof and by deleting the phrase "in each
instance which is financed through the issuance of Letters of Credit"
immediately preceding such proviso and substituting therefor the phrase
"constituting inventory which is imported into the United States."
1.5 Section 1 of the Security Agreement is hereby amended by deleting
clause (h) thereof.
1.6 Schedule I to the Security Agreement is hereby amended by
deleting all locations for Fashion and Sweater Company.
SECTION 2. MISCELLANEOUS
2.1 Each of the Grantors reaffirms and restates 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
Amendment Agreement.
2.4 This Amendment 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 AMENDMENT 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment
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:
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Name:
Title:
BELDOCH INDUSTRIES CORPORATION
By:
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Name:
Title:
MEGAKNITS, INC.
By:
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Name:
Title:
THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank),
as Agent and Lender
By:
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Name:
Title:
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