By  on February 24, 1994

NEW YORK -- After three months of negotiations with various manufacturers, The Leslie Fay Cos. has agreed to sell the physical assets and license the trademark of its Hue Hosiery subsidiary to Kayser-Roth Corp.

The deal is pending approval by bankruptcy court on March 3 and could be voided if a better offer comes along before then. Leslie Fay has been operating in Chapter 11 since last April. Court papers filed by Weil, Gotshal & Manges, Leslie Fay's attorneys, indicate the deal is worth a minimum of approximately $7.5 million plus royalty payments through 1997.

"It is our intention and desire to fulfill the agreement with Kayser-Roth," said Barbara Khouri, senior vice president of licensing at Leslie Fay. "Until it is approved by the bankruptcy court, though, the agreement is not official."

Leslie Fay bought Hue Hosiery in June 1992 from its founders, Sandy Chilewich and Kathy Moskal, who have continued running the company as co-presidents. Hue had sales of about $27 million in 1992, according to the motion for the deal filed in bankruptcy court; in 1993, sales were about $22 million and it produced a negative cash flow. The firm estimates improved financial results in 1994, the motion states, but positive cash flow will be only $199,000 on estimated sales of $20.3 million.

Leslie Fay -- since filing Chapter 11 in the midst of disclosures that false accounting entries had substantially overstated results for three years -- has been examining ways to streamline its business and eliminate unprofitable divisions and subsidiaries.

Last December, according to the court papers, Leslie Fay and Hue began discussing a deal with various hosiery manufacturers, including Hanes Hosiery, R.G. Bary, Jockey, Gold Toe, Kayser-Roth, Hampshire Hosiery, Alba Waldensian, Hot Sox and American Essentials.

The licensing agreement reached with Kayser-Roth calls for minimum payments totaling $3.8 million for use of the trademark on casual legwear from March 1, 1994, through December 1997 in the U.S., Canada and Great Britain. An additional $150,000 covers Mexico and Argentina from July 1, 1994 through December 1997. In addition, Kayser-Roth will pay royalties of 6 percent of sales of regular-priced products and 3 percent for closeouts.Kayser-Roth also will purchase Hue inventories, samples and fixtures, the price still subject to a physical count. Court papers indicate the asset sale is estimated at $3.1 million.

In addition to the rights to manufacture casual legwear such as tights and socks, the agreement also permits the production and marketing of sheer hosiery under the Hue name. To date, Hue has not entered the sheer hosiery market.

For the sheer hosiery, Kayser-Roth will make minimum payments totaling $505,000 for using the Hue trademark in the same areas through 1997. Additionally, royalties are set at 5 percent on regular-priced goods and 2.5 percent on closeouts.

A spokeswoman for Hue declined to comment on the future status of Sandy Chilewich and Kathy Moskal under the deal.

Kayser-Roth, with annual sales in excess of $350 million, was acquired early this year by the Mexican company Grupo Synkro. Based in Greensboro, N.C., Kayser-Roth is the second largest domestic manufacturer of legwear after Hanes Hosiery.

If the deal is approved, Hue will join Kayser-Roth's brand roster, which includes Calvin Klein Hosiery, Easy Spirit Legwear and No nonsense.

In 1992, Grupo Synkro reported sales of approximately $569 million.

In addition to hosiery, Synkro makes underwear, sports footwear and household products, sold in Mexico and certain South American markets. The court motion noted that "Grupo Synkro's presence in the international marketplace could lead to future license agreements between Hue, Leslie Fay and Kayser Roth in other international markets."

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