<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-21940
Donnkenny, Inc.
(Exact name of registrant as specified in its charter)
Delaware 51-0228891
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 Broadway, New York, NY 10018
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (212) 730-7770
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes X No ___ and (2) has been
the subject to such filing requirements for the past 90 days. Yes X No ___.
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Common Stock $0.01 par value 14,169,540
---------------------------- ----------
(Class) (Outstanding at June 30, 1998)
<PAGE>
DONNKENNY, INC AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(FORM 10-Q)
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Consolidated financial statements:
Independent Accountants' Report
Balance sheets as of June 30, 1998 and December 31, 1997......................I-1
Statements of operations for the three and six months ended
June 30, 1998 and June 30, 1997...............................................II-1
Statements of cash flows for the six months ended
June 30, 1998 and June 30, 1997...............................................III-1
Notes to Consolidated Financial Statements....................................IV-1-2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................V-1-4
PART II - OTHER INFORMATION
Legal Proceedings.............................................................VI-1
Exhibits and Reports on Form 8-K..............................................VI-1-2
Signatures....................................................................VI-3
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of Donnkenny, Inc.
We have reviewed the accompanying consolidated balance sheet of Donnkenny, Inc.
and subsidiaries as of June 30, 1998, and the related consolidated statements
of operations for three-month and six-month periods ended June 30,1998 and 1997
and the consolidated statements of cash flows for the six month periods ended
June 30, 1998 and 1997. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Donnkenny, Inc. and subsidiaries
as of December 31, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 20, 1998 (March 31,1998 as to note 8),
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1997 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
New York, New York
August 13, 1998
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- ---------------
ASSETS (Unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 815 $ 257
Accounts receivable - net of allowances of
$748 and $720 26,825 24,453
Recoverable income taxes 809 1,181
Inventories 30,090 27,248
Deferred tax assets 5,109 5,109
Prepaid expenses and other current assets 2,192 2,146
------------ ----------
TOTAL CURRENT ASSETS 65,840 60,394
Property, plant and equipment, net 9,983 9,620
Other assets (note 3) 1,250 -
Intangible assets 32,882 32,446
------------ ----------
TOTAL ASSETS $ 109,955 $ 102,460
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease $ 2,500 $ 5,000
Revolving Credit Facility 30,800 -
Accounts payable 10,484 9,320
Accrued expenses and other current liabilities 7,201 7,720
------------ ----------
TOTAL CURRENT LIABILITIES 50,985 22,040
Long-term portion of capital lease 335 --
Long-term debt, net of current portion -- 22,048
Deferred income tax liabilities 5,286 5,286
COMMITMENTS AND CONTINGENCIES (note 3)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 20,000 shares;
issued and outstanding 14,170 and 14,075 shares 142 141
Additional paid-in capital 47,595 47,360
Retained earnings 5,612 5,585
------------ ----------
Total Stockholders' Equity 53,349 53,086
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 109,955 $ 102,460
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I - 1
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
1998 1997 1998 1997
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net sales $ 42,157 $ 52,041 $ 94,685 $ 114,326
Cost of sales 33,074 41,647 72,651 88,950
---------- ----------- ---------- -----------
Gross profit 9,083 10,394 22,034 25,376
Selling, general and administrative expenses 9,821 12,328 19,803 24,038
Amortization of excess cost over fair value of net assets
acquired and other related acquisition costs 326 338 647 702
---------- ----------- ---------- -----------
Operating (loss) income (1,064) (2,272) 1,584 636
Interest expense (net of interest income of
$110 during 1998) 847 1,375 1,533 2,600
---------- ----------- ---------- -----------
(Loss) income before income taxes (1,911) (3,647) 51 (1,964)
Income tax (benefit) provision (917) (1,425) 24 (753)
---------- ----------- ---------- -----------
Net (loss) income $ (994) $ (2,222) $ 27 $ (1,211)
========== =========== ========== ===========
Basic and diluted net (loss) income per common share $ (0.07) $ (0.16) $ 0.00 $ (0.09)
========== =========== ========== ===========
Weighted average number of common shares outstanding 14,169,540 14,069,940 14,130,100 14,066,901
=========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
II - 1
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, June 30,
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 27 $ (1,211)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization of fixed assets 846 892
Loss on disposal of fixed assets 51 -
Amortization of intangibles and other assets 647 702
Provision for losses on accounts receivable 133 191
Gain on sale of equipment (6) -
Changes in assets and liabilities, net of the effects of acquisitions and
disposals:
(Increase) decrease in accounts receivable (2,505) 1,560
Decrease (increase) in recoverable income taxes 372 (728)
(Increase) in inventories (2,842) (612)
(Increase) in prepaid expenses and
other current assets (46) (248)
(Increase) in other assets (1,250) -
Increase (decrease) in accounts payable 1,164 (8,140)
(Decrease) in accrued expenses and
other current liabilities (283) (352)
--------- ----------
Net cash (used in) operating activities (3,692) (7,946)
--------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets (778) (109)
Proceeds from sale of fixed assets 6 -
Increase in Intangibles (1,083) -
--------- ----------
Net cash (used in) investing activities (1,855) (109)
--------- ----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Repayment of long-term debt (3,164) (2,500)
Net borrowings under revolving credit facility 9,269 6,886
--------- ----------
Net cash provided by financing activities 6,105 4,386
--------- ----------
NET INCREASE (DECREASE) IN CASH 558 (3,669)
CASH, AT BEGINNING OF PERIOD 257 3,998
--------- ----------
CASH, AT END OF PERIOD $ 815 $ 329
========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 28 $ 33
========= ==========
Interest paid $ 1,672 $ 3,093
========= ==========
Capital lease obligations incurred $ 483 $ -
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
III - 1
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the Rules of the Securities and Exchange
Commission ("SEC") and , in the opinion of management, include all adjustments
(consisting of normal recurring accruals) necessary for the fair presentation
of financial position, results of operations and cash flows. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules. The Company believes the
disclosures made are adequate to make such financial statements not misleading.
The results for the interim periods presented are not necessarily indicative of
the results to be expected for the full year. These financial statements should
be read in conjunction with the Company's Report on Form 10-K for the year ended
December 31, 1997. Balance sheet data as of December 31, 1997 have been derived
from audited financial statements of the Company.
NOTE 2 - INVENTORIES
Inventories consist of the following:
June 30, December 31,
1998 1997
---- ----
Raw materials . . . . . . . . . . . $ 5,572 $ 4,209
Work-in-process . . . . . . . . . . . 3,592 5,584
Finished goods . . . . . . . . . . . 20,926 17,455
---------- ----------
$ 30,090 $ 27,248
========== ==========
NOTE 3 - CONTINGENCIES
In connection with contingent liabilities arising from the Company's
alleged inaccuracies in the reporting of revenues and expenses for certain
reporting periods, the Company has agreed to deposit $5,000 over a three year
period to help defray claims, if any. At June 30, 1998, $1,250 has been
deposited and has been included in other assets.
NOTE 4 - SHAREHOLDERS RIGHTS PLAN
On April 2, 1998, the Company's Board of Directors authorized a
shareholder rights plan. Under the terms of the plan, shareholders of record at
the close of business on April 13, 1998, received a dividend distribution of
one preferred stock purchase right for each outstanding share of the Company's
common stock held. The rights will become exercisable only in the event, with
certain exceptions, an acquiring party accumulates 15 percent or more of the
Company's voting stock, or if a party announces an offer to acquire 15 percent
or more. The rights will expire on April 1, 2008.
IV - 1
<PAGE>
Each right will entitle shareholders to buy one one-hundredth of a
share of a new series of preferred stock at an exercise price of $14.00. In
addition, upon the occurrence of certain events, holders of the rights will
be entitled to purchase either the company's stock or shares in an "acquiring
entity" at half of market value. Further, at any time after a person or group
acquires 15 percent or more (but less than 50 percent) of the Company's
outstanding voting stock, the Board of Directors may, at its option, exchange
part or all of the rights (other than rights held by the acquiring person or
group, which will become void) for shares of the Company's common stock on a
one-for-one basis. The Company will be entitled to redeem the rights at $0.01
per right at any time until the tenth day following the acquisition of a 15
percent position in its voting stock.
NOTE 5 - STOCKHOLDERS EQUITY
The Company issued 94,600 shares of common stock to certain key
employees during the quarter ended June 30, 1998 in payment of 1997 bonuses,
which were accrued and recorded as compensation expense of $236,000 in the
fiscal year ended December 31, 1997.
IV - 2
<PAGE>
DONNKENNY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Net sales decreased by $19.6 million, or 17.2%, from $114.3 million in
the first half of fiscal 1997 to $94.7 million in the first half of fiscal
1998. The decrease in the Company's net sales was primarily due to an $18.5
million decrease in sales of License Character products as a result of the
Company's exiting those businesses; a $6.3 million decrease in sales of the
Victoria Jones Division due to softness in the sweater business, partially
caused by unseasonably warm weather and reductions in sales to two of the
division's largest customers; and a $1.8 million decrease of contract work and
outlet sales. The decreases were partially offset by increases in the Casey &
Max, Pierre Cardin and Donnkenny Apparel divisions of $3.0 million, $2.6
million and $1.4 million, respectively.
Gross profit for the first half of fiscal 1998 was $22.0 million, or
23.3% of net sales, compared to $25.4 million, or 22.2% of net sales, during the
first half of fiscal 1997. The increase in Gross Profit as a percentage of net
sales was primarily attributable to the Company's reduced sales of License
Character products, which were sold at lower gross margins.
Selling, general and administrative expenses decreased from $24.0
million in the first half of fiscal 1997 to $19.8 million in the first half of
fiscal 1998. As a percentage of net sales, these expenses were 21.0% in the
first half of fiscal 1997 and 20.9% in the first half of fiscal 1998. The
decrease in selling, general and administrative expenses in dollars was due
primarily to lower sales and lower distribution expenses as a result of the
reduction in sales volume as discussed above and synergies created in combining
certain business functions; the reduction in professional fees in 1998 from the
unusually high expenses that were incurred in 1997 as a result of legal fees
associated with the previously reported class action lawsuits, as well as legal
and accounting fees associated with the restatement of prior year quarterly and
annual financial statements, and consulting services performed in connection
with the Company's amended Credit Facility, as discussed below. These reductions
were partially offset by higher Design & Sample expenses and costs applicable
to the factoring agreement that became effective on April 28, 1997.
Interest expense decreased from $2.6 million during the first half of
fiscal 1997 to $1.5 million during the first half of fiscal 1998. The decrease
was primarily the result of lower net average borrowings under the Company's
Credit Facility.
COMPARISON OF QUARTERS ENDED JUNE 30, 1998, AND JUNE 30, 1997
Net sales decreased by $9.8 million, or 19.0%, from $52.0 million in
the second quarter of fiscal 1997 to $42.2 million in the second quarter of
fiscal 1998. The decrease in the Company's net sales was primarily due to the
$10.5 million decrease in sales of License Character products as a result of the
Company's exiting those businesses; a $3.5 million decrease in the Victoria
Jones Division due to softness in the sweater business, partially caused by
unseasonably warm weather and reductions in sales to two of the division's
largest customers; and a $1.2 million decrease in the contract work and outlet
divisions. The decreases were partially offset by increases in the Donnkenny
Apparel, Pierre Cardin and Casey & Max Divisions of $2.6 million, $1.5 million
and $1.3 million, respectively.
V - 1
<PAGE>
Gross profit for the second quarter of fiscal 1998 was $9.1 million, or 21.5%
of net sales compared to $10.4 million, or 20.0% of net sales during the second
quarter of fiscal 1997. The increase in Gross Profit as a percentage of net
sales was primarily attributable to the Company's reduced sales of License
Character products, which were sold at lower gross margins.
Selling, general and administrative expenses decreased from $12.3
million in the second quarter of fiscal 1997 to $9.8 million in the second
quarter of fiscal 1998. As a percentage of net sales, these expenses decreased
from 23.7% in the second quarter of fiscal 1997 to 23.3% in the second quarter
of fiscal 1998. The decrease in selling, general and administrative expenses of
$2.5 million was due primarily to the Company's exiting from the License
Character business, which accounted for $1.5 million of the decrease; lower
sales and distribution expenses as a result of the reduction in sales volume as
discussed above and synergies created in combining certain business functions;
the reduction in professional fees in 1998 from the unusually high expenses
incurred in 1997 as a result of legal fees associated with the previously
reported class action lawsuits, as well as legal and accounting fees associated
with the restatement of prior year quarterly and annual financial statements.
These reductions were partially offset by increased financing costs related to
the Company's factoring agreement of $0.3 million, which were not incurred in
the second quarter of fiscal 1997, and by increases in design and sample
expense.
Interest expense decreased from $1.4 million during the second quarter
of fiscal 1997 to $0.8 million during the second quarter of fiscal 1998. The
decrease was primarily the result of lower average borrowings under the
Company's Credit Facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from the funding of working
capital needs, primarily accounts receivable, accrued expenses, and the
interest and principal payments related to certain indebtedness. The Company's
borrowing requirements for working capital fluctuate throughout the year.
Capital expenditures were $0.8 million for upgrading computer systems
during the first half of fiscal 1998 compared to $0.1 million in the first half
of fiscal 1997. The Company may spend up to $3.5 million annually on capital
expenditures in accordance with the Revolving Credit Agreement, as described
below. The Company has committed to spend an additional $1.3 million in 1998
for upgrading computer systems to increase efficiencies and become Year 2000
compliant.
On April 30, 1997, the Company entered into an amended Credit Facility
(the "Credit Facility") to, among other things, include the Company's operating
subsidiaries Donnkenny Apparel, Inc., Megaknits, Inc. and Beldoch Industries
Corporation, as borrowers. The Credit Facility consists of a Term Loan, a
Revolving Credit Agreement, and a Factoring Agreement. The purpose of the
Credit Facility is to provide for the general working capital needs of the
Company, including the issuance of letters of credit. The Credit Facility will
expire on March 31, 1999. Under the Credit Facility, The Chase Manhattan Bank
serves as agent, The CIT Group/Commercial Services Inc. ("CIT") serves as
collateral agent, and each of Fleet Bank, N.A. and the Bank of New York is a
co-lender. The Company believes that it will renew or negotiate a new credit
facility over the next four to six months that will replace the current
facility, which expires on March 31, 1999.
V - 2
<PAGE>
As of June 30, 1998, the balance of the Term Loan was $2.3 million.
The interest rate is equal to the prime rate plus 1 1/2% per annum. The
amortization schedule calls for quarterly payments of $1.3 million. The balloon
payment, which is due on March 31, 1999 has been reduced from $7.5 million to
zero primarily from the proceeds of tax refunds received by the Company. An
excess cash flow recapture is payable annually within 15 days after receipt of
the Company's audited fiscal year-end financial statements. In addition, any
tax refunds received in Fiscal 1998 will be applied to reduce the term loan.
The default interest rate, if applicable, would be equal to 2% above the
otherwise applicable rate. The Term Loan does not carry any prepayment penalty.
As of June 30, 1998, borrowings under the Revolving Credit Agreement
amounted to $30.8 million. On March 31, 1998, in support of the Company's 1998
business plan, the Credit Facility was amended as follows: the total amount
available under the Revolving Credit Agreement is $85 million subject to an
asset based borrowing formula, with sublimits of $60 million for direct
borrowings, $35 million for letters of credit and required seasonal
overadvances. The interest rate is equal to the greater of 10% or the prime
rate plus 1 1/2% per annum. Outstanding borrowings under the Revolving Credit
Agreement in excess of an allowable overadvance will bear interest at the prime
rate plus 3 1/2%. The Revolving Credit Agreement also requires the Company to
pay certain letter of credit fees and unused commitment fees. Advances and
letters of credit will be limited to (i) up to 85% of eligible accounts
receivable plus (ii) up to 60% of eligible inventory, plus (iii) an allowable
overadvance. Any tax refunds applicable to 1997 and prior years and proceeds
from the sales of fixed assets are to be applied to reduce the balloon payment
on the Term Loan.
In April 1997, the Company also entered into a Factoring Agreement with
CIT. The Factoring Agreement provides for a factoring commission equal to 0.45%
of the gross amount of sales, plus certain customary surcharges. An additional
fee of 0.20% was paid upon the conversion to a factored receivable agreement.
Collateral for the Credit Facility includes a first priority lien on
all accounts receivable, machinery, equipment, trademarks, intangibles and
inventory, a first mortgage on all real property and a pledge of the Company's
stock of its operating subsidiaries, Donnkenny Apparel, Inc., Beldoch
Industries Corporation, and Megaknits, Inc.
During the first half of fiscal 1998, the Company's operating
activities used cash principally as a result of increases in accounts
receivable and inventories offset by increases in accounts payable. During the
first half of fiscal 1997, the Company's operating activities used cash
principally as a result of increases in inventories and decreases in accounts
payable and accrued expenses. Cash used in investing activities in the first
half of fiscal 1998 amounted to $1.9 million, primarily relating to the
upgrades in computer systems as discussed above and the contingent earnout
payment of $1.1 million related to the acquisition of Beldoch. In the first
half of fiscal 1997 cash used in investing activities amounted to $0.1 million
for the purchase of fixed assets. Cash provided by financing activities in the
first half of fiscal 1998 amounted to $6.1 million, which primarily consisted
of repayments of $3.2 million on the Term Loan and net borrowings under the
Revolving Credit Agreement of $9.3 million. Cash provided by financing
activities in the first half of fiscal 1997 amounted to $4.4 million, which
represented repayments of $2.5 million on the Term Loan and net borrowings
under the Revolving Credit Agreement of $6.9 million.
The Company believes that cash flows from operations and amounts
available under the Revolving Credit Agreement will be sufficient for its needs
in the foreseeable future.
V - 3
<PAGE>
YEAR 2000 ISSUE
The Company recognizes the need for, and has begun implementation of, a
comprehensive program intended to upgrade the operating systems, hardware and
software, which should eliminate any issue involving Year 2000 compliance. The
Company's current software systems, without modification, will be adversely
affected by the inability of the systems to appropriately interpret date
information after 1999. As part of the process of improving the Company's
information systems to provide enhanced support to all operating areas, the
Company will upgrade to new financial and operating systems. Such upgrade will
provide for or eliminate any issues involving year 2000 compliance because all
software implemented is designed to be year 2000 compliant. The Company
anticipates that its cost for such upgrade will be approximately $2.1 million.
The Company anticipates that it will complete its systems conversion in time to
accommodate year 2000 issues. If the Company fails to complete such conversion
in a timely manner, such failure will have a material adverse effect on the
business, financial condition and results of operations of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
Segment Information - In June 1997, the FASB issued Statement No. 131,
Disclosure about Segments of an Enterprise and Related Information, which
requires that public companies report certain information about operating
segments in their annual financial statements and in condensed financial
statements of interim periods issued to shareholders. It also requires that
public companies report certain information about their products and services,
the geographic areas in which they operate, and their major customers.
Management of the Company is currently reviewing the impact of these
requirements on their current level of disclosure.
V - 4
<PAGE>
PART II. OTHER INFORMATION
Item 1 - 3. Not Applicable.
Item 4. Submission of matters to vote of security holders.
The Company's annual meeting of stockholders was held on July
28, 1998. The following directors were elected:
Name For Withholding Authority
------------------- ---------- ---------------------
Harvey A. Appelle 11,010,093 65,735
James W. Crystal 11,005,993 69,835
Harvey Horowitz 11,003,293 72,535
Lynn Siemers-Cross 11,010,693 65,135
Herbert L. Ash 11,012,893 62,935
Sheridan C. Biggs 11,012,893 62,935
Robert H. Cohen 11,012,693 63,135
Daniel H. Levy 11,012,493 63,335
Robert H. Martinsen 11,012,893 62,935
The appointment of Deloitte & Touche LLP as independent
auditors for the fiscal year ended December 31, 1998 was
ratified, with 10,541,173 shares voting in favor, 504,305
against, and 30,350 shares abstaining.
Item 5. Other Information
In connection with contingent liabilities arising from the
Company's alleged inaccuracies in reporting of revenues and
expenses for certain reporting periods, the Company has
agreed to deposit $5.0 million over a three year period to
help defray claims, if any.
VI - 1
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------
(a) Exhibits
--------
The following documents are filed as part of this report:
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Certificate of Designations of Series A
Junior Preferred Stock of Donnkenny, Inc.
10.1 Rights Agreement, dated as of April 2, 1998,
between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent
(incorporated by reference to the Company's
Report on Form 8-K, as filed with the
Commission on April 14, 1998).
27 Financial Date Schedule
(b) Reports on Form 8-K
-------------------
The Company filed, during the fiscal quarter ended June 30,
1998, the following report on Form 8-K:
A report on Form 8-K on April 14, 1998, responding to Item 5
and stating that, on April 2, 1998, the Company declared a
divided of one Preferred Stock Purchase Right for each
outstanding share of its Common Stock, payable as of April
13, 1998, to stockholders of record on that date.
VI-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Donnkenny, Inc.
Registrant
Date: August 13, 1998 /s/ Harvey A. Appelle
----------------------------
Harvey Appelle
Chairman of the Board,
President and Chief
Executive Officer
Date August 13, 1998 /s/ Stuart S. Levy
----------------------------
Stuart S. Levy
Vice President - Finance
and Chief Financial Officer,
(Principal Financial Officer)
VI - 3
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PREFERRED STOCK
OF
DONNKENNY, INC.
Pursuant to Section 151 of the Delaware
General Corporation Law
I, Stuart S. Levy, Vice President-Finance and Assistant Secretary of
Donnkenny, Inc., a corporation organized and existing under the Delaware
General Corporation Law (the "Company"), in accordance with the provisions of
Section 151 of such law, DO HEREBY CERTIFY that pursuant to the authority
conferred upon the Board of Directors by the Amended and Restated Certificate
of Incorporation of the Company, the Board of Directors on April 2, 1998
adopted the following resolution which creates a series of 200,000 shares of
Preferred Stock designated as Series A Junior Preferred Stock, as follows:
RESOLVED, that pursuant to Section 151(g) of the
Delaware General Corporation Law and the authority vested in the Board of
Directors of the Company in accordance with the provisions of ARTICLE FOURTH of
the Amended and Restated Certificate of Incorporation of the Company, a series
of Preferred Stock of the Company be, and hereby is, created, and the powers,
designations, preferences and relative, participating, optional or other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof, be, and
<PAGE>
hereby are, as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting such series shall be 200,000.
Section 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment hereinafter set forth,
the holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, (i) cash dividends in an amount per share (rounded
to the nearest cent) equal to 100 times the aggregate per share amount of all
cash dividends declared or paid on the Common Stock, $0.01 par value per share,
of the Company (the "Common Stock") and (ii) a preferential cash dividend (the
"Preferential Dividends"), if any, in preference to the holders of Common
Stock, on the first day of March, June, September and December of each year
(each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Series A Preferred Stock, payable in an amount (except in the case of
the first Quarterly Dividend Payment if the date of the first issuance of
Series A Preferred Stock is a date other than a Quarterly Dividend Payment
date, in which case such payment shall be a prorated amount of such amount)
equal to $0.10 per share of
2
<PAGE>
Series A Preferred Stock less the per share amount of all cash dividends
declared on the Series A Preferred Stock pursuant to clause (i) of this
sentence since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock. In
the event the Company shall, at any time after the issuance of any share or
fraction of a share of Series A Preferred Stock, make any distribution on the
shares of Common Stock of the Company, whether by way of a dividend or a
reclassification of stock, a recapitalization, reorganization or partial
liquidation of the Company or otherwise, which is payable in cash or any debt
security, debt instrument, real or personal property or any other property
(other than cash dividends subject to the immediately preceding sentence, a
distribution of shares of Common Stock or other capital stock of the Company or
a distribution of rights or warrants to acquire any such share, including any
debt security convertible into or exchangeable for any such share, at a price
less than the Fair Market Value (as hereinafter defined) of such share), then,
and in each such event, the Company shall simultaneously pay on each then
outstanding share of Series A Preferred Stock of the Company a distribution, in
like kind, of 100 times such distribution paid on a share of Common Stock
(subject to the provisions for adjustment hereinafter set forth). The dividends
and distributions on the Series A Preferred Stock
3
<PAGE>
to which holders thereof are entitled pursuant to clause (i) of the first
sentence of this paragraph and pursuant to the second sentence of this
paragraph are hereinafter referred to as "Dividends" and the multiple of such
cash and non-cash dividends on the Common Stock applicable to the determination
of the Dividends, which shall be 100 initially but shall be adjusted from time
to time as hereinafter provided, is hereinafter referred to as the "Dividend
Multiple". In the event the Company shall at any time after April 2, 1998
declare or pay any dividend or make any distribution on Common Stock payable in
shares of Common Stock, or effect a subdivision or split or a combination,
consolidation or reverse split of the outstanding shares of Common Stock into a
greater or lesser number of shares of Common Stock, then in each such case the
Dividend Multiple thereafter applicable to the determination of the amount of
Dividends which holders of shares of Series A Preferred Stock shall be entitled
to receive shall be the Dividend Multiple applicable immediately prior to such
event multiplied by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Company shall declare each Dividend at the same time it
declares any cash or non-cash dividend or distribution on the Common Stock in
respect of which a Dividend is
4
<PAGE>
required to be paid. No cash or non-cash dividend or distribution on the Common
Stock in respect of which a Dividend is required to be paid shall be paid or
set aside for payment on the Common Stock unless a Dividend in respect of such
dividend or distribution on the Common Stock shall be simultaneously paid, or
set aside for payment, on the Series A Preferred Stock.
(C) Preferential Dividends shall begin to accrue on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issuance of any shares of Series A Preferred Stock.
Accrued but unpaid Preferential Dividends shall cumulate but shall not bear
interest. Preferential Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the holders of the Common Stock.
The number of votes which a holder of Series A Preferred Stock is entitled to
cast, as the same may be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Vote
5
<PAGE>
Multiple". In the event the Company shall at any time after April 2, 1998
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or split or a combination, consolidation or reverse
split of the outstanding shares of Common Stock into a greater or lesser number
of shares of Common Stock, then in each such case the Vote Multiple thereafter
applicable to the determination of the number of votes per share to which
holders of shares of Series A Preferred Stock shall be entitled after such
event shall be the Vote Multiple immediately prior to such event multiplied by
a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein, in the Amended and Restated
Certificate of Incorporation or By-laws, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock shall vote together
as one class on all matters submitted to a vote of stockholders of the Company.
(C) In the event that the Preferential Dividends accrued on the Series
A Preferred Stock for four or more quarterly dividend periods, whether
consecutive or not, shall not have been declared and paid or irrevocably set
aside for payment, the holders of record of Preferred Stock of the Company of
all series (including the Series A Preferred Stock), other than any
6
<PAGE>
series in respect of which such right is expressly withheld by the Amended and
Restated Certificate of Incorporation or the authorizing resolutions included
in any Certificate of Designations therefor, shall have the right, at the next
meeting of stockholders called for the election of directors, to elect two
members to the Board of Directors, which directors shall be in addition to the
number required by the By-laws prior to such event, to serve until the next
Annual Meeting and until their successors are elected and qualified or their
earlier resignation, removal or incapacity or until such earlier time as all
accrued and unpaid Preferential Dividends upon the outstanding shares of Series
A Preferred Stock shall have been paid (or irrevocably set aside for payment)
in full. The holders of shares of Series A Preferred Stock shall continue to
have the right to elect directors as provided by the immediately preceding
sentence until all accrued and unpaid Preferential Dividends upon the
outstanding shares of Series A Preferred Stock shall have been paid (or set
aside for payment) in full. Such directors may be removed and replaced by such
stockholders, and vacancies in such directorships may be filled only by such
stockholders (or by the remaining director elected by such stockholders, if
there be one) in the manner permitted by law; provided, however, that any such
action by stockholders shall be taken at a meeting of stockholders and shall
not be taken by written consent thereto.
7
<PAGE>
(D) Except as otherwise required by the Certificate of Incorporation
or By-laws or set forth herein, holders of Series A Preferred Stock shall have
no other special voting rights and their consent shall not be required (except
to the extent they are entitled to vote with holders of Common Stock as set
forth herein) for the taking of any corporate action.
Section 4. Certain Restrictions.
(A) Whenever Preferential Dividends or Dividends are in arrears or the
Company shall be in default of payment thereof, thereafter and until all
accrued and unpaid Preferential Dividends and Dividends, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have been
paid or set irrevocably aside for payment in full, and in addition to any and
all other rights which any holder of shares of Series A Preferred Stock may
have in such circumstances, the Company shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration, any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity as to dividends with the
Series A Preferred Stock, unless dividends are paid ratably on the
Series A Preferred Stock and all such parity stock on which dividends
are payable or
8
<PAGE>
in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled if the full dividends accrued thereon
were to be paid;
(iii) except as permitted by subparagraph (iv) of this paragraph
4(A), redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares
of any stock of the Company ranking junior (both as to dividends and
upon liquidation, dissolution or winding up) to the Series A Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock (either as to dividends or upon
liquidation, dissolution or winding up), except in accordance with a
purchase offer made to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.
(B) The Company shall not permit any Subsidiary (as
9
<PAGE>
hereinafter defined) of the Company to purchase or otherwise acquire for
consideration any shares of stock of the Company unless the Company could,
under paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner. A "Subsidiary" of the Company shall
mean any corporation or other entity of which securities or other ownership
interests having ordinary voting power sufficient to elect a majority of the
board of directors of such corporation or other entity or other persons
performing similar functions are beneficially owned, directly or indirectly, by
the Company or by any corporation or other entity that is otherwise controlled
by the Company.
(C) The Company shall not issue any shares of Series A Preferred Stock
except upon exercise of Rights issued pursuant to that certain Rights Agreement
dated as of April 2, 1998 between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent, a copy of which is on file with the
Secretary of the Company at its principal executive office and shall be made
available to stockholders of record without charge upon written request
therefor addressed to said Secretary. Notwithstanding the foregoing sentence,
nothing contained in the provisions hereof shall prohibit or restrict the
Company from issuing for any purpose any series of Preferred Stock with rights
and privileges similar to, different from, or greater than, those of the Series
A Preferred Stock.
10
<PAGE>
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall
be retired and cancelled promptly after the acquisition thereof. All such
shares upon their retirement and cancellation shall become authorized but
unissued shares of Preferred Stock, without designation as to series, and such
shares may be reissued as part of a new series of Preferred Stock to be created
by resolution or resolutions of the Board of Directors.
Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Company, no
distribution shall be made (i) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless the holders of shares of Series A Preferred
Stock shall have received for each share of Series A Preferred Stock, subject
to adjustment as hereinafter provided, (A) $1,400 plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment or, (B) if greater than the amount
specified in clause (i)(A) of this sentence, an amount equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock, as the
same may be adjusted as hereinafter provided and (ii) to the holders of stock
ranking on a parity upon liquidation, dissolution or winding up with the Series
A Preferred
11
<PAGE>
Stock, unless simultaneously therewith distributions are made ratably on the
Series A Preferred Stock and all other shares of such parity stock in
proportion to the total amounts to which the holders of shares of Series A
Preferred Stock are entitled under clause (i)(A) of this sentence and to which
the holders of such parity shares are entitled, in each case upon such
liquidation, dissolution or winding up. The amount to which holders of Series A
Preferred Stock may be entitled upon liquidation, dissolution or winding up of
the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter
referred to as the "Participating Liquidation Amount" and the multiple of the
amount to be distributed to holders of shares of Common Stock upon the
liquidation, dissolution or winding up of the Company applicable pursuant to
said clause to the determination of the Participating Liquidation Amount, as
said multiple may be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Liquidation Multiple". In the event the Company
shall at any time after April 2, 1998 declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or split or a
combination, consolidation or reverse split of the outstanding shares of Common
Stock into a greater or lesser number of shares of Common Stock, then, in each
such case, the Liquidation Multiple thereafter applicable to the determination
of the Participating Liquidation Amount to which holders of Series A Preferred
Stock shall be entitled after such event shall
12
<PAGE>
be the Liquidation Multiple applicable immediately prior to such event
multiplied by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 7. Certain Reclassifications and Other Events.
(A) In the event that holders of shares of Common Stock of the Company
receive after April 2, 1998 in respect of their shares of Common Stock any
share of capital stock of the Company (other than any share of Common Stock of
the Company), whether by way of reclassification, recapitalization,
reorganization, dividend or other distribution or otherwise (a "Transaction"),
then, and in each such event, the dividend rights, voting rights and rights
upon the liquidation, dissolution or winding up of the Company of the shares of
Series A Preferred Stock shall be adjusted so that after such event the holders
of Series A Preferred Stock shall be entitled, in respect of each share of
Series A Preferred Stock held, in addition to such rights in respect thereof to
which such holder was entitled immediately prior to such adjustment, to
(i) such additional dividends as equal the Dividend Multiple in effect
immediately prior to such Transaction multiplied by the additional dividends
which the holder of a share of Common Stock shall be entitled to receive by
virtue of the receipt in the Transaction of such
13
<PAGE>
capital stock, (ii) such additional voting rights as equal the Vote Multiple in
effect immediately prior to such Transaction multiplied by the additional
voting rights which the holder of a share of Common Stock shall be entitled to
receive by virtue of the receipt in the Transaction of such capital stock and
(iii) such additional distributions upon liquidation, dissolution or winding up
of the Company as equal the Liquidation Multiple in effect immediately prior to
such Transaction multiplied by the additional amount which the holder of a
share of Common Stock shall be entitled to receive upon liquidation,
dissolution or winding up of the Company by virtue of the receipt in the
Transaction of such capital stock, as the case may be, all as provided by the
terms of such capital stock.
(B) In the event that holders of shares of Common Stock of the Company
receive after April 2, 1998 in respect of their shares of Common Stock any
right or warrant to purchase Common Stock (including as such a right, for all
purposes of this paragraph, any security convertible into or exchangeable for
Common Stock) at a purchase price per share less than the Fair Market Value of
a share of Common Stock on the date of issuance of such right or warrant, then
and in each such event the dividend rights, voting rights and rights upon the
liquidation, dissolution or winding up of the Company of the shares of Series A
Preferred Stock shall each be adjusted so that after such event the Dividend
Multiple, the Vote Multiple and the Liquidation
14
<PAGE>
Multiple shall each be the product of the Dividend Multiple, the Vote Multiple
and the Liquidation Multiple, as the case may be, in effect immediately prior
to such event multiplied by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding immediately before such issuance
of rights or warrants plus the maximum number of shares of Common Stock which
could be acquired upon exercise in full of all such rights or warrants and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the number of
shares of Common Stock which could be purchased, at the Fair Market Value of
the Common Stock at the time of such issuance, by the maximum aggregate
consideration payable upon exercise in full of all such rights or warrants.
(C) In the event that holders of shares of Common Stock of the Company
receive after April 2, 1998 in respect of their shares of Common Stock any
right or warrant to purchase capital stock of the Company (other than shares of
Common Stock), including as such a right, for all purposes of this paragraph,
any security convertible into or exchangeable for capital stock of the Company
(other than Common Stock), at a purchase price per share less than the Fair
Market Value of such shares of capital stock on the date of issuance of such
right or warrant, then and in each such event the dividend rights, voting
rights and rights upon liquidation, dissolution or winding up of the Company of
the
15
<PAGE>
shares of Series A Preferred Stock shall each be adjusted so that after such
event each holder of a share of Series A Preferred Stock shall be entitled, in
respect of each share of Series A Preferred Stock held, in addition to such
rights in respect thereof to which such holder was entitled immediately prior
to such event, to receive (i) such additional dividends as equal the Dividend
Multiple in effect immediately prior to such event multiplied, first, by the
additional dividends to which the holder of a share of Common Stock shall be
entitled upon exercise of such right or warrant by virtue of the capital stock
which could be acquired upon such exercise and multiplied again by the Discount
Fraction (as hereinafter defined) and (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such event multiplied,
first, by the additional voting rights to which the holder of a share of Common
Stock shall be entitled upon exercise of such right or warrant by virtue of the
capital stock which could be acquired upon such exercise and multiplied again
by the Discount Fraction and (iii) such additional distributions upon
liquidation, dissolution or winding up of the Company as equal the Liquidation
Multiple in effect immediately prior to such event multiplied, first, by the
additional amount which the holder of a share of Common Stock shall be entitled
to receive upon liquidation, dissolution or winding up of the Company upon
exercise of such right or warrant by virtue of the capital stock which could be
acquired upon such
16
<PAGE>
exercise and multiplied again by the Discount Fraction. For purposes of this
paragraph, the "Discount Fraction" shall be a fraction the numerator of which
shall be the difference between the Fair Market Value of a share of the capital
stock subject to a right or warrant distributed to holders of shares of Common
Stock of the Company as contemplated by this paragraph immediately after the
distribution thereof and the purchase price per share for such share of capital
stock pursuant to such right or warrant and the denominator of which shall be
the Fair Market Value of a share of such capital stock immediately after the
distribution of such right or warrant.
(D) For purposes of this Certificate of Designations, the "Fair Market
Value" of a share of capital stock of the Company (including a share of Common
Stock) on any date shall be deemed to be the average of the daily closing price
per share thereof over the 30 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date; provided, however, that,
in the event that such Fair Market Value of any such share of capital stock is
determined during a period which includes any date that is within 30 Trading
Days after (i) the ex-dividend date for a dividend or distribution on stock
payable in shares of such stock or securities convertible into shares of such
stock, or (ii) the effective date of any subdivision, split, combination,
consolidation, reverse stock split or reclassification of such stock, then, and
in each such case, the Fair Market
17
<PAGE>
Value shall be appropriately adjusted by the Board of Directors of the Company
to take into account ex-dividend or post-effective date trading. The closing
price for any day shall be the last sale price, regular way, or, in case, no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way (in either case, as reported in the applicable transaction
reporting system with respect to securities listed or admitted to trading on
the New York Stock Exchange), or, if the shares are not listed or admitted to
trading on the New York Stock Exchange, as reported in the applicable
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the shares are listed or admitted to
trading or, if the shares are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") or such other system then in use, or if on any such date the
shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the shares selected by the Board of Directors of the Company. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the shares are listed or admitted to trading is open for the transaction
of business or,
18
<PAGE>
if the shares are not listed or admitted to trading on any national securities
exchange, on which the New York Stock Exchange or such other national
securities exchange as may be selected by the Board of Directors of the Company
is open. If the shares are not publicly held or not so listed or traded on any
day within the period of 30 Trading Days applicable to the determination of
Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair
market value thereof per share as determined in good faith by the Board of
Directors of the Company. In either case referred to in the foregoing sentence,
the determination of Fair Market Value shall be described in a statement filed
with the Secretary of the Company.
Section 8. Consolidation, Merger, etc. In case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each
outstanding share of Series A Preferred Stock shall at the same time be
similarly exchanged for or changed into the aggregate amount of stock,
securities, cash and/or other property (payable in like kind), as the case may
be, for which or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Vote Multiple, the Dividend Multiple or the
Liquidation Multiple in effect immediately prior to such event.
19
<PAGE>
Section 9. Effective Time of Adjustments.
(A) Adjustments to the Series A Preferred Stock required by the
provisions hereof shall be effective as of the time at which the event
requiring such adjustments occurs.
(B) The Company shall give prompt written notice to each holder of a
share of Series A Preferred Stock of the effect of any adjustment to the voting
rights, dividend rights or rights upon liquidation, dissolution or winding up
of the Company of such shares required by the provisions hereof.
Notwithstanding the foregoing sentence, the failure of the Company to give such
notice shall not affect the validity of or the force or effect of or the
requirement for such adjustment.
Section 10. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable at the option of the Company or any holder thereof.
Notwithstanding the foregoing sentence of this Section, the Company may acquire
shares of Series A Preferred Stock in any other manner permitted by law, the
provisions hereof and the Amended and Restated Certificate of Incorporation of
the Company.
Section 11. Ranking. Unless otherwise provided in the Certificate of
Incorporation of the Company or a Certificate of Designations relating to a
subsequent series of preferred stock of the Company, the Series A Preferred
Stock shall rank junior to all other series of the Company's preferred stock as
to the payment of dividends and the distribution of assets on liquidation,
20
<PAGE>
dissolution or winding up and senior to the Common Stock.
Section 12. Amendment. The provisions hereof and the Certificate of
Incorporation of the Company shall not be amended in any manner which would
adversely affect the rights, privileges or powers of the Series A Preferred
Stock without, in addition to any other vote of stockholders required by law,
the affirmative vote of the holders of two-thirds or more of the outstanding
shares of Series A Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, I have executed and subscribed this Certificate of
Designations and do affirm the foregoing as true under the penalties of perjury
this 13th day of April, 1998.
/s/ Stuart S. Levy
------------------------------
Name: Stuart S. Levy
Title: Vice President-Finance
and Assistant Secretary
ATTEST:
- --------------------------
21
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 815
<SECURITIES> 0
<RECEIVABLES> 26,825
<ALLOWANCES> 748
<INVENTORY> 30,090
<CURRENT-ASSETS> 65,840
<PP&E> 19,443
<DEPRECIATION> 9,460
<TOTAL-ASSETS> 109,955
<CURRENT-LIABILITIES> 50,985
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 53,207
<TOTAL-LIABILITY-AND-EQUITY> 109,955
<SALES> 42,157
<TOTAL-REVENUES> 0
<CGS> 33,074
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 326
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<INTEREST-EXPENSE> 847
<INCOME-PRETAX> (1,911)
<INCOME-TAX> 917
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