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UNITED STATES
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 March 30, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-20382
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Danskin, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 62-1284179
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 West 40th Street, New York, NY 10018
------------------------------------------
(Address of principal executive offices)
(212) 764-4630
------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the issuer's Common Stock, $.01 par
value as of April 30, 1996, excluding 1,000 shares held by a subsidiary:
5,956,839.
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DANSKIN, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE FISCAL THREE MONTH PERIODS
ENDED MARCH 30, 1996
INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets (Unaudited)
as of December 30, 1995 and March 30, 1996 3
Consolidated Condensed Statements of Operations (Unaudited)
for the Fiscal Three Month Periods Ended
March 25, 1995 and March 30, 1996 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Fiscal Six Month Periods Ended
March 25, 1995 and March 30, 1996. 5
Notes to Consolidated Condensed Financial
Statements 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DANSKIN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 30, 1995 March 30, 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $1,143,000 $1,496,000
Accounts receivable, less allowance for
doubtful accounts of $1,631,000 at
December 1995 and $1,697,000 at March 1996 14,631,000 18,312,000
Inventories.................................. 30,849,000 31,033,000
Prepaid expenses and other current assets.... 3,360,000 3,059,000
----------------- --------------
Total current assets...................... 49,983,000 53,900,000
----------------- --------------
Property, plant and equipment - net of
accumulated depreciation and amortization of
$5,849,000 at December 1995 and $6,365,000 at
March 1996................................... 10,632,000 10,188,000
Deferred income tax benefits.................... 3,900,000 3,900,000
Other assets.................................... 3,227,000 3,185,000
----------------- --------------
Total Assets................................... $67,742,000 $71,173,000
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan payable....................... $4,101,000 $8,774,000
Current portion of long-term debt............ 334,000 334,000
Accounts payable............................. 9,361,000 9,814,000
Accrued expenses............................. 10,531,000 10,779,000
----------------- --------------
Total current liabilities................. 24,327,000 29,701,000
----------------- --------------
Subordinated convertible debentures............. 5,000,000 5,000,000
Long-term debt, net of current maturities....... 31,666,000 31,666,000
Accrued pension costs........................... 5,230,000 5,206,000
----------------- --------------
41,896,000 41,872,000
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Total Liabilities............................... 66,223,000 71,573,000
----------------- --------------
Commitments and contingencies
Stockholders' (deficiency) equity:
Preferred Stock, $.01 par value, 10,000 shares
authorized, 5,922,375 shares............... --- ---
Common Stock, $.01 par value, 20,000,000
shares authorized, 5,922,375 shares issued
at December 1995 and 5,957,273 shares
issued at March 1996, less 1,000 shares
held by subsidiary........................ 59,214 59,563
Additional paid-in capital................... 13,849,786 13,967,437
Warrants outstanding......................... 764,000 764,000
Accumulated deficit.......................... (11,154,000) (13,191,000)
Minimum pension liability adjustment......... (2,000,000) (2,000,000)
----------------- --------------
Total Stockholders' (Deficiency) Equity.... 1,519,000 (400,000)
----------------- --------------
Total Liabilities and Stockholders' Equity...... $67,742,000 $71,173,000
================= ===============
</TABLE>
These statements should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
3
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Item 1. Financial Statements (continued)
DANSKIN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Three Months Ended
---------------------------------
March 25, 1995 March 30, 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
Net revenues ............................... $ 32,151,000 $ 31,421,000
Cost of goods sold ......................... 21,937,000 21,032,000
-------------- --------------
Gross profit ............................ 10,214,000 10,389,000
Selling, general and administrative expenses 11,327,000 11,061,000
Non-recurring charges ...................... 2,498,000 0
Provision for doubtful accounts receivable.. 716,000 138,000
Interest expense ........................... 1,244,000 1,164,000
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15,785,000 12,363,000
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Loss before income tax provision (benefit).. (5,571,000) (1,974,000)
Provision (benefit) for income taxes ....... (199,000) 63,000
-------------- --------------
Net loss ................................... ($5,372,000) ($2,037,000)
============== =============
Primary loss per common share .............. ($0.91) ($0.34)
============== =============
Weighted average number of common share .... 5,919,000 5,933,000
============== =============
</TABLE>
These statements should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
4
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Item 1. Financial Statements (continued)
DANSKIN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Three Months Ended
------------------------------------
March 25, 1995 March 30, 1996
(unaudited) (unaudited)
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<S> <C> <C>
Cash Flows From Operating Activities:
Net loss .......................................................................... ($5,372,000) ($2,037,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................................................... 697,000 653,000
Write-off of certain trademarks and other long-term assets ....................... 1,243,000 --
Provision for doubtful accounts receivable ....................................... 716,000 138,000
Deferred income taxes ............................................................ (375,000) --
Changes in operating assets and liabilities:
Increase in accounts receivable ............................................... (712,000) (3,819,000)
(Increase) decrease in inventories ............................................. 1,625,000 (184,000)
Decrease in prepaid expenses and other current assets ......................... 2,068,000 301,000
Increase (decrease) in accounts payable ........................................ (1,425,000) 453,000
Increase in accrued expenses ................................................... 1,307,000 349,000
Financing costs incurred ....................................................... (57,000) (119,000)
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Net cash from (used in) operating activities ................................. (285,000) (4,265,000)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures ............................................................... (164,000) (72,000)
Cash Flows From Financing Activities:
Net receipts under revolving loan payable ......................................... 1,991,000 4,673,000
Payments of long-term debt ......................................................... (357,000) --
Net proceeds from sale of common stock to Savings Plan ............................. 24,000 40,000
Purchase and retirement of common stock ............................................ (19,000) (23,000)
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Net cash provided by (used in) financing activities .......................... 1,639,000 4,690,000
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Net Increase in Cash and Cash Equivalents ........................................... 1,190,000 353,000
Cash and Cash Equivalents, Beginning of Period ....................................... 1,842,000 1,143,000
----------- -----------
Cash and Cash Equivalents, End of Period ............................................. $ 3,032,000 $ 1,496,000
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid ................................................................... $ 1,105,000 $ 1,015,000
=========== ===========
Income taxes paid ............................................................... $ 36,082 $ 21,000
=========== ===========
Income taxes received ........................................................... ($ 627,000) --
=========== ===========
</TABLE>
The Company contributed 29,629 of its common shares to the Danskin, Inc.
Savings Plan in March 1996.
These statements should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
5
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Item 1. Financial Statements (continued)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
1. In the opinion of the management of Danskin, Inc. and
Subsidiaries (the "Company"), the accompanying Consolidated
Condensed Financial Statements have been presented on a basis
consistent with the Company's fiscal year financial statements
and contain all adjustments (all of which were of a normal and
recurring nature) necessary to present fairly the financial
position of the Company as of March 30, 1996, as well as its
results of operations and cash flows for the fiscal three
months ended March 30, 1996 and March 25, 1995. Certain
information and footnote disclosures normally included in
annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. Operating results for interim periods may not be
indicative of results for the full fiscal year.
The Company designs, manufactures, distributes and markets
several leading brands of women's activewear clothing, dance
wear, tights and legwear. Danskin'r', Dance France'r' and
Round-the-Clock'r' are the Company's principal proprietary
brands. The Company also manufactures Givenchy'r', Anne
Klein'r' and other licensed hosiery brands and exercise
clothing pursuant to license agreements. In addition to its
branded merchandise, the Company manufactures and markets
private label merchandise, principally legwear, for many major
retailers, including most full line department stores. The
Company also currently operates 43 factory outlet and two full
price retail stores in 19 states.
2. On June 22, 1995, the Company entered into an Amended and
Restated Loan and Security Agreement with First Union National
Bank of North Carolina ("First Union") (the "Loan and Security
Agreement") which provided for restructured terms of its
financing arrangements (the "Restructuring"). The
Restructuring consisted of converting $8,000,000 of revolving
credit balances into term obligations. Total term debt
obligations aggregated $22,000,000 after the Restructuring,
and remained at this level as of March 30, 1996. Scheduled
quarterly payments commence in September 1996 ranging from
$333,000 to $1,500,000 with a final maturity of March 2002.
Revolving credit obligations were reduced by the proceeds of
the new term debt, and the outstanding balance of a new
revolving credit facility of $25,000,000 amounted to
$18,774,000 as of March 30, 1996, with availability in excess
of utilization of $6,123,000. The Company classified
$10,000,000 of its revolving obligations as long term debt as
of March 30, 1996. In addition to the scheduled quarterly
principal payments of the term debt, the Loan and Security
Agreement provides for a semi-annual mandatory retirement of
term debt principal if cash flow, as defined, attains certain
levels, payable when availability under the revolving credit
exceeds $5,000,000.
The Loan and Security Agreement was amended subsequent to June
22, 1995 to allow for the Company's change in fiscal year end,
to permit the establishment of a Canadian subsidiary and
related factoring arrangements for purposes of selling direct
to customers in Canada, to restate certain financial
covenants, to obtain approval for the issuance of a
subordinated convertible debenture (Note 3) and to increase an
annual capital expenditure limitation to $2,000,000.
6
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Item 1. Financial Statements (continued)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
The Loan and Security Agreement established covenants
requiring the Company to meet certain interest coverage and
profitability levels, and it contains certain other
restrictions, including limits on the Company's ability to
incur debt, make capital expenditures, merge, pay dividends or
repurchase its own stock. It also provides that the Company
will be in default if any person, other than as defined,
becomes the owner of or controls more than 20% of the
Company's Common Stock. In addition, First Union may terminate
the Loan and Security Agreement in the event the Company's
current Chairman is discharged or forced to resign by the
Board of Directors and not replaced by an individual who
possesses the same level of experience and reputation in the
apparel industry, unless such action is taken by the majority
vote of a Board comprised of the current or continuing
Directors. Substantially all the Company's assets continue to
be collateralized under these debt facilities.
In connection with the Restructuring, the Company issued
warrants to First Union to purchase, at an exercise price per
share equal to par value ($0.01), up to 10% of the Company's
then outstanding Common Stock. The Warrants provide for a put
option by First Union, exercisable after March 1998, at fair
market value, as defined. The Company also has a call option
providing for payment at fair market value. For so long as the
Company is in compliance with the requirements of the Loan and
Security Agreement, the Warrants provide no dilution
protection for First Union for any new issuance of securities.
In connection with the Restructuring, interest rates for all
obligations under the Loan and Security Agreement were set at
prime plus 1.5% (9.75% at March 30, 1996). On each annual
adjustment date (as defined), the interest rate may be reduced
based on certain ratios of interest coverage and debt to
earnings before interest, taxes, depreciation and amortization
levels. In July 1995, the Company purchased an interest rate
cap from First Union with a notional amount of $20,000,000,
which provides for a prime rate limit of 9.25% for the period
through October 1998.
3. Subordinated Convertible Debenture
The Company completed the sale of a subordinated convertible
debenture to a bond fund on August 17, 1995. The debenture has
an aggregate face value of $5,000,000, accrues interest at 8%
and matures on September 1, 2002. The initial conversion price
is $3.15, currently representing 1,587,300 shares. Such
conversion price may be reset on August 17, 1997 under certain
circumstances and will be adjusted in the event of dilution.
The proceeds of this sale were used to reduce the Company's
bank revolving credit obligations. The debenture contains
customary covenants for this type of transaction. On October
26, 1995, a representative of the bond fund was elected as a
Director of the Company, in accordance with the provisions of
the debenture.
7
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Item 1. Financial Statements (continued)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(continued)
4. Inventories are stated at the lower of cost or market on a
first-in, first-out basis.
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 30, March 30,
1995 1996
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(unaudited) (unaudited)
<S> <C> <C>
Finished goods $18,792,000 $19,046,000
Work-in-process 6,431,000 6,308,000
Raw materials 4,461,000 4,540,000
Packaging materials 1,165,000 1,140,000
----------- -----------
$30,849,000 $31,033,000
=========== ===========
</TABLE>
5. In December 1992, several class actions (subsequently
consolidated) were filed against the Company, certain of its
officers and directors, the underwriters of its initial public
offering and the Company's former parent, Esmark, Inc.
("Esmark"), in the U.S. District Court for the Southern
District of New York, alleging that materially false and
misleading statements were made in the prospectus for the
Company's initial public offering and in subsequent public
statements and a regulatory filing. These actions arose
following the Company's reporting of a $1,000,000 pre-tax
charge against income in fiscal 1993 related to production
problems caused by an unauthorized change in product
specifications by a yarn vendor.
These securities class actions were settled by agreement among
the plaintiffs, the defendants and the carrier of the
Company's directors' and officers' liability insurance policy.
The settlement was funded in its entirety by defendants
unrelated to the Company and by the carrier of the Company's
directors' and officers' liability insurance policy, and the
Company also has recovered a portion of its costs of defending
the action from the carrier. The final settlement documents
have been signed by all parties and forwarded to the Court to
obtain an interim order for the mailing of notice of the
settlement terms to all class plaintiffs. In April 1996, the
Court executed an "implementing order" which, among other
things, (i) preliminarily approved the settlement, (ii)
preliminarily certified the action as a class action, (iii)
directed that notice of the proposed settlement be provided to
the class, and (iv) set a date upon which to hold a fairness
hearing. If confirmed by the Court, the result of the
settlement agreement will be to release and discharge all the
defendants from claims of the class plaintiffs arising from
the purchase of the Company's securities during the class
period and to mutually release the Company and the
underwriters.
8
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Item 1. Financial Statements (continued)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(continued)
On August 19, 1994, a stockholder, who is also a plaintiff in
the securities class action litigation described above, filed
a derivative action in the Delaware Court of Chancery against
Esmark and the directors of the Company, with the Company as
nominal defendant, alleging that a certain amount of funds
advanced by the Company to Esmark, and for which reserves
charged to operations have been established by the Company,
constituted a waste of corporate assets. This matter has been
settled by agreement among the plaintiffs, the defendants and
the carrier of the Company's directors' and officers'
liability policy. If confirmed by the Court, this matter will
be settled without contribution from the Company.
The Company has terminated its prior Canadian license
agreement of the Danskin'r' and Playskin'r' trademarks. It has
awarded a new Playskin'r' license to another company, and has
initiated direct sales of Danskin merchandise in Canada. The
Company has received a letter from its former licensee
threatening legal action to recover damages resulting from the
"unethical manner" in which it conducted negotiations
concerning the relationship. The Company has responded that it
will commence litigation against the former licensee for fraud
in the willful underreporting of royalties that were due under
the agreement and has demanded compensatory damages. The
Company believes that it has substantial defenses to any
allegations that may be brought by the former licensee, and
that any potential liability that might result will not have a
material adverse effect.
6. The Company's income tax provision (benefit) rates differed
from federal statutory rates due to the change in valuation
allowance and the effect of state taxes for the three months
ended March 1996 and 1995. The breakdown of income tax expense
between current tax expense and deferred tax expense is not
available for the three months ended March 1996 and 1995. No
allocation between current and deferred income taxes was made
during the three months ended March 1996 and 1995, as such
amounts would not be considered material to the Company's
consolidated financial position.
The Company's deferred tax balance as of March 1996 and
December 1995 was net of valuation allowances each amounting
to approximately $6,000,000. Valuation allowances have been
established since it is more likely than not that certain tax
benefits will not be realized.
The Company has been selected for audit by certain Federal and
state tax authorities, the resolution of which cannot be
determined at this time. Management believes that any possible
ultimate liability from these audits will not materially
affect the consolidated financial position or results of
operations of the Company.
7. Related Party Activities
Esmark, the former parent of the Company, acquired the Company
from Beatrice Companies, Inc. in 1986 in a leveraged
transaction. Prior to that time, the legwear and activewear
operations had been separate divisions of Playtex
International, Inc., itself an indirect subsidiary of Beatrice
Companies, Inc.. In August 1992, the Company successfully
completed the public offering of one half its shares of Common
Stock (3,000,000 shares), leaving Esmark as the owner of the
other 3,000,000 shares. Esmark subsequently exchanged 990,000
shares with Electra Investment Trust, PLC ("Electra") for
Esmark common stock held by Electra, thus leaving it as the
owner of 2,010,000 shares (the "Esmark Shares").
9
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Item 1. Financial Statements (continued)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(continued)
Esmark is currently the registered owner of the Esmark Shares,
or approximately 34% of the Company's outstanding shares, and
it holds a proxy (the "Electra Proxy") with respect to the
voting of the 990,000 shares, or approximately 17%, that are
owned by Electra, subject to the terms of an agreement between
the Company and the Chairman of the Board of Esmark. Esmark is
the subject of an involuntary bankruptcy petition that was
filed against it by three creditors and is pending in U.S.
Bankruptcy Court for the Southern District of New York. Esmark
has entered into a stipulation with SunAmerica Life Insurance
Company ("SunAmerica"), pledgee of the Esmark Shares in
connection with an Esmark defaulted loan, agreeing to relief
from the automatic stay in bankruptcy on May 1, 1996 unless
prior to that date a certain investment firm, Derby Partners
("Derby"), fulfills its contractual requirements for closing
the purchase of such loan from SunAmerica for a price of
$9,100,000 pursuant to an option granted to it by SunAmerica.
Derby did not fulfill these requirements and on May 3, 1996
SunAmerica issued a Notice of Foreclosure Sale of the Esmark
Shares to be held on June 7, 1996. Pending this date, these
shares remain registered in the name of Esmark.
The pledge by Esmark to SunAmerica was made in connection with
a notes purchase agreement related to the acquisition of a
certain windsurfing operation by a subsidiary of Esmark. The
Company understands that shares in the operation owned by the
Esmark subsidiary, which the Company has a subordinated option
to purchase for a nominal value, were acquired by SunAmerica
through a foreclosure sale in April, 1995, and were
subsequently sold.
Pursuant to an agreement entered into in September 1994
between the Company and Byron A. Hero, Jr., who was its
Chairman and Chief Executive Officer until that time and was
also the Chairman and controlling stockholder of Esmark, Mr.
Hero resigned as Chief Executive Officer and agreed to the
cessation of all business relationships between Esmark and the
Company. The Company and Mr. Hero also agreed that for so long
as he remains in control of Esmark, Esmark is to vote the
Electra Proxy at any annual or special meeting, as to the
election of directors, in proportion to the vote of all shares
voted other than shares owned by Esmark, and as to any other
matter, in accordance with the recommendation of the Company's
independent directors. This agreement also provided that,
subject to the exercise by the Board of Directors of its
fiduciary duties, Mr. Hero would be nominated in 1995 for
election as a Director for an additional three years. On June
26, 1995, the Board of Directors decided not to nominate Mr.
Hero for reelection as a Director.
As a result of the agreement between the Company and Mr. Hero,
of the commencement of foreclosure action by SunAmerica, and
of developments in the matter of the bankruptcy filing against
Esmark, neither Esmark nor its officers may now be deemed to
control the Company. To the knowledge of the Company, if
neither Esmark nor its officers control the Company, no person
may be deemed to have acquired control of the Company. The
pending bankruptcy petition against Esmark may affect the
rights of SunAmerica and Esmark to exercise any ownership
powers, including voting rights of the Esmark Shares.
The Esmark Shares are the subject of a Registration Rights
Agreement dated July 2, 1992 between the Company and Esmark.
The Company has acknowledged the status of Electra as a Holder
under this agreement with respect to the shares of Common
Stock that are owned by it.
10
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Item 1. Financial Statements (continued)
Danskin, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(continued)
Esmark was indebted to the Company in the amount of $6,099,000
as of March 30, 1996, excluding accrued interest subsequent to
March 1995, which the Company has fully reserved and recorded
non-recurring charges through March 1995, as a result of
Esmark's financial condition. The Company no longer accrues
interest on this indebtedness for financial statement
purposes, effective for periods subsequent to March 1995. In
September 1994, the Company obtained a judgment against
Esmark, which remains unsatisfied. In addition, the Company
holds a second priority pledge of the Esmark Shares.
11
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in
conjunction with the Consolidated Condensed Financial
Statements, related notes and other information included in
this quarterly report on Form 10-Q (operating data for Danskin
include operating data for the Company's retail and Dance
France activities).
Change in Year End
As of December 1995, the Company changed its fiscal year end
to the last Saturday in December from the last Saturday in
March.
Results of Operations
Comparison of the First Three Months of Fiscal Year Ended
December 1996 with the First Three Monthsof the Fiscal Year
Ended December 1995
Net Revenues:
Net revenues were $31.4 million for the fiscal three months
ended March 1996, a decline of $0.7 million, or 2.2%, from the
prior year fiscal three months ended March 1995. Volume for
activewear and legwear contributed almost equally to the
wholesale decline, totaling $1.3 million, and was partially
offset by an increase in retail volume of $0.6 million.
Activewear net revenues were $19.5 million for the fiscal
three months ended March 1996, a decline of $0.1 million, or
0.5%, from $19.6 million in the prior fiscal three months
ended March 1995. This slight decline was net of the $0.6
million increase in sales for the Company's 45 retail stores,
which generated $4.3 million in net sales for the three months
ended March 1996, including sales from seven additional stores
in operation. Comparable retail store sales declined 8.9%, or
$0.3 million, in the three months ended March 1996, primarily
from poor traffic in cold weather locations and continued
effects of new outlet store centers opening in close proximity
to existing Danskin stores. The Company is addressing this
trend by improving Retail Inventory Availability, opening
stores in new centers and targeting certain stores to be
closed. Activewear wholesale business continued to experience
the effects of a competitive market during the fiscal three
months ended March 1996. The Company continued its efforts
towards offsetting activewear volume declines by addressing
the activewear industry's trends of lifestyle casual wear
during the fiscal three months ended March 1996.
Legwear net revenues were $11.9 million for the fiscal the
months ended March 1996, a decline of $0.6 million, or 4.8%,
from $12.5 million in the fiscal three months ended March
1995. This decline was principally attributable to a continued
weak hosiery market in the department store class of trade,
primarily in branded business for legwear. The relaunch of
Anne Klein'r' sheer hosiery and tights is scheduled for July
1996, and new marketing initiatives for Givenchy'r' and
Round-the-Clock'r' are scheduled to be reflected in Fall
shipments.
Gross Profit:
Gross profit increased by $0.2 million, or 2.0%, to $10.4
million in the fiscal three months ended March 1996 from $10.2
million in the prior period. Gross profit as a percentage of
net revenues increased to 33.1% for the fiscal three months
ended March 1996, from 31.8% in the fiscal three months ended
March 1995.
12
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations (continued)
Gross profit for activewear was 37.4% and 37.8% in the three
months ended March 1996 and 1995, respectively. This reduction
was primarily attributable to sales of certain excess
wholesale inventories at unfavorable prices, and planned
retail store close-out sales instituted to reduce
inventory and improve turns.
Legwear gross profit increased to 26.1% in the three months
ended March 1996 from 22.4% in the prior period. The
improvement in gross profit was primarily attributable to
private label price increases, and reductions in certain
production costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, which include
retail store operating costs, decreased by $0.8 million to
$11.2 million, or 35.7% of net revenues, in the three months
ended March 1996, from $12.0 million, or 37.4% of net
revenues, in the three months ended March 1995. Selling,
general and administrative expenses, excluding retail store
operating costs, decreased by $1.3 million to $8.4 million, or
30.9% of net revenues, in the three months ended March 1996,
from $9.7 million, or 33.9% of net revenues, in the three
months ended March 1995. The decrease in the 1996 period was
principally a result of a reduction in the provision for
doubtful accounts and lower compensation costs, partially
offset by increased advertising costs.
Operating Loss:
As a result of the foregoing, loss from operations (i.e., loss
before interest expense, non-recurring charges and income
taxes) improved by $1.0 million to a loss of $0.8 million in
the three months ended March 1996. The legwear business
contributed most significantly to this improvement.
Interest Expense:
Interest expense decreased by $0.1 million to $1.2 million in
the three months ended March 1996 from $1.3 million in the
three months ended March 1995. This decrease was mostly
attributable to lower average borrowing levels, as well as a
result of the lower subordinated debenture rate. The Company's
effective interest rate reflected these factors and was 10.5%
and 10.7% in the three months ended March 1996 and 1995,
respectively. In addition, amortization of financing costs
included in interest expense amounted to $0.1 million for each
of the three months ended March 1996 and 1995.
Income Tax Provision (Benefit):
The Company's income tax provision (benefit) rates differed
from the Federal statutory rates due to the change in the
deferred tax valuation allowance and the effect of state
taxes, for the three months ended March 1996 and March 1995.
The Company's deferred tax balance of $3.9 million as of March
1996 and March 1995 was net of a valuation allowance of
approximately $6.0 million and $4.9 million, respectively.
Net Loss:
As a result of the foregoing, net loss was $2.0 million for
the three months ended March 1996, an improvement of $3.4
million over a net loss in the three months ended March 1995
of $5.4 million, which included a $2.4 million non-recurring
charge.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations (continued)
Liquidity and Capital Resources
The Company's primary liquidity and capital requirements
relate to the funding of working capital needs, primarily
inventory, accounts receivable, capital investments in
operating facilities, machinery and equipment, and principal
and interest payments on indebtedness. The Company's primary
sources of liquidity are from bank financing, the subordinated
convertible debenture, vendor credit terms and internally
generated funds.
Net cash flow used in operations increased by $4.0 million to
$4.3 million for the three months ended March 1996, from a use
of cash from operations of $0.3 million in the three months
ended March 1995, principally attributable to increases in
accounts receivable in excess of the prior period change.
However, accounts receivable balances at March 30, 1996 were
approximately $2.0 million lower than that of March 25, 1995.
Cash decreased by $0.4 million for the three months ended
March 1996 from the same period in 1995, after a $4.7 million
increase in revolving loan borrowings.
On June 22, 1995, the Company entered into an Amended and
Restated Loan and Security Agreement with First Union National
Bank of North Carolina ("First Union") (the "Loan and Security
Agreement") which provided for restructured terms of its
financing arrangements (the "Restructuring"). The
Restructuring consisted of converting $8 million of revolving
credit balances into term obligations. Total term debt
obligations aggregated $22 million after the Restructuring,
and remained at this level as of March 30, 1996. Scheduled
quarterly payments commence in September 1996 ranging from
$0.3 million to $1.5 million with a final maturity of March
2002. Revolving credit obligations were reduced by the
proceeds of the new term debt, and the outstanding balance of
a new revolving credit facility of $25.0 million amounted to
$18.8 million as of March 30, 1996, with availability in
excess of utilization of $6.1 million. The Company classified
$10.0 million of its revolving obligations as long term debt
as of March 30, 1996. In addition to the scheduled quarterly
principal payments of the term debt, the Loan and Security
Agreement provides for a semi-annual mandatory retirement of
term debt principal if cash flow, as defined, attains certain
levels, payable when availability under the revolving credit
exceeds $5.0 million.
The Loan and Security Agreement was amended subsequent to June
22, 1995 to allow for the Company's change in fiscal year end,
to permit the establishment of a Canadian subsidiary and
related factoring arrangements for purposes of selling direct
to customers in Canada, to restate certain financial
covenants, to obtain approval for the issuance of a
subordinated convertible debenture (Note 3) and to increase an
annual capital expenditure limitation to $2.0 million.
The Loan and Security Agreement established covenants
requiring the Company to meet certain interest coverage and
profitability levels, and it contains certain other
restrictions, including limits on the Company's ability to
incur debt, make capital expenditures, merge, pay dividends or
repurchase its own stock. It also provides that the Company
will be in default if any person, other than as defined,
becomes the owner of or controls more than 20% of the
Company's Common Stock. In addition, First Union may terminate
the Loan and Security Agreement in the event the Company's
current Chairman is discharged or forced to resign by the
Board of Directors and not replaced by an individual who
possesses the same level of experience and reputation in the
apparel industry, unless such action is taken by the majority
vote of a Board comprised of the current or continuing
Directors. Substantially all the Company's assets continue to
be collateralized under these debt facilities.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations (continued)
Liquidity and Capital Resources (continued)
In connection with the Restructuring, the Company issued
warrants to First Union to purchase, at an exercise price per
share equal to par value ($0.01), up to 10% of the Company's
then outstanding Common Stock. The Warrants provide for a put
option by First Union, exercisable after March 1998, at fair
market value, as defined. The Company also has a call option
providing for payment at fair market value. For so long as the
Company is in compliance with the requirements of the Loan and
Security Agreement, the Warrants provide no dilution
protection for First Union for any new issuance of securities.
In connection with the Restructuring, interest rates for all
obligations under the Loan and Security Agreement were set at
prime plus 1.5% (9.75% at March 30, 1996). On each annual
adjustment date (as defined), the interest rate may be reduced
based on certain ratios of interest coverage and debt to
earnings before interest, taxes, depreciation and amortization
levels. In July 1995, the Company purchased an interest rate
cap from First Union with a notional amount of $20.0 million,
which provides for a prime rate limit of 9.25% for the period
through October 1998.
The Company completed the sale of a subordinated convertible
debenture to a bond fund on August 17, 1995. The debenture has
an aggregate face value of $5.0 million, accrues interest at
8% and matures on September 1, 2002. The initial conversion
price is $3.15, currently representing 1,587,300 shares. Such
conversion price may be reset on August 17, 1997 under certain
circumstances and will be adjusted in the event of dilution.
The proceeds of this sale were used to reduce the Company's
bank revolving credit obligations. The debenture contains
customary covenants for this type of transaction. On October
26, 1995, a representative of the bond fund was elected as a
Director of the Company, in accordance with the provisions of
the debenture.
Strategic Outlook
The Company's business strategy over the next two to three
years will be to better capitalize on the high recognition of
the Danskin'r' brand and to develop new channels for
distribution. In this regard, the Company will, to the extent
adequate cash flow from operations can be generated and
financing can be obtained on appropriate terms, open
additional full price Danskin'r' stores, expand activewear and
other product lines, pursue growth in international sales and
selectively license the Danskin'r' name for additional product
categories. There can be no assurance that the Company will be
able to generate adequate cash flow from operations and obtain
financing on appropriate terms to implement this strategy or,
if implemented, that this strategy will be successful.
The Company expects that short-term capital funding
requirements will continue to be provided principally by the
Company's banking and vendor arrangements.
The Company believes that it has adequate liquidity and that
it has taken appropriate steps in an effort to address casual
dress trends in the contracting sheer hosiery market, and
increased retailer demands for responsiveness.
The Company continues to evaluate proposals for capital
infusion to satisfy long-term funding needs for growth, and to
explore a range of financing alternatives in an effort to
reduce its indebtedness, lower interest costs and expand its
business. On April 9, 1996, the Company engaged the services
of Dillon Read & Co. Inc. to assist in this process.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 in the Notes to Consolidated Condensed Financial
Statements in Part I - Financial Information of this Form
10-Q.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Exhibits
*10.6.2B Employment agreement, dated April 1,
1996, between the Registrant and
Edwin W. Dean.
*10.6.3D Amendment Three, dated April 4,
1996, to the amended Employment
Agreement, dated August 1, 1994,
between the Registrant and Mary Ann
Domuracki.
*10.6.4D Amendment Three, dated April 4,
1996, to the amended Employment
Agreement, dated August 1, 1994,
between the Registrant and Beverly
Eichel.
*10.6.9 Amendment, dated October 26, 1995,
to the Employment Agreement, dated
October 27, 1994, between the
Registrant and Howard D. Cooley.
10.10.2B Renewal license agreement, dated
January 26, 1996, between Anne Klein
and Company and Pennaco Hosiery, a
division of Danskin, Inc.
</TABLE>
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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 thereunto duly authorized.
DANSKIN, INC.
May 14, 1996 By: /s/Edwin W. Dean
-----------------------
Edwin W. Dean
Vice Chairman of the Board,
General Counsel and Secretary
May 14, 1996 By: /s/Beverly Eichel
------------------------
Beverly Eichel
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
17
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as 'r'
The paragraph symbol shall be expressed as 'P'
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 1st day of April, 1996,
between DANSKIN, INC., a Delaware corporation with offices at 111 West 40th
Street, New York, NY 10018 (hereinafter called the "Employer") and EDWIN W.
DEAN, who resides at 170 East 78th Street, New York, NY 10021 (hereinafter
called the "Employee").
WITNESSETH:
WHEREAS, the Employee has heretofore served as the Vice Chairman of the
Board of Directors of the Employer, and as its General Counsel and Secretary,
and the Employer desires to continue to employ him in such capacities.
NOW, THEREFORE, in consideration of the premises, the covenants
contained herein, and other good and valuable consideration, the Employer and
Employee hereby agree as follows:
ARTICLE I
EMPLOYMENT OF THE EMPLOYEE
1.01 Employment and Terms. The Employer hereby employs the Employee and
the Employee hereby accepts employment with the Employer upon the terms and
conditions hereinafter set forth for a period commencing as of the 1st day of
April, 1996, and continuing thereafter until terminated by the parties under the
terms and conditions set forth in the Agreement.
1.02 Position. The Employee is employed to be and serve as Vice
Chairman of the Board of Directors of the Employer and as its General Counsel
and Secretary, reporting to the Chief Executive Officer and to the Chairman of
the Board, and shall serve on the Employer's Board of Directors.
ARTICLE II
DUTIES OF THE EMPLOYEE
2.01 Primary Duty. The primary duty of the Employee shall be to manage
the Employer's general legal affairs, including its contracts, litigation
matters, and intellectual property, and to serve as the corporate Secretary. The
Employee shall devote his best efforts and substantially all of his working time
and attention to the affairs of the Employer.
2.02 Other Duties. In addition to the Employee's primary duties, he
shall also perform such other work commensurate with his position that may from
time to time be assigned to him by the Board of Directors or the Chief Executive
Officer or the Chairman of the Board.
ARTICLE III
COMPENSATION
3.01 Annual Base Salary. As base compensation for services to be
rendered by the Employee to the Employer, the Employee shall receive an annual
base salary at the annual rate of $260,000 through June 30, 1996, and $150,000,
thereafter, payable in accordance with the Employer's normal executive payroll
practices. On January 2, 1997, and on each anniversary of that date during the
term of this Agreement, the Employee's annual base salary shall be adjusted by
the Chief Executive Officer and approved by the Compensation Committee of the
Board of Directors (hereafter the "Compensation Committee"). The annual base
salary established by the Chief Executive Officer and the Compensation Committee
on any such anniversary date shall not be less than $150,000, and the amount in
effect from time to time is hereafter referred to as the "Annual Base Salary".
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3.02 Other Compensation and Benefits.
(a) As further compensation for services rendered the Employee shall
receive an annual bonus, the amount of which shall be established by the Chief
Executive Officer and approved by the Compensation Committee by not later than
the date of each annual meeting of the stockholders of the Employer.
(b) During the term of this Agreement, and for such continuing period
provided in Article 4.02, the Employee shall continue to be eligible to
participate in all Danskin, Inc. benefit plans which are generally available to
the employees of the Employer under the terms and conditions of those plans
(which may be changed from time-to-time at the Employer's sole discretion). The
Employee shall also be eligible for such additional benefits as may be
established for the Employee from time-to-time by the Chief Executive Officer
and approved by the Compensation Committee. The Employee shall, during the terms
of the Agreement, continue to receive at least four weeks of paid vacation each
calendar year and the holidays which are regularly granted salaried employees.
(c) The Employee is authorized to incur reasonable business expenses
for promoting the business of the Employer, including expenditures for
entertainment, gifts and travel. Upon presentation of appropriate receipts or
vouchers, the Employer will reimburse the Employee from time-to-time for all
such reasonable business expenses.
ARTICLE 4
TERMINATION
4.01 Termination of Employment. The parties intend that the Employee
shall serve at the pleasure of the Board of Directors and that he shall be
compensated appropriately for his services, as provided in this Agreement. The
parties also recognize that it is in their mutual interest to provide the
Employee with appropriate financial security in the event the Employer decides
to terminate his employment for reasons other than "for cause", as that term is
defined in this Agreement, or if he resigns his employment following a "change
in control", as defined herein.
4.02 Compensation and Benefits upon Termination Not for Cause or
Resignation Following a Change of Control.
(a) In the event the Employee is terminated for any reason other than
"for cause", or in the event the Employee resigns his employment following a
"change in control", the Employee shall receive the following compensation and
benefits:
i) For the 24 month period commencing with the effective date of such
termination or of such resignation, as the case may be, compensation at
an annual rate equal to the Employee's Annual Base Salary in effect on
such date, plus his annual bonus, if any, for the fiscal year prior to
the year in which such termination or resignation occurs, payable in
accordance with the Employer's normal executive payroll practices.
ii) For the 24 month period commencing with the effective date of such
termination or of such resignation, as the case may be, continuing
coverage for the Employee and his family if such coverage is
applicable, under all employee benefit plans and programs, including
but not limited to health plans, life insurance coverage, disability
insurance and retirement plans, (the Employee shall not be entitled to
any benefits or payments under the Employer's severance pay plan) in
which the Employee was participating on the effective date of such
termination or resignation ( any changes in those plans adopted by the
Employer following the effective date of such termination or
resignation which are generally applicable to the Employer's salaried
employees shall not be applicable to the Employee). In the event that
the Employee's participation in any such plan is barred, the Employer
shall arrange to provide the Employee with benefits substantially
comparable to those provided under such plan.
iii) Any granted, but unvested, stock options shall vest immediately.
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iv) The Employee shall receive a pro rata share of any bonus payable
under any bonus plan in effect during the fiscal year in which the such
termination or resignation occurs. The bonus calculated under any such
plan shall be multiplied by a fraction, the numerator of which is the
number of days the Employee was employed by the employer during that
fiscal year and the denominator of which is 365. The Employee shall not
be entitled to any further bonus payments for fiscal years following
the fiscal year in which such termination or resignation occurs.
v) The Employer shall provide the Employee with outplacement services
with the provider of his choice at a cost not to exceed 20% of his
Annual Base Salary.
(b) In the event the Employee is terminated without "cause" or resigns
following a "change of control", he may, but shall have no obligation to, seek
other suitable employment, consistent with his obligations under Article 6
(Non-Compete). After the first anniversary of the effective date of such
termination or resignation, the Employer's obligation to pay the Employee's
Annual Base Salary following such termination or resignation, shall be reduced
by the amount of the compensation which is paid from such employment. Medical
insurance benefits to which the Employee becomes entitled by virtue of such
employment during the 24 month period shall be coordinated with the benefits
that the Employer is required to provide under this Article, with the benefits
provided by the new employer as the primary coverage and the benefits provided
by the Employer pursuant to this Article, the secondary coverage.
4.03 Termination for Cause, Resignation Not Following A Change of
Control, and Death of the Employee.
(a) If during the term of this Agreement the Employee is terminated for
"cause" as defined herein, if he resigns other than following a "change of
control" as set forth in this Agreement, or if he dies, the Employer shall be
relieved of any obligations to the Employee hereunder except for its obligation
to provide any vested benefits under any employee benefit or retirement plan and
to make payments earned by the Employee under Articles 3.01 and 3.02 but not
paid by the Employer as of the effective date of such termination or
resignation, or as of the date of the Employee's death.
(b) As used herein, the term for "cause" shall mean: (1) conviction of
a crime involving misappropriation of any funds or property of the Employer; (2)
commission of fraud or embezzlement; or (3) any act of dishonesty relating to
the Employee's employment resulting or intended to result in direct or indirect
personal gain or enrichment at the expense of the Employer.
(c) For purposes of this Agreement, a "resignation following a change
of control" occurs when, within 12 months following a "change of control", the
Employee determines in good faith that his business objectives and philosophy
are incompatible with those of the Employer and such incompatibility is likely
to interfere with the performance of the Employee's duties hereunde, and, within
that 12 month period, the employee by written notice to the Employee resigns his
employment with the Employer.
(d) A "change of control" shall mean the occurrence of any of the
following events:
i) Three or more members of the Board of Directors are replaced by
different Directors within any fiscal year; or
ii) All or substantially all of the assets, outstanding voting
securities or other capital interest of the Employer are sold or
transferred to another corporation or entity, or the Employer is
merged, consolidated or reorganized into or with another corporation or
entity, with the result that, upon conclusion of any such transaction,
less than a majority of the outstanding voting securities of the
surviving or resulting corporation or entity are owned, directly or
indirectly, by those persons who were the stockholders of the Employer
immediately prior to the consummation of the transaction; or
iii) There is a statement filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that any person (as the term "person" is used in
Section 13 (d) (3) and section 14(d)(2) of the Exchange Act) has become
the beneficial owner of securities representing 50% or more of the
combined voting power of the then outstanding
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<PAGE>
voting securities of the Employer, or such statements would be required
to be filed if or the Employer were subject to provisions of Section 13
(d) or Section 14(d); or
iv) Disclosure is made by the Employer to the Securities and Exchange
Commission pursuant to Item 1 of form 8-K under the Exchange Act, Item
6(e) of Schedule 14A under the Exchange Act, Item 403(c) of Regulations
5-K (or any successor schedule form or report or Item therein) or
otherwise that a change in control of the Employer has or may have
occurred, or will or may occur in the future, pursuant to any
then-existing contract or transaction, or such disclosure would be
required to be made by the Employer pursuant to such Items if the
Employer were subject to such provisions.
4.04 Long Term Disability. Notwithstanding any provision in this
Agreement to the contrary, in the event that during the term of this Agreement
the Employee shall become disabled (ie: he cannot perform the essential
functions or his job with or without reasonable accommodation) for a period of
six consecutive months, either the Employer or the Employee shall have the
option at any time after such six month period to terminate his employment under
this Agreement, provided that at the time of notice of such termination the
Employee continues to be disabled. In such event, the Employer shall pay to the
Employee the compensation and benefits provided in Article 4.02, less the
aggregate amount of all income disability benefits which he may receive by
reason of: (1) any group insurance plan; (2) any applicable compulsory state
disability law; (3) the Federal Social Security Act; (4) any applicable workers'
compensation law or similar law; and (5) any plan to which the Employer has
contributed, such as group accident or health policies. If requested by the
Employer, the Employee shall have the basis for his incapacity certified to by a
licensed physician.
ARTICLE 5
NON-DISCLOSURE
5.01 Confidentiality. In consideration of the employment of the
Employee by the Employer under this Agreement, the Employee agrees that, without
prior written consent of the Employer, he will not at any time either during the
term of his employment hereunder or for a period of two years following the
date of termination of his employment hereunder, reveal any of the strategic
plans, financial information or customer lists (present or prospective)
of the Employer, or any parent, subsidiary or affiliate of the Employer, to
any person, firm or corporation, except to the extent that such plans,
information or lists are publicly available or that disclosure is compelled
by process of law.
ARTICLE 6
NON-COMPETE
6.01 Agreement Not to Compete. In consideration of the employment of
the Employee by the Employer under this Agreement, the Employee agrees that
without the prior written consent of the Employer, he will not at any time
either (a) during the period of 12 months following the date of termination or
resignation pursuant to Article 4.02 hereof, or (b) during the period of 24
months following the date of termination or resignation pursuant to Article
4.03, enter into the employ of, render services or advice to, or engage in or
become proprietor, partner or five percent or greater stockholder of any
business anywhere in the world which competes with the Employer in the
activewear or hosiery business; provided in all events, that if under the
circumstances existing at the time of the enforcement of any provision of this
Article, the period, scope or area shall be held unreasonable, the parties agree
that the maximum period, scope or area reasonable under the circumstances shall
be substituted for the stated period, scope or area. The Employee agrees that
the remedies for any breach of any provision of this Article would be inadequate
and that the Employer shall be entitled to injunctive relief to enforce any of
the provisions of this Article; provided, however, that nothing herein shall be
construed as prohibiting the Employer from pursuing any other available remedy
for any such breach or threatened breach, including the recovery of damages.
ARTICLE 7
GENERAL PROVISIONS
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7.01 Notices. Any notices to be given hereunder by either party to the
other may be affected either by personal delivery in writing or by mail,
registered or certified, postage pre-paid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing below, but
each party may change its address by written notice in accordance with this
Paragraph 7.01. Notices delivered personally shall be deemed communicated as of
actual receipt; mailed notices shall be deemed communicated as of three (3) days
after mailing. Notices shall be sent:
To Employer: DANSKIN, Inc.
111 West 40th Street
New York, NY 10018
Attn: Chief Executive Officer
To Employee: Edwin W. Dean
170 East 78th Street
New York, NY 10021
7.02 Inclusion of Entire Agreement Herein. This Agreement supersedes
any and all other agreements, either oral or in writing, between the parties
hereto with respect to the employment of the Employee by the Eemployer and
contains all of the covenants and agreements between the parties with respect to
such employment.
7.03 Law Governing Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
giving effect to such State's conflict of laws principles.
7.04 Assignments. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
of the Employer and shall be assigned by the Employer to any person or
corporation which succeeds to all or substantially all of the assets of the
Employer. In the event any corporation or person succeeds to all or
substantially all of the assets of the Employer, whether by way of merger,
consolidation, sale or otherwise, Employer shall assign this Agreement and
delegate Employer's obligations hereunder to such corporation or person, who
shall assume and timely and faithfully perform such obligations, and Employer
shall remain fully liable for its obligations hereunder. In the event of any
such assignment and delegation any and all references to the "Employer" shall be
deemed to mean and include Danskin, Inc. and such successor corporation or
person.
7.05 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original but which together shall constitute one and
the same instrument.
7.06 Certain Tax Consequences. Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Employer to or for the benefit of the Employee (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this section 7.07) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Employee with respect to such excise tax (such excise tax,
together with any such interest and penalties are hereinafter collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that, after
payment by the Employee of all taxes (including any interest and penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed on the Gross-Up Payment, the Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All
determinations required to be made under this section 7.07, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Goldstein, Golub & Kessler, Inc. or such other certified public
accounting firm as may be designated by the Employee (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Employer and to
the Employee within fifteen business days of the receipt of notice from the
Employee that there has been a Payment, or such earlier time as is requested by
the Employer. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall them be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Employer. Any
5
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Gross-Up Payment, as determined pursuant to this Section 7.07, shall be paid
by the Employer to the Employee within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Employer and the Employee.
7.07 Full Settlement. The Employer's, obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Employer may have against the Employee or others. The Employer agrees to
pay, to the full extent permitted by law, as and when incurred, all legal fees
and expenses which the Employee may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Employer or others of the validity or
enforceability of, or liability (other than tax liabilities) under, any
provision of this Agreement or any guarantee of performance thereof, plus in
each case interest at the applicable Federal rate provided for in Section
7872(f) (2) of the Internal Revenue Code of 1986, as amended.
ARTICLE 8
INDEMNIFICATION
8.01 Indemnification.
(a) In the event the Employee is made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that Employee is or was
performing services under this Agreement, then the Employer shall indemnify
Employee, to the maximum extent permissable under applicable law, against all
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. In the event that both Employee and the Employer are made a party to
the same third-party action, complaint, suit or proceeding, the Employer agrees
to engage competent legal representation, and Employee agrees to use the same
represenation, provided that if counsel selected by the Employer shall have a
conflict of interest that prevents such counsel from representing the Employee,
Employee may engage separate counsel, and the Employer shall pay all attorney's
fees of such separate counsel. Further, while Employee is expected at all time
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Employer for errors or omissions made in
good faith where Employee has not performed criminal and fraudulent acts which
materially damage the business of the Employer.
(b) The Employer further agrees to advance funds to Employee, prior to
the final disposition of any claim, action, suit, proceeding or investigation
for which Employee is entitled to indemnification hereunder, in payment or
reimbursement of any and all expenses (including, without limitation, the fees
and expenses of counsel) reasonably incurred by Employee in connection with any
such claim, action, suit, proceeding or investigation upon receipt and approval
by the Employer (which approval shall not be unreasonably witheld or delayed) of
an itemized statement with respect to such expenses.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DANSKIN, INC.
By:__________________________
Howard D. Cooley
Chairman of the Board
__________________________
Mary Ann Domuracki
Chief Executive Officer
6
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__________________________
Edwin W. Dean
7
<PAGE>
<PAGE>
AMENDMENT 3
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT dated as of April 4, 1996 to EMPLOYMENT AGREEMENT dated
as of August 1, 1994 between DANSKIN, INC ("Employer") and MARY ANN DOMURACKI
("Employee)) (the "Employment Agreement):
NOW, THEREFORE, in consideration of the premises of such Employment
Agreement and the covenants contained therein, and other good and valuable
consideration, the Employer and Employee hereby agree to amend the Employment
Agreement in the following respects:
Paragraph 1.02 of the Employment Agreement is hereby amended in its entirety so
as to read as follows:
"1.02 Position. The Employee is employed to be and serve as
President and Chief Executive Officer reportin to the Chairman of the
Board and shall serve on the Employer's Board of Directors.
Paragraph 4.04(c) of the Employment Agreement is hereby amended in its entirety
so as to read as follows:
(c) For purposes of this Agreement, a "resignation following a change
of control" occurs when, within twenty-four (24) months following a change of
control as defined herein, the Employee determines in good faith that her
business objectives and philosophy are incompatible with those of the Employer
and such incompatibility is likely to interfere with the performance of the
Employee's duties hereunder, and, within that twenty-four (24) month period, the
Employee, by written notice to the Employer, resigns her employment with the
Employer.
IN WITNESS WHEREOF, the parties have executed this Amendment _____ as
of the date first written above.
For the Employer: DANSKIN, INC.
By: __________________________________
Howard D. Cooley
Chairman of the Board of Directors
Attest: _______________________________
Lynn Golubchik
Assistant Secretary
For the Employee _______________________________
Mary Ann Domuracki
<PAGE>
<PAGE>
AMENDMENT 3
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT dated as of April 4, 1996 to EMPLOYMENT AGREEMENT dated
as of August 1, 1994 between DANSKIN, INC ("Employer") and BEVERLY EICHEL
("Employee) (the "Employment Agreement):
NOW, THEREFORE, in consideration of the premises of such Employment
Agreement and the covenants contained therein, and other good and valuable
consideration, the Employer and Employee hereby agree to amend the Employment
Agreement in the following respects:
Paragraph 1.02 of the Employment Agreement is hereby amended in its entirety so
as to read as follows:
"1.02 Position. The Employee is employed to be and serve as Executive
Vice President and Chief Financial Officer reporting to the Chief Executive
Officer.
Paragraph 2.01 of the Employment Agreement is hereby amended as follows:
Replace Vice President and Chief Financial Officer with Executive Vice
President and Chief Financial Officer.
Paragraph 4.04(c) of the Employment Agreement is hereby amended in its entirety
so as to read as follows:
(c) For purposes of this Agreement, a "resignation following a change
of control" occurs when, within twenty-four (24) months following a change of
control as defined herein, the Employee determines in good faith that her
business objectives and philosophy are incompatible with those of the Employer
and such incompatibility is likely to interfere with the performance of the
Employee's duties hereunder, and, within that twenty-four (24) month period, the
Employee, by written notice to the Employer, resigns her employment with the
Employer.
IN WITNESS WHEREOF, the parties have executed this Amendment _____ as of
the date first written above.
For the Employer:
DANSKIN, INC. Attest:
By: ________________________________ __________________________
Mary Ann Domuracki Lynn Golubchik
Chief Executive Officer Assistant Secretary
For the Employee
_________________________________
Beverly Eichel
<PAGE>
<PAGE>
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of October 26, 1995, to EMPLOYMENT AGREEMENT
dated as of October 27, 1994 between DANSKIN, INC. ("Employer") and HOWARD D.
COOLEY ("Employee") (the "Employment Agreement"):
WITNESSETH:
WHEREAS, on August 15, 1995 the Board of Directors of the Employer
elected the Employee to the office of Chairman of the Board of the Employer and
reelected him as Chief Executive Officer; and
WHEREAS the Employee now desires to resign as Chief Executive Officer,
effective as of April 1, 1996, and to remain as Chairman of the Board and Chief
Policy Officer.
NOW, THEREFORE, in consideration of the premises, the covenants
contained herein, and other good and valuable consideration, the Employer and
Employee hereby agree to amend the Employment Agreement in the following
respects:
'P' 1.01 of the Employment Agreement is hereby amended in its entirety so as to
read as follows:
"1.02 Position. The Employee is employed to be and serve as
Chairman of the Board of Directors and reporting to the Board of
Directors. During the term of this Agreement, the Employer shall use
it best efforts to help ensure that the Employee shall serve on the
Employer's Board of Directors, if the Employee so wishes."
'P' 2.01 of the Employment Agreement is hereby amended in its entirety so as to
read as follows:
"2.01 Primary Duties. The primary duties of the Employee shall be
to act as the Chief Policy Officer of the Corporation and, subject to
the control of the Board of Directors, to have oversight
responsibility and authority for the decisions and actions of the
Chief Executive Officer and to have all powers and perform all duties
incident to the office of Chairman of the Board."
'P' 3.01 of the Employment Agreement is hereby amended in its entirety so as to
read as follows:
"3.01 Base Compensation. Until March 31, 1996 the Employee shall
receive a base salary at the annual rate of $450,000, payable in
accordance with the Employer's normal executive payroll practices.
Thereafter he shall receive a base salary at the annual rate of
$50,000."
<PAGE>
<PAGE>
'P' 4.02 (a)(i) of the Employment Agreement is hereby amended in its entirety so
as to read as follows:
4.02 (a)(i) immediately following such termination not "for
cause" or resignation following a "change of control", compensation in
the amount of $450,000, payable in a single lump sum.
The final sentence of 'P' 4.04(a) of the Employment Agreement is hereby amended
so as to read as follows:
"4.04(a) . . . . . The Employee having resigned as Chief
Executive Officer after January 1, 1995, he is entitled to be paid
severance pay in the amount of $450,000, payable in accordance with
the Employer's normal executive payroll practices, starting with the
first regular bi-weekly corporate executive payroll after March 31,
1996.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
For the Employer: DANSKIN, INC.
By:______________________
Mary Ann Domuracki
President
Attest: _________________
Edwin W. Dean
Secretary
For the Employee: ________________
Howard D. Cooley
<PAGE>
<PAGE>
January 29, 1996
Pennaco Hosiery,
a Division of Danskin, Inc.
111 West 40th Street
New York, New York 10018
Gentlemen:
Reference is hereby made to that certain agreement, dated as of January 1, 1994,
between you (referred to therein as "Licensee") and Anne Klein & Company
("Licensor") with respect to the trademarks ANNE KLEIN and any approved form of
the LionHead Design (the "License Agreement"). Licensee has agreed in principle
to a program to relaunch its ANNE KLEIN hosiery line and in consideration
therefor Licensor has agreed to extend the term of the License Agreement.
Accordingly, when signed below in the places provided, the following shall
constitute the further agreement of the parties concerning the License
Agreement. Any capitalized term used in this Agreement and not otherwise defined
herein shall have the meaning given it in the License Agreement.
1. Referring to paragraph 1.02(a) of the License Agreement, the definition of
the term "Articles" shall be expanded to include those hosiery-related
products customarily sold in hosiery departments and referred to as
"Banded Bodywear", specifically cut and sewn bodywear products to include
ankle or other length pants, leotard or unitard or other cut and sewn
bodywear/apparel typically sold in a brand or package. Except as Licensor
may expressly agree, those Licensed Articles comprising the Banded
Bodywear segment shall be limited to 6 to 8 styles of Articles, as
approved by Licensor from time to time, which shall be of a quality level
intended to be sold at retail prices comparable to the so-called
"SUPPLEX"'r'portion of the product line offered by Licensor's Affiliate
under the trademark A LINE ANNE KLEIN.
2. Notwithstanding any contrary provision of paragraph 2.01(a) of the License
Agreement, Licensee shall hereafter market Licensed Articles as "ANNE
KLEIN" and shall discontinue its use of the designation "ANNE KLEIN
COLLECTIONS"; provided, however, that Licensee may continue to sell
Licensed Articles in existing packaging until the planned new packaging is
introduced. After the introduction of the planned new packaging, Licensee
may sell off its remaining inventory of Licensed Articles in the existing
packaging as Discontinued Goods for a period not to exceed six (6) months.
Licensee shall consult with Licensor concerning the accounts to which such
Discontinued Goods may be sold.
Referring to paragraph 2.04 of the License Agreement, the name and
trademark "CHRISTIAN DIOR" is deemed added to the list of lines of
Articles which Licensee may manufacture and/or market. Further, Licensor
confirms that the addition of "Banded Bodywear" in the definition of
Articles is not intended and shall not be construed as a
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prohibition against the manufacture or marketing of additional designer
brand "Banded Bodywear" by Licensee.
4. Referring to paragraph 3.01 of the License Agreement, in consideration for
execution by Licensee of the relaunch of Licensed Articles in 1996,
Licensor hereby agrees to extend the Term until December 31, 1997. In
addition, if Licensee's Net Sales through Normal Retail Channels in 1997
are not less than $3.85 million (the "Sales Achievement"), the Term shall
be deemed automatically extended until December 31, 1998; provided,
however that, if prior to October 1, 1997 there is a change in
circumstances within Licensor (e.g., a change in designer or a sale of the
company) which, viewed objectively, adversely affects Licensee's ability
to reach the designated Sales Achievement, then the Sales Achievement
needed to trigger the automatic extension of the Term shall be deemed
reduced to $3 million.
5. Referring to paragraph 3.05 of the License Agreement and without limiting
the generality thereof, Licensee has requested Licensor's approval in
principle to certain Transfer Exceptions (as hereinafter defined) and
Licensor hereby grants such approval subject to receipt of prior notice of
each such transaction from Licensee. As used herein, "Transfer Exceptions"
means (1) a further public offering of Danskin stock; and (2) the transfer
of those Danskin shares presently held by Esmark, Inc.
6. Referring to paragraph 4.02(a) of the License Agreement, the parties agree
that Licensor's participation in product development for Licensed Articles
will parallel the key hosiery markets and will include, without
limitation, color input, development of unique patterns for hosiery,
preparation of designs for Licensed Articles to be included in the Banded
Bodywear segment, development of patterns for socks, trouser socks and
tights. Licensor and Licensee shall develop appropriate schedules to
facilitate Licensor's participation as described in this paragraph and to
enable Licensor to review all Licensed Articles periodically throughout
the development process.
7. (a) Referring to paragraph 7.01(a) of the License Agreement and without
otherwise modifying Licensee's advertising expenditure obligations set
forth therein, Licensee acknowledges that in connection with the
relaunch of the "sheer hosiery" category of Licensed Articles in 1996,
Licensee shall pay to Licensor the sum of $300,000 for consumer
advertising to be created in accordance with Licensor's direction and
under its control and Licensor acknowledges that such expenditure
shall satisfy Licensee's obligations pursuant to said paragraph
7.01(a)(ii) for 1996.
(b) Notwithstanding the generality of the foregoing, the parties
acknowledge that the purpose of said advertising is to support the
sell-through of sheer hosiery. Licensee has forecast (wholesale) sales
of sheer hosiery in 1996 ("1996 Sales") in an amount not less than
$650,000. Based upon Licensee's prior experience, Licensee will have
on-hand orders ("Orders") representing approximately 80% of 1996 Sales
by May 1, 1996. Because advertising decisions must be made by May 1,
1996, the parties agree as follows:
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(i) If Orders received by May 1 equal or exceed $520,000 (at
Licensee's wholesale list price), Licensee shall pay to Licensor the
$300,000 advertising commitment described above in full.
(ii) If Orders received by May 1 exceed $240,000 but are less than
$520,000 (at Licensee's wholesale list price), Licensee shall pay to
Licensor the advertising commitment set forth in paragraph
7.01(a)(ii) of the License Agreement.
(iii) If Orders received by May 1 are less than $240,000 (at
Licensee's wholesale list price), Licensee shall pay to Licensor the
advertising commitment set forth in paragraph 7.01(a)(ii) of the
License Agreement, except that the commitment shall be for only one
(1) page.
(iv) In any event, Licensee hereby authorizes Licensor to commence
production of the "creative" aspects of the anticipated advertising
for which Licensee will pay Licensor up to $30,000. Any amount paid
pursuant to this subparagraph (iv) shall be deducted from the amount
of any other advertising monies payable under this Agreement.
(v) With respect to any payments due under this paragraph 6,
Licensor shall render invoices upon completion of production or
commitment to placement of media (as applicable) and Licensee shall
pay Licensor within thirty (30) days after receipt of Licensor's
invoice.
8. Paragraph 8.04 of the License Agreement is hereby deleted in its entirety
and replaced by the following:
"8.04. Licensee has heretofore deposited with Licensor the amount of
One hundred thousand dollars ($100,000) as security for sums payable to
Licensor hereunder (the "Deposit") which Deposit has been maintained
throughout the Term and on which Licensor has accrued and paid interest at
a rate per annum (computed on the basis of a 360-day year) equivalent to
the prime rate charged in New York, New York by Citibank, N.A. on the last
business day of each calendar year. Commencing January 1, 1996 and
continuing until said Deposit is exhausted, in lieu of Licensee's
obligation to pay the Guaranteed Minimum Royalty, Licensor shall apply the
Deposit in monthly installments in the amount otherwise payable by
Licensee on account thereof. Licensor's obligation to accrue and pay
interest shall be determined on the declining balance and said interest
shall be applied against the Guaranteed Minimum Royalty upon exhaustion of
the Deposit. However, if Licensee shall be in default of any of its
financial obligations hereunder, without limitation of any other rights
and remedies available to it, Licensor shall have the right to apply the
balance of the Deposit to remedy the default and to demand payment from
Licensee of an additional amount necessary to maintain the Deposit in the
amount on deposit immediately prior to the default. Within ten (10)
business days after the expiration or other termination of the Term,
Licensor shall refund any remaining balance of the Deposit and any
applicable accrued interest, less any portion thereof applied in
accordance with the immediately-preceding sentence."
9. Referring to paragraph 10.02 of the License Agreement, Licensor has
expressed its intention to periodically review Licensee's exploitation of
its rights pursuant to the License Agreement and Licensee agrees to
provide information reasonably requested by Licensor to facilitate said
review. Accordingly, paragraph 10.02 of the License Agreement is hereby
deemed deleted in its entirety and replaced by the following:
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<PAGE>
"10.02. During each Contract Year, Licensee shall provide Licensor
with additional information concerning its business hereunder. Licensor
intends that this information shall be the basis for its periodic
business-review meetings with Licensee.
(a) Together with the statements for the second and fourth
Accounting Periods of each Contract Year during the Term, Licensee shall
deliver to Licensor an Operating Report setting forth separately by
product category the following: (i) the total amount expended by Licensee
for the advertising and promotion of Licensed Articles during the then
current Contract Year through the end of the most recently completed two
(2) Accounting Periods indicating the amounts paid for cooperative
advertisements separately from other advertising and promotion; and (ii)
Net Sales by account, showing country of sale and sales in Normal Retail
Channels versus Discontinued Goods. The Operating Report shall be in the
form set forth in Schedule 10.02 attached hereto and made a part hereof,
signed and certified as accurate by a duly authorized officer of Licensee.
Upon Licensor's reasonable request, Licensee shall deliver to Licensor,
together with the Operating Report, copies (such as tear sheets) of all
advertisements relating to the Licensed Marks and Licensed Articles placed
by Licensee or on its behalf during the Accounting Periods covered by the
report.
(b) Not later than October 15th of each Contract Year, Licensee
shall furnish Licensor its sales projections by quarter for the Licensed
Articles (by product category) for the next Contract Year. Not later than
June 15th of each Contract Year, Licensee shall furnish Licensor with any
revision of its sales projections, by quarter, for the current Contract
Year. Sales projections shall be accompanied by supporting rationale.
10. Referring to Section 11 of the License Agreement, Licensor and Licensee,
having contemplated the possible creation and/or use of one or more
newly-created names to designate particular styles or attributes unique to
Licensed Articles, or some of them (hereinafter referred to as "Created
Marks"), agree that references in the License Agreement to Licensed Marks
shall be deemed to include all or any Created Marks, except as expressly
stated herein.
(a) The decision to adopt a Created Mark and the form of each such Created
Mark shall be determined by mutual agreement of Licensor and Licensee,
but if the parties are unable to agree, Licensor's decision shall
prevail.
(b) For clarification: the parties expressly intend that paragraphs 11.01
and 11.02 of the License Agreement shall apply to Created Marks. That
is, Licensor shall be the owner of all rights in the Created Marks and
trademark registration, if any, shall be in Licensor's name.
(c) Prior to adoption of a Created Mark which is a trademark previously
registered to Licensee but not otherwise identified with a Licensee
product which is not a Licensed Article, Licensor and Licensee shall
enter into an appropriate agreement confirming that Licensor may
continue to use and grant others (including a successor licensee) the
right to use said proposed Created Mark as a trademark on (or
designation for) Licensed Articles following the termination or other
expiration of the Term. Such agreement shall contain such terms and
conditions as are usual and customary in other similar agreements.
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11. Referring to paragraph 16.01 of the License Agreement, notwithstanding the
provisions of paragraph 16.01(b), Licensee acknowledges that the
Sublicense was not entered into and the rights intended to be sublicensed
are being exploited by Licensee. Therefore, the License Agreement is
hereby amended to delete paragraph 16.01(b) in its entirety and to
renumber paragraph 16.01(a) to delete "(a)". References throughout the
License Agreement to the Sublicense or Sublicensed Articles are deemed
deleted but the obligations imposed with respect to Sublicensed Articles
shall apply to Licensed Articles.
12. Licensor and Licensee, having contemplated the applicability of so-called
Alternative Distribution Channels (as hereinafter defined) for the sale of
Licensed Articles, agree that Licensor's prior approval to use an
Alternative Distribution Channel shall be obtained in each instance. Such
approval shall include and be subject to such other terms and conditions,
including with respect to the definition of Net Sales, the applicable
royalty rate and advertising, as the parties shall mutually agree in the
circumstances, provided that if they are unable to agree, then Licensor's
decision shall prevail. As used here, "Alternative Distribution Channels"
shall mean direct mail or television shopping networks or "on-line" or
such other means of reaching the ultimate consumer (other than through
traditional retail outlets) as may hereafter be devised.
Except as expressly or by necessary implication modified hereby, the License
Agreement is hereby ratified and confirmed. In the event of any conflict between
any provision of the License Agreement and any provision hereof, this Agreement
shall prevail.
Kindly indicate your agreement to the foregoing by signing below in the place
provided.
Very truly yours,
ANNE KLEIN & COMPANY
By: ----------------------
ACCEPTED AND AGREED:
PENNACO HOSIERY,
A Division of Danskin, Inc.
By: -----------------------
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