EXHIBIT 10.39
DONNKENNY APPAREL, INC.
Revolving Credit and Term Loan Agreement
Summary Term Sheet
April 14, 1997
*For Discussion Purposes Only*
CO-BORROWERS: Donnkenny Apparel, Inc.
Xxxxxxx Industries Corporation
Megaknits, Inc.
TYPES OF FACILITIES: 1) Term Loan
2) Revolving Credit
3) Two year notification factoring agreement covering
all new and takeover sales of the Company on a
collected funds basis.
PURPOSE: 1) Finance the acquisition of the stock of Xxxxxxx
Industries Corp. and the purchase of certain assets
of Oak Hill Sportswear Corp.
2) General working capital purposes including the
issuance of letters of credit.
EXPIRY DATE: Two years (March 31, 1999)
CLOSING FEE: $500,000 shared amongst the bank group on a pro rata
basis payable at closing.
AGENT: The Chase Manhattan Bank (35.0762%)
COLLATERAL AGENT: The CIT Group/Commercial Services Inc. (14.8148%)
CO-LENDERS: Fleet Bank, N.A. (25.0545%)
The Bank of New York (25.0545%)
TERM LOAN
COMMITMENT AMOUNT: $25,000,000 (Current balance at 4/1/97 of $16,250,000)
AMORTIZATION: $1,250,000 payable quarterly beginning September 30,
1995.
Balloon payment of $7,500,000 due March 31, 1999.
Excess cashflow recapture (defined as 50% of annual
consolidated: net income + depreciation +
amortization + other non-cash charges - capital
expenditures - scheduled long term debt payments -
change in net
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working assets) to reduce balloon payment, payable
15 days after receipt of audited fiscal year-end
financial statements.
Any tax refunds received in excess of $2,000,000
applicable to 1996 and prior years to be applied
to reduce balloon payment.
MATURITY: March 31, 1999
INTEREST RATE: Prime + 1 1/2% p.a.
DEFAULT INTEREST: 2% above the otherwise applicable rate.
PREPAYMENT PENALTY: None
REVOLVING CREDIT
COMMITMENT AMOUNT: $85,000,000
SUBLIMIT AMOUNT: Direct Debt - $70,000,000
Letters of Credit - $35,000,000
PERMITTED STANDBY L/C: $200,000 (1.75% p.a. commission) to support insurance
premium on workmen's compensation policy.
BORROWING BASE: Advances and L/Cs (aggregate) limited to -
1) up to 85% of Eligible Accounts Receivable of the
Borrowers PLUS;
2) up to 60% of Eligible Inventory of the Borrowers
including inventory covered by letters of credit
issued for the importation of finished goods
(per agreed upon caps outlined in attached
Attachment), PLUS;
3) the Allowable Overadvance.
Eligibility of collateral to be determined by the
Collateral Agent in its sole discretion.
ALLOWABLE OVERADVANCE: See Attachment
INTRAMONTH OVERADVANCE: See Attachment
ALLOWABLE INVENTORY
ADVANCE: See Attachment
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EXPIRATION DATE: March 31, 1999
INTEREST RATE: Prime + 1 1/2% p.a.
(Borrowings in excess of the Allowable Overadvance
will bear interest at Prime + 3 1/2% p.a.).
DEFAULT INTEREST: 2% p.a. above the otherwise applicable rate.
LETTER OF CREDIT FEES: 1/8% upon issuance; 1/8% on the average monthly
balance; plus all bank charges (CIT to act as letter
of credit issuing bank).
UNUSED COMMITMENT FEES: 40 bp per annum on the unused Revolving Credit
Commitment Amount, payable quarterly in arrears.
COLLATERAL AGENT'S FEE: $6,000 per month.
FACTORING FACILITY
FACTORING COMMISSION: .45% of the gross amount of sales, plus our customary
surcharges for sales with extended terms and sales
to D.I.P. and other special risk customers.
.20% on takeover accounts receivable.
COLLECTION DAYS: One business day will be charged at a per annum rate
equal to Prime + 1.50%.
COVENANTS AND CONDITIONS
COLLATERAL: First priority lien on all accounts receivable,
machinery, equipment, trademarks, intangibles and
all inventory.
First mortgage on all real property.
Pledge of stock of Xxxxxxx Industries Corp.
Pledge of stock of Donnkenny Apparel Inc.
GUARANTORS: Donnkenny, Inc.
Donnkenny Apparel, Inc.
Xxxxxxx Industries Corporation
Christiansburg Garment Company Incorporated
Megaknits, Inc.
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REPRESENTATIONS AND
WARRANTIES: 1) Usual and customary representations and warranties,
including but not limited to, corporate
organization and existence, good standing, power
and authorization, employee benefit plans,
environmental compliance, non-contravention, title
to assets, adequate insurance, legal compliance and
no tax deficiencies.
EVENTS OF DEFAULT: 1) Cross default with all other indebtedness.
2) Material change of ownership and/or control.
3) Standard bankruptcy and material adverse change
clauses.
4) Usual and customary events of default, including,
but not limited to, inaccuracies of representations,
failure to make payments or comply with covenants,
final judgments over $325,000 and tax liens
aggregating $100,000 or more.
AFFIRMATIVE COVENANTS: 1) Financial Information:
a) Consolidated annual audited statements and
auditor's management letter along with
unaudited consolidating statements within
90 days.
b) Consolidated and consolidating three, six and
nine month unaudited statements, within
45 days.
c) Management prepared quarterly compliance
certificate.
d) Detailed one year monthly projection to be
provided to Banks by November 30 of each year
updated quarterly thereafter.
e) Monthly inventory certificates detailing
locations and amounts by division by normal
course vs excess classifications at each
location.
f) Weekly inventory certificates segregating
finished goods and piece goods by company by
normal course vs excess classification.
g) Eight week, weekly cashflow and collateral
projection by the last day of each month
until June 30, 1997.
h) Other standard information as may be requested
by the Banks.
2) Usual and customary affirmative covenants,
including, but not limited to, corporate existence,
maintenance of insurance and properties, payment
of taxes, notice of significant events, inspection,
maintain compliance with laws and cause any newly
formed subsidiary to guarantee and pledge its
assets.
3) Covenant pledging to liquidate excess inventory
consistent with the Company's projections.
NEGATIVE COVENANTS: 1) Limitation on additional debt and guarantees,
except Donnkenny Apparel, Inc. and Xxxxxxx
Industries Corp. may guarantee each others'
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normal trade liabilities under guarantee
agreements acceptable to the Banks.
2) Limitation on additional liens, subject to usual
exceptions.
3) Limitation on restricted payments: The Borrowers
and all subsidiaries are prohibited from making
loans and advances to, or investments in other
entities, except for:
a) Loans and advances to Donnkenny, Inc. to pay
taxes which are currently due and payable, to
pay litigation costs and to fund payroll and
payroll related expenses and general overhead
expenses, but not in excess of $500,000) up
to an aggregate amount of $5,000,000 in any
fiscal year.
b) Loans and advances to any affiliate (other
than Donnkenny, Inc. or Xxxxxxx Industries
Corp.) in excess of $500,000.
4) Dividends and stock redemptions are prohibited
without the prior consent of the Banks.
5) Limitation on transfer of assets: Mergers,
consolidations and acquisitions, or the sale,
transfer or disposal (except in the ordinary course
of business) of assets prohibited without the prior
consent of the Banks.
6) Other usual and customary negative covenants.
Financial tests to be tested quarterly on a
consolidated basis.
1) Pre-tax loss on a rolling four quarter basis of no
greater than $4.0MM effective 12/31/97.
2) Capital Expenditures no greater than $1,500,000 in
any fiscal year.
3) Tangible Net Worth of not less than $15,000,000 at
6/30/97 and 6/30/98 and $18,000,000 at all other
times.
CONDITIONS PRECEDENT: 1) Execution of legal documentation satisfactory to
the Banks and counsel.
2) Usual and customary conditions to funding,
including, but not limited to, legal opinion,
certified charter, by-laws and resolutions and
incumbency, perfection of collateral, payment of
fees, expenses and insurance.
MISCELLANEOUS: 1) Usual and customary, including but not limited to
capital adequacy protection, survival of
agreements, waiver and delay, waiver of jury trial,
extensions of maturity, modification of agreements,
severability, counterparts, enforcement,
indemnities, and payment of fees and expenses.
Approval for non-monetary amendments/waivers
requires consent by Xxxxxxx representing 51% of the
aggregate Commitments. Monetary amendments/waivers
require 100%.
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2) Field examinations to be performed by the
Collateral Agent on a quarterly basis. Daily fee
of $750/day/field examiner to be paid by the
Borrower.
3) Legal fees and other due diligence expenses are for
the account of the Borrower.
4) Receipt of a $50,000 deposit payable to The CIT
Group/Commercial Services, Inc. to cover out-of-
pocket expenses including legal fees and other due
diligence expenses which must be paid upon
acceptance of this term sheet. This deposit will be
refunded net of actual expenses incurred in the
event a transaction is not consummated; otherwise,
any balance after expenses will be applied to the
closing fee.
THIS TERM SHEET IS PROVIDED FOR DISCUSSION PURPOSES ONLY AND DOES NOT IMPLY
A COMMITMENT TO LEND.
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DONNKENNY APPAREL, INC.
$85,000,000 REVOLVING CREDIT FACILITY
ATTACHMENT
MAXIMUM/MINIMUM END OF MONTH
(OVERADVANCE)/AVAILABILITY MAXIMUM INVENTORY
END OF MONTH* INTRAMONTH* AVAILABILITY
------------ ---------- ------------
April 1997 (5,500) (6,500) 21,900
May (8,500) (11,500) 24,000
June (13,000) (14,500) 27,000
July (12,000) (19,000) 29,800
August (8,800) (18,000) 28,100
September (3,600) (14,800) 23,400
October 800 (9,600) 19,200
November 2,800 (5,200) 15,600
December 1,800 (3,200) 16,600
January 1998 2,600 (4,200) 17,000
February 2,200 (3,400) 16,400
March 700 (3,800) 15,800
Intramonth Maximum Overadvances are calculated based on the prior month end
figure per the Company's projection plus an additional $7,000M flexibility.
End of Month Overadvance/Minimum Availability is based on the Company's
budgeted figure plus $1MM in flexibility.
Inventory availability is calculated based on inventory projections at 70% of
gross at a 60% advance rate with $500M in flexibility.
*End of Month is defined as the last business day of the month through the
fifth day of the following month.
**Intramonth is defined as all other days of the month.
All overadvance limits will be re-adjusted quarterly based on the results of
field examinations performed by the collateral agent's auditors.
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April 15, 1997
Donnkenny Apparel, Inc.
Xxxxxxx Industries Corporation
The Guarantors Listed as Signatories Below
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxx Xxxxxxx
Re: Eighth Amendment to the Credit Agreement dated June 5, 1995 among
Donnkenny Apparel, Inc. and Xxxxxxx Industries Corporation, the
Guarantors named therein, the Lenders named therein and The Chase
Manhattan Bank, as Agent
Dear Mr. Xxxxxxx:
Reference is made to the Credit Agreement dated June 5, 1995 among Donnkenny
Apparel, Inc. and Xxxxxxx Industries Corporation (each a "Borrower"), the
Guarantors named therein, the lenders named in Schedules 2.01(a) and (b)
thereof (the "Lenders") and The Chase Manhattan Bank (formerly known as
Chemical Bank), as Agent (the "Agent") for the Lenders (as the same has been
amended, modified or supplemented from time to time to the date hereof in
accordance with its terms, the "Credit Agreement"). All capitalized terms used
but not defined herein shall have the meanings ascribed to them in the Credit
Agreement.
Please be advised that the Agent, the Lenders and The CIT Group/Commercial
Services, Inc. ("CIT") are prepared to enter into an Eighth Amendment to the
Credit Agreement (the "Proposed Amendment") on the terms and conditions
contained in the attached Summary Term Sheet, dated April 14, 1997 (which by
reference is incorporated into this commitment letter), subject to the
conditions set forth below. The Proposed Amendment would, among other things,
(i) extend the Final Maturity Date to March 31, 1999, (ii) add MegaKnits, Inc.,
a New York corporation ("MegaKnits"), as a Borrower, (iii) reflect the partial
assignment of Notes by one or more of the Lenders to CIT, (iv) reflect the
addition of CIT as Administrative Agent for the Lenders, (v) increase the Total
Revolving Credit Commitment to $85,000,000 and the direct debt sublimit to
$70,000,000 and (vi) amend certain financial covenants.
This commitment letter and Summary Term Sheet supersedes all prior proposals
for a further amendment to the Credit Agreement issued to you by the Agent
and/or CIT. The text of this letter and Summary Term Sheet is intended to
provide a brief description of the principal terms of the Proposed Amendment
as contemplated by the Agent, the Lenders and CIT. Furthermore, this commitment
is subject to: (i) no situation, event or circunstance occurring which would,
in the opinion of the Agent or CIT, materially adversely affect (a) the
ability of any Borrower (including MegaKnits which is proposed to be added as
a Borrower) or Guarantor to perform its obligations under the documents
governing and to be delivered pursuant to the Proposed Amendment and/or
(b) the assets and properties currently pledged as collateral under the
Loan Documents and contemplated to be pledged as collateral in connection
with the Proposed Amendment; (ii) the preparation, completion and execution
of legal documentation that is satisfactory to the Agent, the Lenders,
CIT and their respective counsel; and (iii) CIT's providing to the Borrowers
the factoring facility described, in part, in the Summary Term Sheet.
By executing this letter, the Borrowers and the Guarantors agree to indemnify,
defend and hold harmless each of the Agent, the Lenders and CIT and their
respective officers, directors, controlling persons, agents, employees and
counsel (collectively, the "Indemnified Persons") from and against any and
all losses, claims, damages, liabilities, deficiencies, judgments or expenses
incurred by any of them arising out of or by result of any litigation,
investigation, claim or proceeding, pending or threatened, which arise out of
or are in any way based upon this letter and/or the Proposed Amendment,
including without limitation, amounts paid in settlement, court costs and the
fees and disbursements of counsel of any Indemnified Person incurred in
connection with any such litigation, investigation, claim or proceeding, but
excluding any loss, claim, damage, liability, deficiency, judgment or expense
arising from the gross negligence and willful misconduct of the Indemnified
Persons.
Based upon (i) your acceptance of this commitment letter, (ii) your payment
of the portion of the Closing Fee due upon acceptance of this commitment letter
(the "Deposit"), as detailed in the Closing Fee definition contained in the
attached Summary Term Sheet (with the balance of such Closing Fee due at
closing), (iii) your payment of the portion of CIT's out-of-pocket expenses
due upon acceptance of this commitment letter (the "Expense Deposit"), as
detailed in the Miscellaneous Section of the attached Summary Term Sheet
(with the remaining balance of such Expense Deposit, if any, after expenses
to be applied to the Closing Fee) and (iv) your acknowledgment (which shall
be evidenced by your acceptance of this commitment letter) that the entire
Deposit is non-refundable and that only that portion of the Expense Deposit
in excess of actual expenses incurred, if any, is refundable, we shall
authorize our attorneys to prepare the necessary documentation, the charges
for which agree to pay, whether or not the transaction contemplated herein
is consummated (it being understood and agreed that each of the Agent and
CIT are engaging separate outside counsel in connection with the Proposed
Amendment and your obligation to pay attorneys' fees and expenses applies
to each such outside counsel). In addition, this offer is governed by the
laws of the State of New York, shall not be assignable, and may not be
amended, waived or modified without the prior written consent of the Agent,
the Lenders and CIT and is contingent upon your acceptance by April 15, 1997
and to documentation for the proposed transaction being executed and
delivered, and a closing occurring no later than April 30, 1997.
In addition, the Borrowers, the Guarantors and the Agent, the Lenders and CIT
agree that this letter is delivered on the understanding that neither this
letter nor any of its terms or substance nor the existence of this letter
shall be disclosed by you, directly or indirectly, to any other person,
except to the Borrowers' (including MegaKnits) respective employees, agents
and advisors who are directly involved in the consideration of this matter;
provided, however, that neither this letter nor any of its terms or substance
nor the existence of this letter shall be disclosed or referred to by you or
any of the foregoing persons in any press release or public filing except
with the prior consent of each of the Agent and CIT.
The execution and delivery of this letter by the parties shall not in any way
limit the rights and remedies of the Agent and/or the Lenders under the Credit
Agreement and the other Loan Documents as currently in effect. The obligations
of the Borrowers and the Guarantors arising under this letter shall be joint
and several.
If this letter or the subject matter hereof becomes the subject of any
dispute, each of the parties waives trial by jury in connection herewith.
The Borrowers, the Guarantors and the Agent, the Lenders and CIT waive any
claims for consequential damages with respect to any such dispute.
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If the Summary of Terms and this commitment letter correctly set forth your
understanding of the terms and conditions the parties have discussed, please
indicate your acceptance by signing in the space provided below and returning
the original to the Agent, together with the Deposit in the aggregate amount
of $250,000 payable to the Agent for the ratable benefit of the Lenders and
CIT (in the percentages set forth in the Summary Term Sheet) and the Expense
Deposit in the amount of $50,000 payable to CIT.
Very truly yours,
THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank)
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Xxxxxx X. Xxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
FLEET BANK, N.A.
By: /s/ Xxxxx X. Xxxxx
----------------------------------
Name: Xxxxx X. Xxxxx
Title: Senior Vice President
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By: /s/ Xxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Vice President
ACCEPTED AS OF THE DATE
FIRST ABOVE WRITTEN:
DONNKENNY APPAREL, INC.
By: /s/ Xxxxxx Xxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxx
Title: President
XXXXXXX INDUSTRIES CORPORATION
By: /s/ Xxxxxx Xxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxx
Title: President
CHRISTIANSBURG GARMENT
COMPANY INCORPORATED
By: /s/ Xxxxxx Xxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxx
Title: President
MEGAKNITS, INC.
By: /s/ Xxxxxx Xxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxx
Title: President
DONNKENNY INC.
By: /s/ Xxxxxx Xxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxx
Title: Chairman
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